The Indian markets have been range bound with NIFTY hovering between 10,000-10450 for over a month waiting for the next cue. The next cue could potentially be coming from Gujarat. Though symbolic how the current ruling party fares in the state could provide some indication to how BJP fares in the 2019 elections. A strong win for BJP could potentially push up NIFTY beyond 11,000 levels. Strong inflows continue into domestic mutual funds & reforms initiated by the Modi-led government reaffirm the faith of foreign investors in the India growth story which could well stay for another 7 years.
December marks the first six months of GST rollout and there is a feeling that the worst may be behind us and markets may now display more confidence in playing the GST benefits. After slashing the GST rates of over 177 items last month the government hinted at reviewing levies on more items. Demonetization and the GST had both short-term and long-term effects. The short-term effect was a slowdown in the demand environment as inventory was rationalized across the value chain. The longer term impact of GST and demonetization will be a shift of business from the unorganized sector to the organized sector led by increased tax compliance. It will accelerate across industries over the next few years, and benefit many listed companies.
September quarter results for most companies have already been declared & results have largely been in line with expectations. After its muted performance in the June quarter due to the transition to GST, India Inc is getting back on track going by the September quarter results. Post GST implementation GDP growth numbers, IIP & PMI index have all taken a hit, how they recover over the next few months will also be closely monitored.
It is surprising how things change in a year’s time in the stock markets. Around this time last year demonetization had occurred, Donald Trump had become U.S President and most market participants and commentators painted a bleak picture. Contrary to the expectations NIFTY has given ~25% returns in the past year with the broader markets performing better. With real estate and gold giving subdued returns, investors have been looking at equities as an investment avenue. Thus in spite of the markets reaching all-time highs & rich valuations, strong cash inflows into the equity markets continue to flow in.
The markets have been range bound waiting for the next cue. Corporate performance & economic data which comes in H2FY18 will be critical. As evident from monthly automobile sales numbers, yoy growth looks extremely strong due to low base effect of last year. Thus the general expectation is that H2FY18 numbers should be significantly better y-o-y. Any correction in quality stocks is a good opportunity for investors to enter or re-enter the stock markets at lower prices if they had missed out previously. Given that the markets are at all-time highs one needs to tread with caution at current levels. For long term investors one should keep accumulating on dips as the markets are braced for significantly higher levels over the next couple of years.
Sabyasachi Paul has been associated with equity research and advisory on equity markets in India for over 9 years & currently heads the equity research desk of Eastern Financiers Ltd, Kolkata.He also manages a portfolio on the online platform Kristal. Find link to the strategy named ‘The Tortoise’