Moneycontrol Pro Weekender: All is well

Dear Readers,

Q: Didn’t the government’s estimate of real GDP growth this fiscal year come in at a mere 5 percent, the lowest since the global financial crisis?

Markets: Who cares?

Q: Didn’t the estimate say nominal GDP growth will be the lowest since 1975-76, thus casting a cloud over average earnings growth estimates?

Markets: So what?

Q: Didn’t the government data show that the government sector is the biggest contributor to growth, implying that the private sector is even weaker than the dismal headline numbers show?

Markets: Ah well.

Q: Are we certain that the crisis in the Middle East is over?

Markets: Of course it is, didn’t Trump tweet ‘All is well’? Worrying about the Middle East is soooo last week.

Q: Didn’t the World Bank say that global growth in 2020 will be a mere 0.1 percentage point better than last year?

Markets: We’ll see about that.

Q: And didn’t it say the economic recovery in India is going to be slow and shallow?

Markets: Just you wait, we’ll have an awesome Budget. Also, check out how the Purchasing Managers Index for December rebounded.

Q: Yes, but didn’t consumer staples companies warn that rural demand remains sluggish?

Markets: Don’t worry, the rabi crop will be better.

Q: World food prices are at a five-year high. In India too food prices are rising.

Markets: A bit of inflation is just what is needed.

That is the kind of conversation that went on last week between the markets and the doubters and worriers, as we had a spine-tingling rally in the equities. There is an amazing amount of optimism out there.

And why not? After all, you don’t fight global central banks and the tsunami of liquidity they can throw at the markets. As strategists at both Bank of America and Morgan Stanley have written, there is likely to be a ‘melt-up’ in the markets in the first quarter of 2020.

Morgan Stanley’s chief United States equity strategist Michael Wilson has pointed out that the US Fed, the European Central Bank and the Bank of Japan are together expanding their balance sheets at the rate of $100 billion a month.

Also, there are some signs that the worst of the slowdown is over. The Global Composite PMI, which considers both the manufacturing and services sectors, came in at an eight-month high in December 2019. With abundant liquidity, a trade deal of sorts and a bit of a bounce in global growth, what more do we need -- that is what the markets seem to be thinking. The weight of money has a way of easily finding arguments to support it.

If that is what the markets think, what should investors do about it? They could look at some stocks that have gone up a lot, such as this housing finance company and decide what to do now.

Similarly, they could look at bank stocks that have already run up quite a bit and check which one it makes sense to invest in. Or they could search for dominant players in niches such as this one, which enjoys superior returns. And, as usual, our independent research team tells you what to avoid.

Niti Aayog’s astonishing finding that poverty and hunger had worsened in the country last year made us look at the world outside the markets, while we also looked at another hot button social issue here.

Here’s hoping next week’s spate of corporate results meet expectations.

Cheers,

Manas Chakravarty​