Fundamentally Strong Stocks Can Over-trump Donald Trump

Indian equity markets witnessed one of the biggest volatile situations in the capital markets on the back of the outcome of the US Presidential election and Narendra Modi government’s crackdown on black money menace, with the government declaring that 500 & 1000-rupee notes would no longer be a legal tender from the midnight of Wednesday, November 9, 2016. 

Modi government’s move is a historic one in its massive campaign against black money offenders hoarding huge cash generated from illegal activities. The move also holds importance as this is likely to be a revolutionary step in the months and years to come. Benchmark indices BSE Sensex and CNX Nifty crashed 1689 points and 541 points, hitting an intra-day low of 25902 and 8002 respectively. However, as the US Presidential election results were declared and Donald Trump was elected as the 45th President of the United States of America, the markets started to recover from its lows as investors grabbed the opportunity of buying stocks at lower levels. India VIX gauge of volatility closed in the red from green, when it had shot up almost 23 per cent in early trade. 

Other global economic developments that kept the markets on tenterhooks were FOMC, BOJ and RBA meets which were keenly tracked by the global financial markets. All the monetary policies were in line with the street expectations as central banks continued to maintain status quo and decided to wait for further economic data to take future call on policy action. 

In commodities, oil prices remained soft due to the concern regarding the OPEC commitment to cut down its production to boost prices. Among metals, base metals continued their good run with zinc hitting 5-year high, while lead and aluminium also posted stronger gains which was also supported by strong PMI data emerging out of China for the month of October.

Precious metals, gold and silver, considered to be safe havens for investment, gained smartly in trade, anticipating a meltdown in the global equity markets. As regards fund flow action over the fortnight, the foreign portfolio Investors (FPIs) continued to remain sluggish ahead of the all-important political event as they removed close to Rs 3,518.11 crore. On the contrary, the domestic institutional investors (DIIs) remained strongly bullish on the domestic markets as they pumped in Rs 6,670.43 crore for the period under review. 

On the earnings front, companies posted a mixed set of second quarter results, with the likes of automobiles and private sector banks, barring Axis Bank, posting in-line set of numbers driven by volume growth for auto companies and better asset quality performance on the part of the private lenders. There were also pockets of surprises with heavyweight ITC and banking major ICICI posting stable set of numbers.

Going forward, we expect markets to remain volatile and all developments related to Donald Trump cabinet and policies would provide further directions to the global financial markets during next few months. Domestically, smoother implementation of new denominations of currency in the economy would be the key in the near term.