For risk averse equity investors, a largecap portfolio concentrated in reasonably priced quality growth will withstand volatility and deliver fine returns.
An event such as the latest India-Pakistan standoff is bound to shake up markets and the global economy. Demonetisation, the SEBI reclassification and IL&FS fiasco are just some of the recent unforeseen events that led to high volatility and dispersion in outcomes in recent history.
Similarly, the notion of making investment decisions on expectations of a particular outcome is similarly challenging. Things rarely evolve as one reasonably expects. It is also human nature to expect a continuation of the recent past, which rarely occurs. The fact is that forecasts aren’t worth very much because nothing is certain.
Rather, we would submit that the job of forecasting is better reduced to the job of identifying shifts in the market narrative and implementing strategies to take advantage of the opportunities best suited for the evolving environment. We list ten of these shifts below:
1. FII Flows into India Are Rising Again (Positive)
FIIs were net buyers to the tune of Rs 16,100 crore in February. In comparison, FIIs sold a net Rs 21,000 crore during April '18 to Feb '19. Over the last four months, FIs have pumped in Rs 28,500 crore. It is too early to state that FIs flows will sustain through the rest of the year; however, the data clearly suggests that FIs have been supporting the markets of late, which is encouraging news for investors.
Emerging markets received $25.6 billion of foreign fund flows in February, of which $2.9 billion has come to India, signalling that sentiment for the region is possibly turning, and India will garner a fair share of FII inflows.
2. Key Global Headwinds in 2018 Are Shifting to Neutral (Positive)
Key global headwinds in 2018 -- the US China trade wars and Fed Chairman Powell's ill-conceived and aggressive rate hikes and balance sheet contraction -- appear to be dissipating and shifting to neutral.
3. Crude Oil Appears Ready to Move Higher on Peaking US Shale Production (Negative)
With the peaking of rig counts in the US, US shale production could be peaking in the near term. That's offset by slowing global demand, but aggressive supply cuts by OPEC suggest that oil producers want, or need, higher prices. We'd expect the rise, if any, to be gradual. Further increases in crude will yet again begin to act as a drag on Indian markets.
4. India Pakistan Tensions Have Shifted the Election Narrative in Favor of the Incumbent Party (Positive)
The next few weeks leading to the election are likely to be dominated by rhetoric on the escalating tension between India and Pakistan, and this favours the incumbent party. Should the BJP win the election, overseas institutional capital is likely to flow back into India.
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