Stay Cautious As The Markets Are Overheated

No corner of global financial markets remained untouched due to Britons vote for Brexit from European Union on June 23^rd, 2016. On the Asian land, Bank of Japan keeps policy steady. Weak export data of China for the month of May suggested that the external demand still remains weak. Recently World Bank has cut its growth projection for the world economy. Federal Reserve Chair Jannet Yellen’s speeches are closely heard as the chief often drops hints regarding future monetary policy.

Global markets are oscillating on tune of ups and downs in Brexit polls and the US Federal Reserve’s dwindling confidence in its own outlook. Guess game of Brexit led the ramp down in almost all international markets in last fortnight. In Asian markets; Nikkei, Hang Seng and Shanghai were down by 5.14 per cent, 3.70 per cent and 1.31 per cent over last fortnight. Same play was witnessed on European front - FTSE 100, DAX and CAC 40 plunged by 3.87 per cent, 1.98 per cent and 2.31 per cent respectively. US street which includes Dow Jones, S&P 500 and NASDAQ were down by 1.11 per cent, 1.69 per cent and 2.40 per cent respectively.

Back at home, markets regained lost ground on June 20^th, 2016 after kneejerk reaction to RBI Governor Raghuram Rajan’s decision to quit at term end and continue as academia. Indian economy will give farewell to one of the best economists in September, 2016. On policy front, government of India made an announcement to liberalise Foreign Direct Investment rules in nine sectors. Now 100 per cent FDI basket includes sectors such as food trading, airlines, pharma, private security agency, defence, media (teleports, DTH and cable networks as well as mobile TV) under tag of conditions apply.

Meanwhile, we observed decrease in inflow of net equity investment by Foreign Institutional Investors which is down to Rs 1696.29 crore in last fortnight as compared to the previous session. Domestic Institutional Investors are declined significantly due to clueless momentum.

In last 15 days (at the time of sending this report to print on June 20), metal, realty and power sector stocks surged by 3.59 per cent, 2.73 per cent and 2.04 per cent respectively. Other indices -Sensex, Nifty, Bankex were flat to down on mixed cues from domestic and global front.  Small-caps, Mid-caps, auto sector, FMCG and IT sectors are seemed to be overheated. Mahanagar IPO, merger of Max Financial Services with HDFC Standard Life Insurance and Sybly Industries from textile sector merger with Dux Textile Pvt Ltd & Vartex Fabrics Pvt Ltd. kept investors’ interest alive. We are at a brink of a turn in global economy that can have far reaching ramifications politically, economically and financially. With global cues already factoring the massacre due to Brexit, we would give investors a word of caution. We believe the markets will be choppy in the near term though the medium term outlook remains positive.