12
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 in its report.
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 months in 2013.
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 behind us.
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."
FULL ARTICLE
