In our view, markets will settle over time and until then one has to ride the volatility, and for the long-term equity investors, it’s the time to remember, the cliché ‘be greedy when others are fearful’. We are not just sharing this theoretically, and, here is an endeavor to elaborate our view by addressing each concern that looks unfriendly: –
- IL&FS: With the Govt. take-over of the Board of IL&FS and related announcements it seems that the Govt. will ensure that there are no defaults. Further RBI is also stepping into the bond market and providing liquidity through open market operation. So, we expect funding for NBFC’s to normalize over the medium term.
- OIL: Though Oil is unlikely to go back to $40 levels soon, but, the recent sharp rising trend also is unsustainable for a long period of time, as the present spike is driven mainly by supply factors i.e. reduced production from Iran / Venezuela and Saudi Arabia to an extent, exacerbated by unpredictability of actions that President Trump might take. Increase in production from other oil producing countries should help this concern, but, soon there will be more clarity on whether Iran sanctions will actually be implemented or not.
- Rising Interest Rates in US and Depreciating INR: As US economy has been doing fairly well, interest rates in US have been going up and hence, most emerging market currencies have been impacted as money moves out of emerging economies into the US. In our view, Firstly, while data shows that the US economy is fairly robust but that is on the back of tax cuts and these benefits would expire at the end of the year. This year’s growth is around 3% and consensus for next year is around 2.5%. So, while there is optimism at this point of time, we believe that in the next few months we could see peak in corporate earnings, and optimism tapering. Also, the continuation of trade war & retaliation from china could impact US exports and hamper US domestic growth as well. When all these aspects will be realized, the attractiveness of US market will be a little lower and money will start flowing out and back to emerging economies.Thus, we don’t see a substantial decline in INR from the current levels and believe that it should stabilize soon. In fact, in the next 3-6 months we could see some strength coming back into the Rupee as the Govt. should come out with a package – most likely which would involve OMC’s having a direct window, a FCNR deposit scheme etc.
- Domestic Inflation: Inflation expectation is moving up driven by increase in the oil price. As we have enough cushion on food prices, we believe in the next 3 months there is a possibility for inflation to move up, but a little bit. And, broadly we should be in the comfort-zone of the RBI’s target of 4.5% or lesser.
- Outcome of Elections: It is obviously unpredictable, however, in our view, future cannot be worse than the past that country witnessed for years, and there is a high likelihood that the present govt will remain in power, and the risk of change in the leadership is only a fear factor in the mind. Also, for India, elections over the long term have not had a lasting effect on the markets.
Disclaimer: Investments are subject to market risk and this write up is issued by Advice Sense Wealth Management, and is produced for information purposes only. Information and opinion contained in this document are published for the assistance of the recipient only. It is neither a solicitation to sell nor shall it form the basis of or be relied upon in connection with any contract or commitment whatsoever or be taken as investment advice.