An overview on the Indian market roller coaster

Following my colleague Siddhant Shah’s overview on the markets extra-ordinary rally in July, let’s have a look at how the markets have fared in the past few months. My colleague left us speculating whether the rally was sustainable and backed by an uptick in value, or was it another bull run driven by market sentiment. Let’s find out what followed…

NIFTY at 11000 Levels

The Indian equity market was trading at lofty valuations because of high liquidity in the market from DII’s and individual investors post demonetisation. Being amongst the top emerging countries with government revamp plan to bring various new policies and amend the existing ones for ease of doing business attracted foreign inflows too.

 

Global woes with domestic liquidity crunch

The boiling of crude price, depreciation of rupee, Fed rate hike along with US-China tariff war, and ballooning current account deficit in India were not the only concerns for market to correct. In August end and early September, ICRA, CARE and Brickwork Ratings, and other rating agencies downgraded IL&FS group’s various long and short-term borrowing programmes worth over Rs 12,000 crore to ‘default’ or ‘junk’ grade. This created liquidity fear in the debt market.

The above mentioned global worries created sell off pressure by Foreign portfolio managers dragging the Indian market further.

Further, in second half of September,DSP mutual fund sold commercial paper of Dewan housing at a higher yield indicating further liquidity crunch in debt market. This led to a contagion effect in the equity market.

Why are NBFC and HFC stocks under pressure?

NBFCs and HFCs have raised significant borrowings from debt schemes of Mutual funds. A further default will trigger sell off button from fund managers and retail investors putting pressure on equity markets too. This panic would eventually lead to corporates redeeming their investments in debt schemes of mutual funds which would further add pressure on the NBFCs and HFCs.

Rift between RBI and Government with looming State and Central elections

The rift between the RBI and Government has also created extremely bearish narratives. However, softening of crude prices and halt in Rupee’s depreciation along with rising foreign indices are reflecting on Indian markets.

Various State elections are due in this month and the results to be announced in December and Central elections in May 2019are key events in a near future.

Mixed sentiments would continue till Central elections with market volatility to increase further as the events draw closer.

Do long term investors need to worry?

The market sentiments have been impacted by tightening liquidity on account of global and domestic factors enumerated above. The growth in cement volume, uptick in sale of Commercial vehicles and increase in casting volume in this result season are some of the early indicators of turning of Indian economy implying long term bull outlook to remain intact.

Wealth Mantras:Adding on dips would act as catalyst for long term investor in volatile market. Stay invested in quality stocks.

Moneybee group wishes you and your family a happy Diwali and prosperous new year.

A quick market overview by Hardik Solanki, Investment Adviser, Moneybee Investment Advisors Private Limited

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