A deadly attack against security forces in Pulwama in Jammu
and Kashmir on Thursday shocked the nation and weighed on investor sentiments
as the security forces have been given a free hand to punish the perpetrators
of the attack.
The outcome of Lok Sabha elections in May, however, is seen
as the biggest local event that will set a direction
for markets. Until then, equity gauges are expected to react to
progress on global developments such as Brexit and U.S.-China trade talks.
Foreign portfolio investors have pumped in a net of US$767.77
million into Indian equities so far in February.
In
an key economic development, India's merchandise trade deficit widened to US$14.73
billion in January after hitting a 10-month low of US$13.08 billion in
December, data released by Commerce Ministry showed. The deficit was US$15.67
billion in January, 2018. Merchandise exports grew 3.74 percent on year at US$26.36
billion, mainly due to growth in textiles, drugs and pharmaceuticals as well as
organic and inorganic chemicals.
The
Reserve Bank has warned Yes Bank of regulatory action for making public its
report on of nil divergence in violation of the confidentiality clause, the
private sector lender said Friday. Yes Bank in a press release earlier
this week had said the RBI has not found any divergence in the asset
classification and provisioning done by the lender during 2017-18. In a
regulatory filing Friday, Yes Bank said it has received a letter from the RBI
which noted that the Risk Assessment Report (RAR) was marked 'confidential' and
it was expected that no part of the report be divulged except for the
information in the form and manner of disclosure prescribed by regulations. "Therefore,
the press release breaches confidentiality and
violates regulatory guidelines. Moreover, NIL divergence is not an achievement
to be published and is only compliance with the extant Income Recognition and
Asset Classification norms," the RBI said in its letter. This may
adversely impact the stock price in the coming week.
Crude oil
Oil
prices rose more than 2 percent to their highest this year on February 15 after
an outage at Saudi Arabia's offshore oilfield boosted expectations for
tightening supply, while progressing US-Sino trade talks strengthened demand
sentiment. The international Brent crude benchmark rose US$1.68, or 2.6
percent, to settle at US$66.25 a barrel, its highest since November. U.S. West
Texas Intermediate crude futures settled up US$1.18, or 2.2 percent, at US$55.59
a barrel, and hit their highest this year in post-settlement trade at US$55.80.
Global markets
Wall
Street rallied on Friday, with the Dow and the Nasdaq posting their eighth
consecutive weekly gains as investors grew hopeful that the United States and
China would hammer out an agreement resolving their protracted trade war. All
three major US indexes ended the session higher, and for the fourth straight
session, the S&P 500 held above its 200-day moving average, a key technical
level. Talks between the United States and China will resume in Washington next
week, with both sides saying progress has been made toward resolving the two
countries’ contentious trade dispute. Tariff-vulnerable industrials provided
the biggest lift to the blue-chip Dow, led by bellwethers Boeing Co, 3M Co,
United Technologies Inc and Caterpillar Inc.
Asian
stocks fell on Friday, retreating from four-month highs after data out of China
raised concerns over deflationary pressures building in the world’s
second-biggest economy.
Ajcon’s view
All eyes would be now on global cues and
domestic cues amidst deadly terror attack against security forces. We deeply mourn
the sacrifices of our brave soldiers, their memory will remain in our hearts. Globally,
all eyes would be on ongoing tussle between US and China. The recent slowdown
in China’s economic growth is also a cause of concern for global investors. Growing
confidence that the United States and China will resolve their ongoing trade
dispute will help boost global investor sentiments. Those talks will restart
next week in Washington, with both sides saying this week's negotiations in
Beijing showed progress. Clarity on Brexit would also act as a key
trigger for investor interest.
Investors have turned
cautious ahead of the forthcoming general elections. Investors sentiments
were dampened by the steep decline in shares of certain largecap and midcap
companies amidst mixed earnings performance in Q3FY19. All the sectoral indices
lost value over last seven sessions. Metals and oil sectors were beaten the
most, with BSE Metals index eroding 5.82 per cent in seven sessions, while BSE
oil & gas index erased 5.76 per cent and BSE Auto index 5.20 per
cent. The equity markets have turned very volatile and even Companies with
a massive scale are not spared. The recent volatility in stock prices of Tata
Motors, Dr. Reddy’s, Sun Pharma, Yes Bank, Vedanta, Essel group companies, Anil Ambani group
companies is a matter of concern as retail investors are getting trapped with every newsflow. As a result, we advise
investors to be cautious on the newsflow in markets, do proper analysis and
neither rush to take fresh positions or square off the existing positions or
holdings on disturbing newsflows unless getting a proper clarity of a particular
event or on Company’s performance.
We believe domestic
bourses would remain volatile till general elections 2019 results are out.
There would be temporary headwinds for investors but on a long term perspective
we believe the Indian equity markets are in a structural bull run as the
benefits of implementation of GST, Insolvency and Bankruptcy code,
digitization, thrust on Make in India and improving relations with key foreign
countries would augur well for the economy in the long run. The strategy at
present should be to invest in phased manner only in companies which are not connected
to any political party, have a robust business model, strong earnings and
cashflow visibility, low debt and backed by quality management especially on
the corporate governance front. Considering the above factors, investors can
have a stock specific approach in midcaps and smallcaps space as there are many
companies which are trading at a discount of 50-70% to their peak price in
early 2018. On a safer side, we would suggest investors to have a look at Consumption
stocks, top quality Pharma companies, NBFCs having strong parentage, Auto and
auto ancillary stocks, Gas companies, PSU banks (looking better after the
cleanup of NPA mess, progress made under
IBC), IT sector and Private Insurance
Companies at the current moment.
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