Newsletter Date: 18/08/2018
International Snapshot:
The talk of last fortnight has been ‘CURRENCIES’ especially emerging market currencies & Turkish Lira in particular. It started with United States imposing sanctions on 2 Turkish government ministers over the trial on terrorism charges of U.S evangelical pastor Andrew Branson in Turkey, and on Turkey refusing to co-operate Washington further raised tariffs on Turkish Metal Exports. Lira fell closer to 20% in 2 weeks, giving jitters to currencies of other emerging economies as well. Our own Rupee depreciated to 70.7 Rp/$ (high) on Tuesday 16/08/2018.
All economies with poor forex reserves & export oriented will have tough time it seems in trump administration & will have to succum. In our newsletter dated 21/07/2018 we had already touched upon what the trade wars can do to currencies & Lira has been a real weak victim to it, with its forex reserve of just $ 100 billion as on May 2018. While China with $ 3,125 billion of reserves saw their currency depreciating by 7% in last 3 months mainly because of its export driven economy, Turkey is too small to withstand the blow. However to many economist it was not a surprise as Turkey had been running a CAD (Current Account Deficits) of more than 5% for more than a decade now resulting in high $ borrowing from USA. According to us Turkey is an outlier & should not be stretched beyond point.
Domestic Snapshot:
Elephant that’s starting to Run.
The $ 2.6 trillion Indian Economy was described by Ran Salgado, the IMF's mission chief for India, as an elephant that starting to run. Their growth forecasts are 7.3% in 2018-19, & 7.5% for the year later. India will account for about 15% of the global growth.
Yesterday Rupee plunged to more than a decade low of 70.7 ₹/$, giving jitters to importers & foreign portfolio investors. However our stock market is not reflecting the fear. In our opinion there are many reasons to justify it
a) Our fiscal deficit though may increase but still it would be @3.5% in 2018-19.
b) Our forex reserves are more than 400 billion$
c) India is expected to grow @ 7.2% to 7.5% this year according to various estimates.
d) Companies have just came out of the GST shocker & the base effect of poor year on year quarter is helping the current quarter numbers look very good.
e) India is one amongst very few nations whose capital market indices have diversified sector stocks. So for eg. in a weak Rupee scenario if Bank stocks are sold, Information Technology will move up, if crude oil moves high, petrochemicals stocks inch up & pure play refineries move down.
f) Domestic support through SIP's is so strong that FII flows are becoming more & more insignificant data to track.
This can surely not propel the markets beyond a point, but it may in our opinion not lead to significant corrections. Even in current situation mutual funds are sitting on more than Rs 60,000 Crore of cash, seeking opportunities in Equity Market. As a result of this Indian Equity Markets will continue to look pricy relative to other markets but leaving good opportunities for stock pickers.
In an unfortunate event, India lost one of the most dynamic leader & 10th Prime Minister of India on 16th August 2018, Mr Atal Bihari Vajpayee.
- CA JAYESH GANDHI
Disclaimer: This is an informative document and opinions expressed in it are our own and not any advice. We are not SEBI registered investment advisory or research analyst. We are AMFI registered MUTUAL FUNDS DISTRIBUTOR.
