Post the poor performance of last week (when Nifty50 fell by 8%), this week has been moderate with flattish gain of about 1% in the last five trading days. In spite of this, unpredictability has been high given uncertainties in the domestic and global market due to a weak economy. One reason for the clampdown was selling by Foreign Portfolio Investors (FPI). FM held a meeting with corporates and market players last week to develop consensus and steps to firm-up investments and boost the economy, which is showing heavy signs of slowdown. In the meeting, a complete rollback of super-rich surcharge was tabled in the wish-list. The removal of long-term capital gains tax, dividend distribution tax, and long-term certainty in tax policy were among the other top inputs from the industry. FM has taken stock of all the issues, providing a hope that government will announce supportive steps to revive the economy. FM is expected to meet FPIs specifically in the coming days. Currently, Foreign Institutional Investors (FII) continue to be sellers given no clear direction from the government in the meeting and risk-off environment in emerging markets.
Post the massive sell-off in Argentina, there is anxiety in the market that it could have a cascading effect in other emerging markets. In anticipation of a change in the austerity-driven and pro-business government, the country’s key benchmark plummeted by 35% on Monday, 12th August 2019 and currency (peso) fell by 15%. The unemployment and consumer inflation of Argentina has increased to 10% and 57% during the last five years. Uncertainty in the financial market could have implications in the Latin American countries in the short-term. The general election in Argentina is stated to be held in October. FIIs may remain cautious in EMs, including other frequent issues like the neutral stance of Fed to not cut interest rate in 2019, trade-war, geopolitical issues, and slowing world economy.
With regard to India, the economic situation continues to be weak. Wholesale Price Index (WPI) has fallen to 1.1% in July 2019 from 3.2% four months back in March. WPI is an important indicator which measures the demand, supply and profitability of the business in the country, which is very feeble today. When we look at the Q1 result, weakest performance were in sectors like Auto, Telecom, Metals, and Chemicals while a moderate performance was seen in Cement, Banks, NBFCs, and Pharma. The overall Q1 PAT grew by only 7% compared to preview expectations of 11% on a YoY basis. This is far below the market expectation which was hoping for more than 20% growth in FY20, by holding an optimistic view on the second half of the fiscal year led by a revamp in the economy. It seems very obvious that earnings growth and outlook will be downgraded for FY20 impacting the trend of the market in the next one to two quarters. Global issues are not subsiding while the domestic market is floating on the hope that government will come-out with supportive measures. Development on these points is going to define the trend of the market in the short-term. Till the final measures are announced and understood by the market, the market will move as per the upcoming economic data which are weak as of today.
Posted: August 2019.