Newsletter Dated: 20-04-2019
In India we are in the midst of election season & out of 542 constituencies, voting in 186 constituencies are already over
Stock indices have started hitting new highs; as if they are in a hurry to discount NDA victory. While FII’s have been pouring in money but the indices still don’t look like they have completely factored in the NDA victory. In our opinion FII rush is in ETF’s & it’s because of increase in allocation towards Emerging markets in general. Our view is based on rally that is seen in only few stocks & not in overall market. However once the outcome of election is out and post victory of NDA or for that matter a stable government at center will attract money towards other stocks as well, post may be a small sell off. If we really see currently the index composition is such that top 7 companies are 25 % mcap of indices next 17 makes another 25 and may be other 35 companies would make next 25. So 75 percent of the market cap is made up of strong companies and the rest have anyways not performed, so most of the people expecting a big sell off and then may be deploying money may go wrong unless we run up before election very fast or any global surprise shakes us. Also a lot of people argue that results for the 4th quarter will also be weak especially looking at fmcg, consumer durables and auto nos?? However this is a regular phenomenon before every election if you may see as people become cautious before run up to election.
Indian Metrological Department last week forecasted a normal monsoon though it shall commence little late. International Monetary Fund has reduced its earlier estimates of growth for India by 20 basis points for all years & it now stands at 7.1 for FY19, 7.3 for FY20 & 7.5 for FY21, being the fastest growing economy in world. Global growth is forecasted to slow to 3.3% in 2019 from 3.6% in 2018, with downside risk mainly due to trade tension and chaotic Brexit. China is forecasted to grow 6.3% in 2019 and 6.1 % in 2020.
One key risk globally & for India in particular could be rise in crude oil price, especially as waiver on Iran oil purchase by six Asian countries including India and china will get over on 1st May and there is no clarity from Washington on any extension yet. Though there may be a temporary rally in crude but for country like India who is dependent 90% on oil imports & paying more than 100 billion $ every year, means a lot. Meanwhile our $ reserve which went down below 395 billion $ 6 months back, has crossed 415 billion $ and would provide a good war chest if any sudden reversal of FII’s flow were to happen in case of unexpected outcome from election.
- CA JAYESH GANDHI
Disclaimer: This is an informative document and opinions expressed in it are our own and not any advice. We are certified investment advisors yet to be SEBI registered. We are AMFI registered MUTUAL FUNDS DISTRIBUTOR.
