The last two years, for us in India, the equity markets have been pretty rough. From the odd 86,200 to its current 75.700 reflects a reduction of 12 percent. Give or take, the narrow indices would be reflecting the same gaps. The wider indices would be showing much better numbers as the midcaps and the small caps have done decidedly better than the major indices viz. the Nifty 5o and the SENSEX 30.
We have all been told the many reasons the major indices have done the way it has. There is no point going there again.
But the real question is “ARE WE AT A SPACE THAT COULD SEE THE SENSEX GAIN SOME 10K????”
And what would do so??? What could we have in the immediate future that works in favour of equities, here in India and generally in the equities universe.
Well, the first is the US TREASURY YIELDS. This is the one number that everyone looks at, as it reflects the risk-free rate. Currently it stands at 4.93% versus 5.25% some days back. The fall in expected sure-shot returns, that too on dollar terms will see money moving from treasury to equities. Demand for equities go up.
Second. There isn’t much the foreigners can sell in Indian papers. The incessant selling over the last two years has ensured the holdings they have is largely to the core holding that they hold. With nowhere else to go the only way is back to Indian papers, not only as a stand alone but also as part of the EM basket. Of course, the extra bump will come from changes in tax rules (which were absolute nonsense to begin with) like removal of LTCG for them. That will really make the cauldron boil.
Third. The politics could change. In a few days we will have a very clear idea on which way Israel and the United States is going. We already know the Likud party has a very tough situation, even though it has the largest seats and the one party they could have asked have closed the door on BIBI NETANYAHU even before the elections. So the coalition could make the government. And if it happens perhaps the war rhetoric will flatten out. And the big one -The US MIDTERM. It seems the Trump led Republicans will lose the Senate as well as the house and this will lead every chair to be dominated by the Democrats and Trump will not be able to cherry pick Supreme Court judges. The less belligerent (hopefully), Democrats could perhaps settle the IRAN issue and who knows the Russia Ukraine issue too.
4th. Geography and the economy. With the possible end of war in the energy heavy region and refineries going full blast and ports and waterways getting back to do transportation of energy and petro chemicals, will see a big fall in input costs as well as overall positivity. People start moving around more as fear subsides and so does costs of travel. The geography propels the economy. The economic spoil filters down the line and helps to raise the standard of living of the common people. Demand rises, factory output increases and who knows, this could be the start of a very profitable virtuous cycle.
Fifth. Whilst this is also a part of the first point but it demands to be put separately. The corporate performance across industries and capitalisation bands have been excellent. Over the last two years corporate profitability has grown nearly by a quarter yet the prices of their stocks have suffered. But we all know the markets behave like a spring. The longer you muzzle them, in a rising bottomline environment, the more likely it is to make a longer jump. And over the last two years the case has been exactly that. And now the jump could happen.
Whilst a lot of positivism stems from exit polls, independent news and discussions and chats with fellow in the industry, the devil is in the happenings. If it were to happen like this, then!!! The caveat now stated, I rest my case.
Stay invested and invest more.
