Time To Go With The Flow And Catch The Booming Stocks
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 email@example.com