Basically, the US economy in June 2018 quarter has shown substantial improvement. Their Dow & NASDAQ have also reached their highs. US dollar is strengthened against all the currency and India is not the exception. If we put current relative data of India and US in Mathematical and Statistical Model mentioned in my book (USD INR Forecast & Risk Management Techniques), then it shows rupee-dollar valuation at around 75. In my view, the rupee should stabilise and strengthen from this level.
Bond yield basically reflects the relative strength in the economy and considering the higher crude price, increase in CAD & Fiscal deficit and NPAs in public sector banks have raised the 10 year G -SEC bond yields. In spite of above two factors and ILFS & other NBFCs’ asset liability mismatch have cumulatively impacted stock market which was holding due to domestic inflows in spite of FII taking away money has finally reacted sharply in recent couple of weeks. This impact was so sharp that the big investors’ stock loss and margin have triggered which has resulted into further sell off the stock which will take the market lower even from this level before stabilizing.
From this month onwards, state elections are scheduled where BJP is not expected to do well plus next year is the main election year and I feel market will not immediately bounce back. However, considering the micro economic factors such as; Growth rate in June18 quarter at 8.2 per cent and industrial growth at 10.3 per cent and manufacturing growth at 13.5 per cent, construction growth at 8.7 per cent, export growth at 19 per cent.
Net NRI deposit up by 17%
CAD retained at 2.5%
Core sector growth at 6.6%
Retail inflation 3.69%
M&A deal value $19 billion
All these are very strong fundamentals factors for our country, in spite of higher crude prices and weaker currency as compared to emerging market countries. Considering above facts, it is not end of long-term bull market, but it is certainly deeper correction which will discover the true value of share prices and make market more stable in long run. However, 2019 being election year one can’t expect immediate recovery, but can consider as stabilization year or phase.
My advice to investors not to panic, hold their investment portfolios intact, and should not book impulse selling and booking heavy losses in knee jerk reaction. Considering high bond yield and difference in repo and bond yield and weakening currency and tame inflation, RBI has no other option but to increase rate by at least 25 BPS. However, considering the above domestic concerned, weaker industry performance & stock market sentiments, whether RBI differs this decision for couple of months is to be seen today.
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