Stick To Quality Stocks In These Dicey Markets
The Karnataka election results, which led to a hung assembly, had created buzz in the markets. Indian benchmark indices had hit a new provisional high in anticipation of a BJP win in the elections, where the investors had forecasted a new rally surpassing the peak levels in the near term. However, investors are hung up after the BJP missed the simple majority mark and the Congress-JD(s) combine taking advantage of the same and staking claim to form the government. Congress has been in talks with the nonNDA state leaders, starting with the JD(S), for alliance to make its mark at the national level, starting with Karnataka. Meanwhile, notwithstanding the CongressJD(S) claim to form the government, the Karnataka Governor invited BJP's B S Yeddyurappa to form the government and take the oath of office as Chief Minister of Karnataka. The Governor has given the BJP 15 days to prove its majority and the BJP started off by announcing farm loan waiver to the tune of Rs 1 lakh. All-in-all, markets are likely to remain volatile due to lack of clarity in Karnataka poll outcome. We may see further dip in the markets if the BJP loses the motion of confidence on the floor of the house. Factually, the Karnataka elections were an run-up to general elections in 2019 and the Rajasthan elections would be the key trigger at the end of 2018.
On the global front, crude oil prices are witnessing a consistent upside, while the dollar, whose movement is usually inversely correlated with the movement in oil prices, is rising amid US economic boom. This would impact India and many other emerging markets. Oil price rise itself is seen dampening the market sentiments, and to add to it, the dollar appreciation would weaken the commodity prices which, in turn, would adversely impact exports from the emerging markets. Moreover, dollar appreciation would mean continued flight of foreign capital from emerging markets, which India is currently experiencing. It is just that India remains the most preferred investment destination among the emerging markets with its revived macros and its capacity to digest global and domestic upheavals. However, DIIs are seen cushioning the impact of foreign fund outflow from the country’s equity markets since the dicey Q4 results.
After Q4, few of the large-caps are seen supporting the markets, while the mid-caps and small-caps continued to correct in the earnings season. It had become difficult to lift the markets after a fall as investors completely avoided the banking sector, specifically the PSU banks after the series of frauds and the results. Now that most of the banks have dipped badly, one can see some fresh buying on dips in the select few banks which have shown recovery in Q4. Secondly, the infrastructure, metal and capital goods may also see reversal in the coming days. IT continues to be a good bet and also some auto (commercial vehicle) stocks and other allied stocks.
The direction of the market is not clear yet and the month of May looks quite crucial for the markets. June would see monsoon directing the markets, followed by Q1FY19 results estimates. It has been a tough time for the short term traders as the stocks have seen sudden reversals hitting the stop losses. Investors should try to find quality stocks in this market . The large-caps are crawling up, while the mid-cap and small-cap stocks are yet to lend opportunity to enter.
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