Editorial
Bet On The Growth And Momentum Stocks To Remain In The Game
Indian stock markets witnessed an obvious instability at the peaks during August derivatives expiry, where bears strived for an attack, but bulls were in no mood to surrender. However, very poor market bias and depth along with little momentum on the upside has been a big worry for the investors. The select few high weightage stocks constituting more than 95% of the indices are trailing at record high levels with daily higher highs, keeping all other stocks either subdued or in the negative territory.
On the domestic front, Indian rupee has hit historic low level of 70.82 against the dollar, making it the worst performing currency in Asia. The bounceback in the Brent crude prices to multi-month high of USD 77.76 brought about higher dollar demand from the importers. This along with the rise in gold and coal prices, could worsen the current account deficit (CAD) of the country, which is already at 3% of the GDP. Even the fiscal deficit is nearing its record levels of USD 200 billion in FY19.
The higher the CAD, weaker would be the rupee, thereby making it difficult for the industrialists to go for external borrowings, though exports are inching up. Post the Q1FY19 corporate results, the country is witnessing re-buying by the foreign institutional investors. Moreover, the remittances by the NRIs into the country, which is currently 2% of the GDP, is having a cushioning effect.
The release of GDP data and fiscal deficit seem to have been discounted by the markets. All said and done, now all eyes would be on the RBI monetary policy. It would be interesting to see whether the RBI would boost the growth momentum at slightly higher inflation level of 5.5% or else impose one more repo rate hike and maintain the inflation at its target of 4%. September is about to start and the release of the macroeconomic numbers will be followed by the data on eight core industries and other regular releases.
On the global front, Trump is back onto his pinching spree with the ongoing trade tariff wars with China and Turkey and protectionist stance against Canada. This time the US and Mexico agreed a revised deal of the North American Free Trade Agreement (NAFTA) sans Canada. Trump also threatened to tax Canada's automotive sector if the deal is not agreed upon. This might dampen concerned companies in the Indian automobile sector.
Indian stock markets are rising, but the portfolios are yet to reflect the same. Select stocks with high weightages in the major indices are pulling the markets up, creating a misleading picture about the markets. If these handful stocks undergo correction, the benchmark and broader indices will not take time to reverse from the current levels. However, the state and general elections at the doorstep may keep the markets going, despite the currency and global macro hiccups.
Maintaining our earlier view, we suggest our investors to stay with the bottom-up approach of stock selection and follow the trend and momentum indicators, along with growth or reviving financials. The growth or broken out stocks should be preferred to the bottomed out ones.
(Subscribers can send their feedback and queries on technicals portfolio guide to fnieditor@dsij.in).