Markets May Stay Exuberant Amid Government Initiatives
Indian stock markets seemed to be living high on the hog, notwithstanding the sell-off from the FIIs. This sell-off created opportunities for bottom fishing and fetched better returns for domestic investors who bought on dips. The markets are hitting fresh highs every day, though with some volatility amid corporate announcements and corporate earnings reports. To add to it, the government's announcements too have brought in tremendous movement in the stocks and sectors lately, which are driving the benchmark indices crazy. For instance, the proposed infusion of Rs 2.11 lakh crore for recapitalisation of PSU banks lifted stocks of PSU banks like never before in intra-day trade. Secondly, imposition of anti-dumping duty on imports of stainless steel lifted stocks of domestic steel makers more than 10% on a single day. The exuberant movement in the bourses of the world’s largest economy, the US, are offsetting the slowdown in the second largest economy, China, and enabling other emerging markets sustain their peak levels.
In this exuberance, the returns which investors expect over a period of time are fetched by traders in a single day. However, this may happen the other way round too should some catastrophic event happen, washing off all the gains in double quick time. The question is whether investors are really benefiting from the markets rising big time. Since the new-based stock-specific moves are pre-determined, the individual investors can hardly enter, while on the other hand, the flat market bias refrains investors from entering other stocks. The biggest challenge is finding ways to enter equities and make profits. For now, MFs, SIPs, long-term investing with time horizon of 3-5 years or intra-day trading appear to be the only feasible ways for retail investors.
The mutual fund houses have remained dominant and have outshone the foreign portfolio investors (FPIs) in the first half of the financial year with investments worth US dollar 12 billion. Even HNIs as retail investors have poured in a lot into equities. Going forward, MFs remain upbeat over investments in the remaining half of the financial year with expected recovery in earnings and RBI’s expected easing stance owing to the favourable macroeconomic numbers. Smaller corrections would be triggered by profit-booking and news-based volatility in frontline stocks.
The second biggest reason is government’s capex plan worth Rs 14 lakh crore in infrastructure development, including roads, power, railways, etc. The country is nearing its execution period for Digital India and Housing for All, both of which are expected to create further opportunities. On an immediate basis, market participants can count on corporate earnings in H2FY18, followed by RBI's policy stance on interest rates and Union Budget 2018. The preponement of state and national elections to 2018 from 2019 may add some more masala in the recipe of domestic markets. The global markets too are set to give some more to the investors in the coming days, unless geopolitical tensions start heating up again,.