Our markets are doing better than the rest. Not just better, Sensex just hit a record highs while the Nifty reclaimed 11,000 levels and is just 153 points away from hitting a record high of 11,171.
V K Sharma
Just take stock of the current scenario.
Crude Oil is at a 4 year high, the Rupee touched an all-time low recently, trade wars are blazing, inflation is galloping and foreign institutional investors (FIIs) are selling both bonds and equities as if there is no tomorrow.
And yet, our markets are doing better than the rest. Not just better, Sensex just hit a record highs while the Nifty reclaimed 11,000 levels and is just 153 points away from hitting a record high of 11,171.
The Nifty is up 4.6 percent for this calendar year and the Sensex is still better at 7.3 percent. On the other hand, most of the developed and emerging markets such as the Dow Jones Industrial Average, the Nikkei, Hang Sang have given muted returns. Shanghai is in the doghouse with a double-digit dip seen in this calendar year.
We believe despite all the attendant uncertainties, equities is the placed to be.
Let me elaborate more on this.
In a rising interest rate scenario, you could end up getting singed in the debt fund. As rates rise, bond prices will have to fall to reflect the rising yields.
High dividend yield stocks are an ideal alternative. You get your tax free dividend yields if the stock does not move higher. In case the stocks move up, more than two years of dividend yields, it is opportune to book profits, pay short term or long term capital gains as the case may be and get higher returns.
Call these dividend yield stocks as bear market lifeboats.
U.S. sanctions on Iran kick in from November. France, Germany, Russia, and China have still not exited the Iran deal. So unless they also Crude is not going to be a concern.
Trade wars is a developing story. But, if these things persist or aggravate, global growth will slow down, which amongst other things will also mean lower crude demand.
But, India is relatively better placed as exports constitute only 14 percent of our economy. Germany, Taiwan, South Korea, Japan, U.S., China are likely to be impacted much more.
Our Rupee has behaved better than other emerging market currencies and is still over valued as we have higher inflation. There is room for further weakening to maintain our competitiveness.
We have built up reserves of $450 billion. Around $ 10 billion of those may have been sold till March. Rather than using up the reserves, we could raise money via NRI bonds like we did in 2013.
The Government also has the option of joining an index fund. But for that to happen ceiling on investments would need to go if India. We do not see a Government in the last year of its tenure taking this decision. Instead, NRI bonds is a better way out.
Earnings of the Nifty for 2018-19 are likely to show 24 percent growth. This should also impact markets and make the stocks optically less expensive.
Though the Met has said monsoons are going to be normal, the June precipitation has been 10% deficient.
Coming to the markets fear’s, the main bugaboo is that if the opposition unites, a motley crowd of political parties can wrest the elections from the BJP. Our view is that while the maths may look good on paper, it is unlikely to make people vote that way.
Our sense is that the electorate is intelligent. When faced with a binary choice, they may vote differently than how they voted in 2014.
Given an option, the electorate may want to go with stability when they realise, that the opposition is coming together for their own selfish reasons and not for the benefit of the proletariat.
Finally, we would like to remind investors, we currently have two states of the markets. One is of the Index, which is marginally down from all-time highs (Nifty), and then we have the mid and the small caps, which are quoting on an average more than 30 percent from their highs, which makes it a bear market of its own.
Investors will do well to stick to the large caps and do a SIP to further bring the risk down.
It may be time to remind readers that domestic investor has woken up and he will continue to pour in more of his savings into equity as this remains the only liquid, lower tax, and higher return option for the investor.Disclaimer: The author is Head – PCG & Capital Market Strategy, HDFC Securities. 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.