INSUBCONTINENT EXCLUSIVE:
NEW DELHI: The market correction since January has given stock investors much pain
Equity-linked mutual fund flows too have fallen, a clear sign retail participants are worried about future returns
But if we go by analysts' readings, the domestic market looks better-off in comparison to 2013 when the bull run set in, a year before the
general elections in 2014.
The worry is recent developments have revived those unpleasant memories of 2013 when US Fed’s taper tantrum and
weakness in macro data kept stocks on the edge
This looks like a redux of 2008 when the market crashed following the collapse of Lehman Brothers and hyper valuations, Centrum Broking said
But one should not lose heart
Current macroeconomic parameters suggest so, as it's not all that gloomy
India has reasonably healthy balance of payments dynamics -- nearly 11 months of foreign exchange reserve cover as against just nearly 6
The forex kitty has swelled to a record $424.36 billion
Current account deficit (CAD) looks comfortable, a far cry from 2013.
Inflation is well under control even after factoring in the
possibility of an uptick in FY19 -- maybe, nearly 5%
In 2013, it had stood close to a scary 10 per cent.
India has positive real rates, that is Indian 10-year bond yield at nearly 7.5 per cent
and inflation flirting with 5 per cent, unlike 2013 when India had negative real rates with inflation surpassing bond yields.
The rupee is
much more stable now, in the range of Rs 65-68 against the dollar
This is in contrast to 2013 when it hit 61.80 as on December 31, 2013.
There is good news on the growth front too
The central bank in its latest policy review has raised growth forecast to 7.4 per cent for 2018-19
The economy grew at 7.2 per cent, regaining its status as the world's fastest-growing major economy.
On top of it, even valuations now are
better than in 2007.
It was in the in the first quarter of 2018, the domestic market turned shaky
After rallying over 27 per cent in 2017 and another 1 per cent in January, headline indices Sensex and Nifty corrected over 10 per cent in
the last two months.
Brokerage Centrum Wealth Research in its strategy report said, "While one can attribute the reasons for correction to
LTCG taxation or political uncertainties, the market was anyway awaiting an excuse to correct
Make no mistake, starting January 2017 -- immediately post demonetisation -- till January 2018, the equity market had a one-way non-stop
rally for 13 months -- arguably one of the longest one-way bullish stretches in the history of Indian market
After such unilateral move, a correction phase was inevitable and quite healthy."
Value investor Vijay Kedia made a similar point
Recently, he said he was expecting this correction to come in 2017 and it's a good thing to have stability in the market
"One should not worry about this volatility
One should make volatility an opportunity to invest," he added.
The Centrum brokerage has a caveat
It believes that the “sweet-spot” which India had enjoyed during 2014-17 when macros and political stability were at enviable levels is
Headwinds have been building up in terms of slowing FDI, a widening trade deficit, tightening global liquidity with global central banks
coming off their accommodative stance, concerns over fiscal slippage and political uncertainty
The biggest headwind, according to the brokerage house, is painful banking woes in terms of frauds and non-performing assets (NPAs)
“At this juncture, macros are precariously poised,” it added.
“While 2017 was a year of extended honeymoon, 2018 will be a complex
year with a host of hostile variables such as politics, bond yields, interest rate cycle, trade war, currency risks and the like, which may
separate men from boys,” Centrum Broking stated.
Market expert and MD at Kotak AMC Nilesh Shah recently wrote an article for
ETMarkets.com, saying if 2017 was the year of hope, 2018 will be the year of reality
"For investors, 2018 is a year where they need to focus on asset allocation rather than market momentum
It will be a year of volatility rather than steady rise
It will be year of stock picking rather than sector picking
It will be a year of largecaps rather than micro and minicaps
It will be a year of playing contra rather than chasing momentum."
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