Dear Advisory Client,
Earnings expectations are low and this is positive for your portfolio, as any upside surprises will boost valuations. In the 4th quarter of FY 19 results, the managements of the companies in your portfolio were optimistic but did not raise any forecasts, while a few companies still saw headwinds for at least a couple of more quarters.
Going into the 1st quarter of fy 20, there is concern on economic growth, as seen by the rate cut effected by the RBI in its June policy and the change in its stance from neutral to accommodative. Growth concerns are not only domestic but also global with many central banks including the US Federal Reserve signalling more policy accommodation on weaker economic data.
The government will present the full budget for this fiscal year on 5th July, while the budget will stick to its broad numbers given in the interim budget in February, there would be a road map for both the rural economy and job creation, which are primary objectives of the government. This would entail more investments and lower interest rates can facilitate the new investments.
Given the low rates and policy accommodation, liquidity is flowing into risk assets such as junk bond yields that have collapsed in US and Eurozone. India too is witnessing positive flows into equity and debt and the INR is staying high and bond yields have come off.
The credit issues in the economy is still very much there with more corporate defaults but on the positive side, there is increased interest in the high yield and stressed assets markets though it is yet to filter down to higher number of transactions. Transactions should pick up going forward with risk appetite increasing at the global level.
Your portfolios are well positioned to ride out near term volatility and gain for valuation upsides.