Time To Go With The Flow And Catch The Boom­ing Stocks

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Key In­dian bench­mark in­dices are pro­gres­sively hit­ting their peak lev­els, with the Sen­sex cross­ing 38,000 mark and Nifty inch­ing to­wards 11,500. How­ever, it is akin to a synec­doche where only the se­lect few com­pris­ing the in­dices rep­re­sent the mar­ket. Even the cur­rent value of the coun­try’s eq­uity stand­ing at USD 225 bil­lion could not sur­pass the Jan­uary 2018 fig­ures. This is in the wake of in­ter­est rate hikes, re­duced mon­e­tary sup­port and lower pace of pick-up in do­mes­tic in­flows into the mar­kets, though the do­mes­tic MF houses have in­vested nearly USD 11 bil­lion in 2018 till now. The FIIs too have turned net buy­ers in July and Au­gust till date. In­dia still stands health­ier among other emerg­ing mar­kets where its pre­mium val­u­a­tion has ex­panded 62%, i.e. dou­bled con­sid­er­ing the av­er­age of the last 20 years. The same is re­flected in its out­per­for­mance as against MSCI EM in­dex by 14% in 2018. Fur­ther, it stands bet­ter in terms of its lesser de­pen­dency on ex­ports and lower USD-debt/GDP ra­tio as com­pared to its peers. Yet, for the near term, noth­ing can be said un­less we are through with the Q1FY19 cor­po­rate re­sults, although re­vival is seen as of now.

In­dian stock mar­kets have di­gested the ef­fect of the US-China trade war which is still on and ap­pears to be es­ca­lat­ing. Lately, China an­nounced 25% tar­iff on US goods worth USD 16 bil­lion and it is also plan­ning to im­pose tar­iffs on im­ports of oil and nat­u­ral gas from the US. The news that China would cut down on the im­ports caused a drag down in crude prices. The prices seem to be near­ing their pre­vi­ous sup­port lev­els. The dol­lar too is off its low lev­els af­ter the RBI in­ter­vened, sell­ing off dol­lars worth 8 bil­lion. How­ever, the US re­ported 157,000 jobs in July with av­er­age hourly earn­ings ris­ing to 0.3% from 0.1% in June. Thus, the ris­ing US econ­omy with bet­ter-than-ex­pected job num­bers may ex­tend gains in the dol­lar. The ECB’s eco­nomic an­nounce­ment is due this week, which would pro­vide a di­rec­tion to the cur­ren­cies.

Post Q1 earn­ings re­ports and mon­soon news, all eyes will be on the state elec­tions slated to be held in De­cem­ber this year, fol­lowed by the Union Bud­get and the Lok Sabha elec­tions in April-May 2019. Mar­kets are set to re­main con­sol­i­dated on the broader terms and volatile on the daily time frame, with the op­po­si­tion par­ties forg­ing al­liances against the rul­ing BJP. Nev­er­the­less, the pic­ture looks good as pro­jected by the IMF. The ele­phant is start­ing to run with the pace of growth es­ti­mated at 7.3% and 7.5% in FY19 and FY20, re­spec­tively. Yet, the global fi­nan­cial sit­u­a­tion along with the tight­en­ing of liq­uid­ity would bring some hic­cups in-be­tween the pos­i­tive rally. Till then, the gov­ern­ment would take ad­van­tage of the eco­nomic re­vival to pay off its debt and off­set the short­ages in the tax rev­enues.

In­vestors can go with the flow and fol­low the boom­ing stocks with ro­bust fi­nan­cials rather than en­ter­ing the bot­tom­ing stocks on ex­pec­ta­tion of a bounce when ma­jor in­dices are hit­ting the peaks. Most of the stocks are ly­ing be­low their 200-day mov­ing av­er­age lev­els and the few that have peaked are off their 52-week/all-time highs. Sub­scribers can send their feed­back and queries on tech­ni­cals port­fo­lio guide to fnied­i­tor@dsij.in

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