Sunday, February 19, 2017

Fundamentals - Where are we?

In the 6 months since September we have fallen about 1000 points on the Nifty and have risen back almost the same amount. Is the fall justified and also the rise?

Let us look at the reasons:

1. The Trump factor - The major reason for markets tanking was the Trump factor and it has played out so far. Jobs back to the US and closed door towards immigrants along with H1B visas is going to be negative for emerging markets.

2. Further rate hikes in the US. As Janet Yellen speaks of rates hikes sooner rather than later it means that the emerging markets become less attractive for FIIs. Jan was a negative month for FIIs and Feb is positive mainly due to mad buying in HDFC Bank.

3. The Politics factor - As the reports come in, it seems more and more unlikely that the BJP will win UP but it can emerge as a single largest party. The problem for the BJP is the untouchability factor. Like the Game Theory, BJP and the Samajwadi combo will never support each other. Mayawati knows to extract her pound of flesh and even with lesser number of seats will expect to be CM with outside support from BJP. Punjab seems to be a lost cause with Goa too close to call.

4. Rate Cuts - The RBI is clear it is done with rounds of rate cuts. So steroids for the economy cannot be expected from the RBI.

5. Demonitization - No one has seen the tangible benefits so far, they may come further down the line in terms of tax compliance. The loss to GDP needs to be factored in. GST also will lead to a spike in inflation.

On the plus side, we have a stable government in place, borders are stable and General elections far off.

The month of March is important for US rate hikes, reforms linked to UP elections and what meausres Trump rolls out. It has been a good 3-4 months for the markets those who bought in December, their portfolios have risen a good 20-30 pc. Time t be cautious.

I strongly feel we will get 1 buying opportunity in March to May period.

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