Play Safe Till Markets Find Direction And Momentum
Indian stock markets have scaled some of the tallest walls of worries that have been dogging the global markets. It has duly digested the trade war fears, global oil price rise to multi-year highs and the appreciation of the dollar against rupee. In fact, the recovering macroeconomic numbers, followed by expected revival in the corporate earnings, have acted as counter balance against the weight of global worries. However, lately, the dollar appreciation and the expected rate hikes by the US Federal Reserve have resulted in the flight of foreign capital from India. The domestic institutions have been trying hard to maintain some stability, but the DIIs are encountering weariness in the markets. The latest 7-day data shows that the net equity investments by FIIs have reduced to Rs 5,676 crore from Rs 7,929 crore, while the net investments by the DIIs have increased to Rs 35,769 crore as against Rs 30,893 crore earlier.
Indian stock markets, specifically the benchmark indices, are straggling above their decisive levels amid lack of momentum. Now that the markets are almost done with the frontliners posting their Q4 and annual results, lethargy has replaced volatility. This lethargy appropriately depicts cautiousness ahead of the Karnataka elections results, with rigorous campaigning going on by both Congress and the BJP. Karnataka, the crucial bastion of the Congress, will go to polls on May 12 and the results will be declared on May 15. The exit polls would dominate the market sentiments as the Karnataka polls would be the biggest precursor to the 2019 general elections. The bulls are not active, but are not retreating too, which says it all. If the BJP wins the battle, we may see markets hitting new highs; if not, the markets may witness a drastic fall.
The second significant factor is the monsoon in India, which is expected to be normal for the third consecutive year. The normal monsoon, along with the high minimum support prices (MSPs) for agriculture produce would help boost farm income. Farming sector accounts for half of the total population and nearly 15% of the country's economy, hence higher farm income would ensure better consumption and, thereby, boost agri-based industries, auto, FMCG, consumer durables, cement, and other related sectors. As for the other sectors, the IT, healthcare and metal sectors have seen a bounce lately on account of dollar appreciation and this would continue for some more time. However, what comes as the drag is the banking sector, the crucial and deciding sector for the stock markets. Despite low-cost deposits and higher capital raised by the banks, the problems of high levels of NPAs and high provisioning persists. The recovery is expected in the next four quarters and, hence, markets may remain sideways, if not on the downside, at least in the first half of FY19, unless the NCLT 1 and 2 resolutions fall in place. This would happen if banks would get relieved of NPAs through mergers or acquisitions of the defaulting companies by the big guns in the industry.
All said and done, the current market environment is conducive for the long term investors to acquire quality stocks at discounted rate. Even investors who had suffered losses due to the sudden turmoil in the markets can average down the bottomed-out stocks. However, the intra-day traders and the positional equity traders are suggested to play cautiously amid lack of both direction and momentum in the stocks.
Indian stock markets have scaled some of the tallest walls of worries that have been dogging the global markets. It has duly digested the trade war fears, global oil price rise to multi-year highs and the appreciation of the dollar against rupee. In fact, the recovering macroeconomic numbers, followed by expected revival in the corporate earnings, have acted as counter balance against the weight of global worries. However, lately, the dollar appreciation and the expected rate hikes by the US Federal Reserve have resulted in the flight of foreign capital from India. The domestic institutions have been trying hard to maintain some stability, but the DIIs are encountering weariness in the markets. The latest 7-day data shows that the net equity investments by FIIs have reduced to Rs 5,676 crore from Rs 7,929 crore, while the net investments by the DIIs have increased to Rs 35,769 crore as against Rs 30,893 crore earlier.
Indian stock markets, specifically the benchmark indices, are straggling above their decisive levels amid lack of momentum. Now that the markets are almost done with the frontliners posting their Q4 and annual results, lethargy has replaced volatility. This lethargy appropriately depicts cautiousness ahead of the Karnataka elections results, with rigorous campaigning going on by both Congress and the BJP. Karnataka, the crucial bastion of the Congress, will go to polls on May 12 and the results will be declared on May 15. The exit polls would dominate the market sentiments as the Karnataka polls would be the biggest precursor to the 2019 general elections. The bulls are not active, but are not retreating too, which says it all. If the BJP wins the battle, we may see markets hitting new highs; if not, the markets may witness a drastic fall.
The second significant factor is the monsoon in India, which is expected to be normal for the third consecutive year. The normal monsoon, along with the high minimum support prices (MSPs) for agriculture produce would help boost farm income. Farming sector accounts for half of the total population and nearly 15% of the country's economy, hence higher farm income would ensure better consumption and, thereby, boost agri-based industries, auto, FMCG, consumer durables, cement, and other related sectors. As for the other sectors, the IT, healthcare and metal sectors have seen a bounce lately on account of dollar appreciation and this would continue for some more time. However, what comes as the drag is the banking sector, the crucial and deciding sector for the stock markets. Despite low-cost deposits and higher capital raised by the banks, the problems of high levels of NPAs and high provisioning persists. The recovery is expected in the next four quarters and, hence, markets may remain sideways, if not on the downside, at least in the first half of FY19, unless the NCLT 1 and 2 resolutions fall in place. This would happen if banks would get relieved of NPAs through mergers or acquisitions of the defaulting companies by the big guns in the industry.
All said and done, the current market environment is conducive for the long term investors to acquire quality stocks at discounted rate. Even investors who had suffered losses due to the sudden turmoil in the markets can average down the bottomed-out stocks. However, the intra-day traders and the positional equity traders are suggested to play cautiously amid lack of both direction and momentum in the stocks.
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