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'
The Indian markets have been range bound over the last month with NIFTY consolidating between 9700-10200. The current rally in Indian market is fuelled by strong liquidity from domestic investors. As 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. Though there was some geo-political tension between India-China & especially USA-North Korea, things seem to have just cooled down. Now with most of the worries out of the way, the stage is set for the index to touch fresh highs.
The markets are at all-time highs largely driven by liquidity especially from domestic institutional investors. GST has been implemented and the first few months of the transition has largely been event free though some rates are still being re-aligned. Post GST implementation GDP growth numbers, IIP & PMI index have all taken a hit, how they recover over the next few months will be closely monitored. With low bank fixed deposit rates, subdued real estate market (with high transaction cost) and stagnating gold prices, equities seems to be the most viable domestic investment avenue for investors. Thus in spite of the markets reaching all-time highs & rich valuations, strong cash inflows into the equity markets should continue for some time. With monsoons being below normal what impact it has on the agri-economy also needs to be seen.
Market movement over the last few months has largely been driven by liquidity rather than macro-economic data or corporate performance; valuations are on the higher side and to an extent unjustified by past performance. Thus company performance & economic data which comes in over the next few months will be critical. Last year post de-monetization Q3 & Q4 numbers for most companies & the economy were impacted. 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.