From a portfolio perspective, adding good quality domestic cyclical continues to be profitable.
Nifty continues to trade near all-time high levels in spite of incremental news flow around the economy as well as corporate earnings remaining negative.
Simultaneously, positive momentum built post strong electoral victory of the NDA government appears to be fading.
In fact, if we look at the Nifty movement during the last two months, we can see that the victory of NDA did not put the market into a decisive new trading zone, but nullified the fall that was triggered during the first half of May on the back of disappointing Q4FY19 corporate earnings.
At the current juncture, market needs to see clarity on three issues before attempting the next meaningful decisive move. These are related to global macro, domestic macro, and corporate earnings.
Global macros continue to create fear of some kind of black swan event waiting to happen. Trade wars and conflicting news related to the US economy is at times unnerving to the market participants. Though, we should remember that it’s not a new fear.
In the last decade, markets across the globe have kept moving despite threats of the Chinese slowdown, EU issues, Brexit, to name a few.
Despite 10 long years of the current bull market in the US, we need to remember Sir John Templeton’s four-phase bull market framework where the bull market ends in the phase of euphoria. Right now we are still in the phase of scepticism and nowhere close to even optimism phase let alone euphoria. Although with disruptive business cycles and charged political posturing, we cannot afford to leave the caution aside.
Domestic macros, particularly the forthcoming budget of Modi 2.0 next month, would be the most important event that would determine how our market is going to behave in the remaining part of the calendar year 2019.
Issues that we are grappling with in terms of domestic macros are well documented and in that scenario, a budget with mere descriptions of revenue collection and spending would be disappointing.
What we need right now is a series of strong initiatives that reinvigorate the economy and brings it back on the path of its true potential, by the revival of investor spirit and reversal of the climate of pessimism with the regeneration of “animal spirit” as was once urged by Dr Manmohan Singh.
And lastly, next month we will see the first quarterly results of Indian corporate and the management commentaries on performance for fiscal 2020.
Right now, the consensus is talking of 22 percent profit growth and any disappointment in that regard would restrict early revival in the stock market fortune particularly if any of the two factors as discussed above also turn out to be negative. From a portfolio perspective, adding good quality domestic cyclical continues to be profitable.
The author is Chief Investment Officer at Nanrolia Financial Advisors Ltd.Disclaimer: The views and investment tips expressed by investment expert on moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.