Companies With Robust Growth In Q4 Earnings May Be Good Bets
Indian stock market bulls have been making futile attempts to chase away the rampaging bears. The domestic political uncertainties concerning continuation of the BJP government at the Centre have overshadowed the decent macroeconomic environment. Also, the dissatisfaction among people with the government schemes just about making lower double-digit accomplishment in the last four years and the tardy growth in employment generation and rising inflation have disappointed the countrymen. The elections in Madhya Pradesh and Rajasthan would be the key pointers to the general elections next year.
The prospects of political and economic uncertainty in Europe's third largest economy and chief banking centre , Italy, have given jitters to the global markets. The country's financial indebtedness with the possibility of euro-exit points to a panicky situation similar to that of Brexit in November 2016. Further, snap elections to take referendum on Italy's Eurozone membership and country's role in European Union has created chaos across the European bourses. Depreciating euro and rising short-term borrowing costs too are matters of concerned for the government.
The Italian crisis has weighed on the Eurozone and is likely to trigger collapse in the rupee too. The emerging markets for now will remain vulnerable to the risks in Eurozone and, thereby, we may see further foreign capital flight to stronger currencies such as dollars and yens. As it is, the country is witnessing forex outflow with the total FII net equity investments entering negative territory with year-to-date net sell-off of Rs 133.77 crore. The net sell-off in April and May was Rs 5,552 crore and Rs 8,979 crore, respectively. Recently, the rupee has shown a provisional relief with the decline in oil prices and softening of US treasury yields, but the bounce-back in oil prices, continued boom in the US and nascent Italian crisis may lead to further 1-2% depreciation in the rupee.
With India's inflation climbing above the target and the oil price hike pulling it higher, the RBI may decide to raise interest rates by at least 25 basis points in its August policy review, if not in June. The government spendings ahead of the elections and India importing nearly 80% of oil may pressurise the RBI to adopt a tight money policy.
If major indices were to fall, the stocks would also give up easily. The Nifty and Sensex P/Es have fallen near to 27.1 and 23.9 levels, respectively, yet the valuations still look expensive. Rather, the mixed results in Q4 portrayed very little difference in the valuations as the falling share prices were more or less in line with the not-so-exciting earnings.
The benchmark and broader indices are off their YTD lows, but the bounce back is not convincing as of now as the market breadth is weak. Hence, averaging or fresh buying in fallen stocks is not advisable for now. However, investors can still bet on companies that have given robust earnings growth in Q4 and their share prices having bounced back, with smaller quantities on every rise. Export-oriented businesses with major chunk of earnings in dollars too can be the decent bets. Overall, the phase of consolidation with intra-day volatility may persist, which is not good for positional or short term traders for now.
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