BoFA Merrill Lynch expects double-digit fall in equities; higher volatility in 2019

The foreign brokerage firm, Bank of America Merrill Lynch expects India equities to correct in near term and it could be a double-digit fall, believes Sanjay Mookim, India Equity Strategist, Bank of America Merrill Lynch.

Mookim envisages India equities to correct in line with global weakness.

He said India cannot be decoupled for extended period of time as asset prices globally are falling whether it is bond, real estate, equities or commodities.

According to the brokerage house, Indian equities will demonstrate higher volatility throughout  the calendar year 2019.

Bank of America Merrill Lynch is overweight on financials, rural sectors and select IT stocks.

“Valuations of banks are largely in line with history and liquidity injections will drive lending. Also, banks will gain market share from NBFC,” Mookim said.

Government expenditure will address rural stress which will be supportive to rural demand.

Mookim explained that MSCI India has outperformed emerging markets by 10 percent in dollar terms as oil prices turned down.

He feels concerns over the rupee are unlikely to recur. However, lower crude is likely to support margins for domestic consumption in the near term.

BoFA Merrill Lynch said that lower prices should help volumes in turn.

On RBI rate cut, Mookim said, “A reduction in interests costs and a rate cut in Feb should reduce real rates.”

He further said domestic liquidity conditions are improving with the Reserve Bank of India’s recent open market operations.

Going in to elections, fiscal expenditure is expected to increase but it is likely to be focused on welfare spending and crowding out long term investment.