‘Sam­vat 2074’ To De­liver ‘Some­what’ More

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When the bears had al­most taken over the game, bulls lit­er­ally bull-dozed their way into the reck­on­ing, so much so that the mar­kets yet again hit all-time high lev­els. De­spite sub­dued do­mes­tic eco­nomic out­look and war-like sit­u­a­tion be­tween the US and North Korea, In­dian mar­kets man­aged to sus­tain at peak lev­els in line with other ma­jor global bourses. The rea­son be­ing bet­ter than ex­pected macroe­co­nomic num­bers that de­picted re­cov­ery from de­mon­eti­sa­tion hus­tles and clar­ity post-GST im­ple­men­ta­tion. The lat­est up­shot was IIP data, post­ing a record 4.3% in Au­gust 2017 as against 4% in Au­gust 2016 amid re­stock­ing of man­u­fac­tured goods. Ear­lier, auto sales and core sec­tor num­bers fol­lowed by man­u­fac­tur­ing and ser­vices PMI had al­ready in­di­cated re­vival from con­trac­tion. The ic­ing on the cake was de­clin­ing WPI to 2.6%, while steady CPI at 3.28% in Septem­ber buoyed the sen­ti­ments ahead of the next RBI pol­icy, which has left room for a rate cut. Cur­rently, mar­kets are in the midst of ex­pected volatil­ity trig­gered by Q2FY18 earn­ings re­ports.

When com­pared to the other as­set classes, be it re­alty, bul­lion or FDs, nearly none has fetched re­turns more than the pre­vail­ing in­fla­tion rate. It was only eq­ui­ties that had out­smarted in­fla­tion and kept in­vestors in good mood. Over­all, the yearly sce­nario was ex­u­ber­ant for the In­dian stock mar­kets, where the broader mar­kets out­per­formed the bench­mark in­dices. In­dian mar­kets were damp­ened but not dis­tracted with the two ma­jor events of de­mon­eti­sa­tion and GST im­ple­men­ta­tion. The bench­marks have seen re­cov­ery since March 2016 it­self, hit­ting sharp up­side ral­lies, with small cor­rec­tives in-be­tween. The Mid-cap in­dex too has be­come very big and grad­u­ally ap­proach­ing the 2008 lev­els, with many stocks al­ready cross­ing their prior all-time high lev­els. Small-cap in­dex, the out­per­former of the year, still car­ries a po­ten­tial to al­most dou­ble from here. Thereby, the talk of pre­mium val­u­a­tions and bull bub­ble might be just a bab­ble, as the fall could be treated as mere profit-book­ing and not a down­trend. More­over, we have seen FIIs sell­ing off re­cently in the midst of geopo­lit­i­cal ten­sions and more at­trac­tive op­tions of­fered by other bourses, yet the net in­vest­ments in eq­ui­ties by FIIs in 2017 has surged 49%, while that of DIIs have al­most dou­bled (90%) as com­pared to the last year. The sec­ond-half of FY18 may bring in some more cheer with bounce back vis­i­ble in the cor­po­rate earn­ings. Mar­kets have some­how di­gested the govern­ment’s rad­i­cal re­forms, which may prove to be pos­i­tive over the long run. The big­gest chal­lenge would be clean­ing the NPAs out of the bank­ing sys­tem to im­prove over­all ef­fi­ciency. The up­com­ing bud­get, fol­lowed by the elec­tions in 2019, would de­cide the fate of the mar­kets in FY19. The mar­kets are at peaks, but the mar­ket­cap-to-GDP ra­tio sits around the long-term av­er­age. There­fore, in­vestors with a long term view can stay in­vested in stocks hav­ing po­ten­tial to climb.

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