Creating a new normal…

The Indian markets have been scaling new highs with NIFTY remaining above 10,000 for over a month. 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 ( as evident from a rating upgrade from Moody’s) in the India growth story which could well stay for another 7 years.

Domestic mutual funds continue to attract flows from investors with assets under management (AUM) of the industry increasing by Rs.51,148 cr in October to touch a new high of Rs.21.41 lakh cr. As per data from the Association of Mutual funds of India (AMFI), equity-oriented mutual funds (including arbitrage funds), balanced funds and equity linked savings scheme (ELSS) funds saw net inflows of Rs. 21,900 cr in October. In September, these funds saw inflows of Rs.27,077 cr. For the first seven months of the current financial year, cumulative inflows into these funds have tripled to Rs.1.51 lakh cr as compared to Rs.46,840 cr in the same period of the previous year.

Foreign institutional investors (FIIs) who took a break from buying Indian shares in August and September are returning after recent government announcements such as the Rs.2.11 lakh cr PSU bank recapitalization plan. Over October and November so far, FIIs have invested a net of $1.9 bn in Indian equities. US-based Moody’s on 17th November upgraded India’s sovereign credit rating by a notch to ‘Baa2’ with a stable outlook citing improved growth prospects driven by economic and institutional reforms. This is expected to further boost FII investments into India. For the year to date, they are buyers to the tune of $7.4 bn.

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. 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 should continue for some time.

The markets seem to be consolidating above the 10000 NIFTY mark. Corporate performance & economic data which comes in H2FY18 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.

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’

SAMVAT 2074 … Festivities continue for markets

The Year in retrospect…
  • SAMVAT 2073 was a good year for the markets at it touched all-time highs & NIFTY was higher by ~18 % y-o-y crossing the 10k mark for the first time.
  • Markets were largely driven by domestic liquidity due to strong monthly inflows into equity mutual funds. Net inflows into equity MF in last 12 months were to the tune of Rs.1,15,000 cr.
  • FII inflows largely remained subdued with net inflows of Rs.5000 cr in the last 12 months.
  • The government on 8th November 2016 de-monetized all Rs.500 & Rs.1000 denomination notes & introduced new Rs.2000 & Rs.500 denomination notes.
  • GST was finally implemented from 1st July 2017. This is likely to boost the economy going ahead though there has been some slowdown initially.
  • Monsoons have been marginally below (5% below normal as per IMD) normal & what impact it has needs to be seen.
  • On the macro front WPI & CPI are at comfortable levels below the RBI guidance of 4%. IIP remained low, an ongoing concern.
  • Indian foreign exchange reserves crossed the $400 bn mark to touch a high of $402,246 bn as on 22nd September as per RBI, the highest ever that India’s central bank has amassed.
  • Departing from the tradition of presenting the Union Budget on the last working day of February, the budget was presented on 1st February. This was done so that the legislative approval for annual spending plans and tax proposals could be completed before the beginning of the new financial year on 1st April. The Cabinet also did away with the practice of having a separate Railway Budget, merging it with the Union Budget.
  • There has been 30 IPOs since last Diwali garnering over Rs.45,000 cr of which Rs.14,000 cr was raised this month only. Six stocks Avenue Supermarts, Shankara Building Products, Salasar Techno Engineering, CDSL, Apex Frozen Foods and Sheela Foam delivered multi bagger returns.
  • Interest rates over the last year have largely been stable with a downward bias as there was only one Repo rate cut of 25bps (from 6.25% to 6% currently) in the last 12 months. Bank interest rates though have been reduced by a larger margin due to excess liquidity in banks post demonetization & lower credit off take.
The Year ahead…
  • Going ahead in SAMVAT 2074 geo-political tension between North Korea & USA lingers.
  • Gold prices have been inching up due to geo-political tensions. Global crude oil (Brent) prices are expected to be range bound between $50-$60 through the year. Other commodities such as copper & steel are expected to inch up with a positive bias through the year.
  • The Indian banking system continues to be burdened by high NPAs, but we believe that we have seen the worst of it & with new measures like the Insolvency & Bankruptcy Code, improved profitability, economic growth & latest corporate restructuring, things should gradually improve.
  • Post GST implementation GDP growth numbers, IIP & PMI index have all taken a hit, how they recover in H2FY18 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.
  • Markets are currently at all-time highs largely driven by liquidity rather than macro-economic data or corporate performance. Valuations are on the higher side (SENSEX PE – 24X, NIFTY PE- 26X) 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 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’

NIFTY @ 10,000

The NIFTY raced to 10,000 in about 21 years, but the journey from 10,000 to 100,000 may not that long. The rally is expected to be supported by a strong macro environment, bounce back in earnings growth, pro-growth reforms, stable political environment, and domestic & global liquidity.
From its base value of 1,000 in November 1995, the NIFTY reached the 2000 mark in December 2004, taking 9.1 years to double. Thereafter, the journey was swift wherein it reached the 6000 mark in only 2.9 years. It took another 6.4 years to reach the 7000 mark in May 2014 from 6000 in December 2007. The 9000 level was achieved in March 2017 which was relatively faster from 7000 level taking only 2.8 years. NIFTY hit the 10,000 mark on July 25, 2017, taking only 4.3 months to move from 9,000 to 10,000.
The current rally in Indian market is fuelled by strong liquidity from both global as well as domestic investors. 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.
A recent IMF report on India GDP growth also added to investor confidence. India GDP growth rate forecast remained unchanged at 7.2% in 2017-18 and 7.7% in 2018-19 which will still be higher than China.
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’