Domestic factors impacting the market…

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This month has been bad for the market, as it was impacted by domestic factors. Nifty50 is down by about 2% while mid and small cap indexes are down 6% to 7% respectively. MSCI India is down by 4% due to 2.1% depreciation in INR, led by FII selling Rs 5000cr in equity and debt dated as on 27th January. While MSCI-World is up by 5.6% and MSCI-Emerging Market is up by 6.6% during the same time. India is under-performing compared to other emerging market due to a set of domestic developments which have impacted the market. A muted quarterly result has not enthused the market, expressing that earnings forecast will be cut at-least in the near future. Based on the 21 stocks which have announced results as on 29th January, Nifty50 PAT growth is about 9% on a YoY basis which means the  nine month EPS growth will be at sub 10%, while the market was hoping for 15% for FY19, this has started to moderate. The second factor is the subdued expectation on interim budget with a risk of populist agendas. We do not expect any important measures to be announced in the interim budget specifically benefiting stocks and sectors, rather than consumption-oriented sectors. In the budget, the most important number, market will be looking for is whether government will maintain the long-term target of fiscal deficit at 3% and restrict the deficit at not more than 3.5% for FY19. And lastly, this week SEBI tightened the margin funding requirement given the volatility during the month and in anticipation of higher volatility in the near future due to upcoming interim budget and general election. This impacted the derivative segment which has the monthly expiry today (Thursday), following some trouble to the broad market. Given the volatility, companies which were heavy debted, pledged and had high beta were impacted the most.

Nifty is facing stiff resistance at the level of 10,950, and trading between a narrow range of 10,600 to 10,950. The next immediate support levels are 10,350 and 10,000. For the global market there are some uncertainties surrounding the upcoming US FED policy and global trade negotiation. Domestically, the upcoming interim budget and RBIs monetary policy could be the two major events that could steer market sentiment. Market expectation from the RBI policy is building up, as it now expects RBI to moderate their stance from “calibrated tightening” to “Neutral”. And also cut repo rate by the middle of the year or post general elections. RBI had highlighted its concerns about domestic inflation, oil prices, banks liquidity position and global slowdown, based on which it tightened its policy stance. This was in spite of inflation, which has continuously beaten down its target forecast, which was not taken well by the market. A change in the guard has also been  welcome for the market. But in the short-term RBI will not be able to provide a big relief to the market by cutting interest rate in-spite of a supportive inflation data, given the situation of new governor and tight stance, till the national elections.

Posted: January 2019

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Head of Research, Geojit Vinod Nair holds a Bachelor of Commerce degree and CFA (India). He has rich experience in equity research and comments on news impacting equity markets in India. In addition, he shares his views on Union Budget, Government policies, reforms and any developments which impact equity investment in India and market outlook.

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