Even as earnings look up, uncertainty to rule equity mkts
While a long-awaited revival in earnings growth has a real shot at materializing this year, uncertainty may still be the flavour of the season for the Indian equity market.
Though the benchmark Sensex has gained 1.2% so far this year, it is still down 5% from its peak of 36,283.25 points witnessed on January 29. And a mix of global and domestic events playing out simultaneously could lead to increased market volatility and ambiguity.
While India is still fairly insulated to rising protectionism in the US, retaliatory moves by other countries could result into a full-blown trade war. That obviously wouldn’t bode well for the global economy and justifies the nervousness in global equity markets.
Back home, revenue collection from the goods and services tax (GST) as of now has been below expectations, raising concerns on India’s fiscal deficit position. With the recently implemented e-way bill mechanism, expectations are high that tax collection would shore up.
What adds to the worry is that this being an election year, resurgence in populist measures ahead of the state elections would also
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weigh on fiscal deficit.
The recent surge in global crude oil prices has renewed concerns that the Indian rupee will weaken against the dollar and current account deficit (CAD) will widen further. The Indian unit hit a 13-month low of 66.06 against the greenback on Friday.
Foreign research house CLSA says the general election will be a key near-term event that needs to be closely watched. The state elections are going to be a litmus test for Prime Minister Narendra Modi, ahead of the general polls. “The general election is by far the most important on a one-year view since the Indian story would, in Greed & Fear’s view, be badly damaged if the formidable Narendra Modi was not re-elected,” CLSA said in its note Greed and Fear dated April 19.