The market is pricing in a reform-oriented stable government, pivoting around one national party.
Market sentiment in the near term will be influenced by the election outcome. The market couldn’t predict the actual election outcome in 2004 as well as in 2009. It got lucky in 2014. Election results matter and affect markets at the time of announcement. In 2004 as well as in 2009 unexpected outcome resulted in significant movement in the market.
Today the market is pricing in a reform-oriented stable government, pivoting around one national party. There will be material move on the day of the result if the actual outcome is different. Post-election, the market will be driven by fundamentals. In May 2019, an unexpected result will make a material impact on the market as it did in 2004 and 2009, but after that fundamentals will take over.
From a fundamental viewpoint, FY20 earnings growth could jump, owing to corporate focussed banks, generic pharma companies and firms having a presence in Europe. Telecom sector could be a surprise if the ongoing telecom war comes to an end.
From the headline point of view, 3Q FY19 GDP growth slowed to 6.6 percent. Auto sales in February were down by more than 7 percent. The auto sector is cutting production to manage higher inventory. FMCG and consumer durable companies are witnessing demand deceleration. Tractor Firms are talking about a deceleration in the rural economy. Goods and Services Tax (GST) collections are coming below the budgeted run rate.
Why is market ignoring signs of deceleration?
In our opinion, the market is discounting such news as a slowdown in growth and not negative growth. The reference here is about below potential growth and not negative growth. India is still the fastest growing major economy in the world.
The below potential growth is a function of multiple factors. For one, the formalisation of the informal sector due to disruptive reforms like demonetisation and GST have changed the business model resulting in the inevitable slowdown.
The government in the last few years pursued the path of fiscal prudence, which combined with tight monetary policy, adversely affected the growth potential like a car slowing down with combined effect of brake and hand brake.
To get profitable financial guidance, give one missed call on 9644405057. We offer 2 days of free trial. Our packages are affordable. Click here to visit our website: Option Tips
No comments:
Post a Comment