Dear Advisory Client,
The markets are entering a speculative phase given elections in May, 4th quarter corporate results, domestic and global economic data and other issues including trade wars, Brexit and oil supply cuts. On the positive side, interest rates have fallen across the globe on central banks staying accommodative while RBI is expected to cut rates further in April.
Staying on the sidelines till the speculative phase passes is the right policy. Decisions are best made when there is less short term uncertainty, as it clouds longer term outlook for markets.
India general elections begin on the 11th of April and goes on till 19th of May and results will be declared on 23rd of May. The long period of elections will cause a lot of market volatility with political parties making a lot of noises that will get caught up on media and social media.
The 4th quarter fy 19 results will start coming out and there is likely to be more misses than hits given slowdown in key sectors such as Auto, slowing credit growth in the NBFC space, low inflation affecting prices and weak investment demand on the back of political uncertainty.
Economic data has been coming in weak both on the domestic and global front. Inflation has stayed low largely on food prices coming off while industrial growth has slowed and export growth is anaemic. On the global front, manufacturing data shows weakness and GDP growth rate forecasts have been revised down. If the trend continues, there would be more misses on corporate earnings both on domestic and global front.
The ongoing US-China trade war is still not seeing an end and this is causing uncertainty on global trade. Opec has cut output in the face of weak global demand and this has kept oil prices up from lows seen during this year. High oil prices hurts macros and also demand in the face of economic and political uncertainty.
Markets are right now reacting to prospects of high liquidity and low rates given accommodative stance of central banks and this will keep equities at higher levels though volatility will be high.
The longer term outlook for markets is more promising given that both global and domestic economy is nowhere close to the bubble levels seen pre 2008 financial crisis. In India, there has been a long drawn resolution to the banks bad loan crisis and new leaders have emerged on the strength of their businesses. This trend will continue and will generate long term wealth for patient and disciplined investors, investing in the right stocks.