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 inching up over the last few months with NIFTY/SENSEX hitting new highs of 9913/32109 on 14th July 2017. Equity mutual funds (ex ELSS) had a net inflow in June at Rs.7453 crs while balanced funds witnessed a net inflow of Rs.7458 crs. On the other hand income funds witnessed net outflow to the tune of Rs.20685 crs in June while liquid funds saw net outflow of Rs.12739 crs.
The markets are at all-time highs largely driven by liquidity especially from domestic institutional investors. Banks have initiated restructuring measures under the new IBC (The Insolvency and Bankruptcy Code) on 12 NPA accounts. Action against more such NPA accounts are likely to be initiated over the next few months. How the process pans out over the next year needs to be seen. GST has just been implemented from 1st July and we feel initial implementation bottlenecks will last for a few months. The extent to which GST will be beneficial will take some time to be visible. 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 there is very strong cash inflows into the equity markets especially through SIPs. With normal monsoons till date & low inflation numbers a rate cut cannot be ruled out as low IIP numbers still remain a concern.
Market movement over the last few months has largely been driven by liquidity rather than company performance; valuations are on the higher side and to an extent unjustified by past performance. June quarter results for all companies are expected to come out over the next month. Any results even marginally below expectations (not necessarily lower profits but lower growth) are likely to lead to a sharp correction in the stock price. GST implementation will be in focus & sectors such as logistics and FMCG which are major beneficiaries of GST should do well. Also with monsoons being in line with long term average rainfall, fertilizer & irrigation sectors should also do well though deflation in food prices over the last couple of months remain a worry as it could derail the rural growth story if vegetable & pulses prices are lower. Given that the markets are at all-time highs one needs to tread with caution at current levels as a minor correction cannot be ruled out if quarterly results are below expectations. 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.