Editorial
Broader Markets Present Bottom-Fishing Chance Even As Benchmarks Hit Peaks
After struggling for almost a month, Indian stock market bulls have not just found their direction, but also picked up brisk pace lately. The Q1FY19 corporate earnings seemed to have paved the way for the Indian stock markets as the benchmark indices hit their peaks and the broader markets presented bottom-fishing opportunities. Banks, followed by IT, posted strong earnings, aided by the plunge in NPL formation and some recovery from the NCLT accounts in the steel industry. However, the mark-tomarket losses on the bond portfolios and the rising provisions may pose a threat. IT is struggling at peak levels, while Bank Nifty has surged higher, heading towards its peak. The auto makers too have posted great numbers and the index is off its bottom.
Sensex has been in the news since the mid of July 2019, however, Nifty strived with gradual upbeats and lately hit new all-time high, that too during July F&O expiry. Sensex breached the 37,000-mark and Nifty hit above 11,171. Mid-cap and Small-cap indices are off their lows and have bounced back well from above their 52-week low levels of August 2017. All thanks to the slight resurgence of the FIIs in the Indian equities, where the sell-off is seen tapering at the end of July as compared to the last three months, whereas the DIIs have continued to shield the markets. Mutual fund houses have been reducing exposure in equities and expanding in debt since June 2018, due to which tremendous sell-off was seen in the mid-cap and smallcap stocks. However, MFs too have entered these small-caps and mid-caps yet again, even while giving maximum weightage to the large-caps.
The reviving domestic macros had already augured well for the Indian equities and the country retained its fastest growing economy title in the first three months of 2018. The momentum is likely to continue going forward even as the expectations on FY19 growth prospects have risen to 7.4%. The robust macros have given a positive jerk to the earnings and, thereby, the stock prices. Now that the Brent crude prices have softened below their crucial support levels and FIIs are coming back, we can expect the rupee to recover, which is currently off its all-time low. thereby releasing some pressure. However, the consistency in foreign inflows and further easing of the oil prices is what would decide the fate of the rupee as the current account deficit and fiscal deficit still remain the key concerns. The country requires nearly USD 20 billion per annum of inflows to witness trend reversal. We may also see inflation easing to some extent, but the RBI’s decision on the interest rates will depend on the monsoon, MSP for crops, fiscal slippage risk and crude oil prices.
All said and done, the bottom-up approach would be suitable in the prevailing market conditions. The fact remains that the markets can turn around anytime in the wake of any political news ahead of the state elections and tweets from Trump on trade war and protectionism. The fundamentally strong but beaten-down stocks with robust financial performance in Q1 can be considered for averaging and holding, if these are already showing upward movement. The large-caps are still better bets and can be held with higher weightage to be used for offsetting in case the broader market stocks turn back.
