Time To Be Optimistic

Volatility was one word that was hovering over the minds of investors in the preceding fortnight. It was bound to be a volatile as so much was happening all over the globe. While on the global front the US Fed made its policy announcement; in India the RBI also announced a policy decision on September 30. However, it was Supreme Court verdict on coal block de-allocation which actually made its impact felt on the markets.

If we take a look at the fallout of these events, first it was the Federal Open Market Committee (FOMC) meet where the chairperson, as per the street estimates, reduced the monthly bond buying by another USD 10 billion. However, one noticeable factor was that while the Fed statement looked quite dovish, the undertone was hawkish. Here, take note of the fact that Jennet Yellen has categorically stated that the hike in interest rates would be totally data-driven. Looking at recent data points from the US markets it seems that it would happen any time in the first quarter of CY15. It would be rather sooner than later. Since the FOMC meet there has been constant fear in the markets that the FIIs would take a flight back to safety and hence the risky emerging markets may witness some amount of setback. What added to the worries was the geo-political issue in Syria as the US and UK also joined the attack against the ISIS.

Coming back to the domestic markets, the Supreme Court gave its verdict and cancelled the allocation of 204 coal blocks. This came in as a major setback for many steel and power companies. The court in its order has stated a penalty of Rs 295 per tonne for coal already extracted. If we go by the figures, the official data shows that around 301 million tonnes have been mined from these blocks until last year, which translates into a penalty of around Rs 8,800 crore, including a likely penalty of Rs 1,300 crore for JSPL alone. There is an indirect impact on the banks also as the exposure to these sectors is more than Rs 5 lakh crore. However, we have a different point of view. We take it as a cleansing process in the system and though the short-term impact would be negative, the long-term impact would be a positive one. Further, the SC has provided a six-month window which will take care of the import of coal and provide space for CAD to be managed properly.

While this is one positive factor, the launch of the ‘Make in India’ campaign is another positive factor. Around 3,000 global heads were present, making this event a humongous opportunity for India. Further, the way Prime Minister Narendra Modi has been campaigning in the US, we feel that a lot of foreign capital would eventually make its way to India. Another bit of positive news was about S&P revising its outlook on India to stable from negative. This could boost growth prospects and improve fiscal management. 

Going ahead the quarterly results are expected to be the major growth driver for the markets. We are expecting a tad better performance from India Inc. since the macro scenario has improved. However, with the markets trading near their all-time high levels, we expect it to be a stock-specific market.