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By Alpha Research
Nov 21, 2024
These are unprecedented times we live in.
With the US election uncertainty now partly resolved, markets are recalibrating to new dynamics influenced by both domestic and global factors.
Global headwinds are intensifying with rising US bond yields and a strengthened dollar, making Indian equities less appealing and fueling outflows. Middle-East tensions and uncertainty around US policies under Trump's new administration add to the instability.
Key global economic indicators—including US bond yields, US dollar index performance, US unemployment claims, flash manufacturing and services PMI data, and Japan's inflation data—will be pivotal in shaping market direction. Investors will also examine any impact on Wall Street or the US dollar from announcements made by US President-elect Donald Trump.
Amidst the global cues, with Powell hinting at a delayed rate cut, the Indian stock market has entered a stormy correction phase, losing approximately 10% from its September 2024 peaks. However, they ended slightly higher on November 19 and were closed yesterday because of Assembly elections in Maharashtra. The Assembly election results for Maharashtra and Jharkhand will be declared on Saturday, November 23. They will be pivotal in shaping market direction this week, owing to the sentiment.
Domestic pressures are weighing on sentiment. Disappointing Q2 FY25 results, especially in consumption-driven sectors, sparked valuation corrections. Adding to the woes is rising Inflation, and spiraling food prices have pushed retail Inflation higher, unsettling consumer and investor confidence.
The headlines are loud—foreign outflows, inflation spikes, geopolitical crises—but the fundamentals of disciplined investing remain unchanged.
The recent surge in the price of Bitcoin indicates that investors are interested in adding digital assets like cryptocurrency to their portfolios because of the potential for significant returns. However, it is given that all-time highs tend to attract more investors. The margin of safety after the recent rally in digital assets is very low and investors are suggested to be careful.
It is vital to focus on the bigger picture. Despite the short-term decline, the broader trend remains positive, as seen in year-on-year gains across small-cap, mid-cap, and large-cap indexes, which are up roughly 10-15 percent.
Amid a setback in H1FY25, investors see some light in H2FY25 earnings due to increased government spending, a good monsoon, and a revival in rural demand. Consolidation may continue in the near term; however, the beaten-down value stocks may witness bottom fishing due to their potential outlook.
Moreover, the primary market will continue to witness action as some new initial public offerings (IPO) and important listings are slated across the mainboard and small and medium enterprises (SME) segments.
Another notable development that warrants attention is the recent (on November 11, 2024) finalization of the rules for reclassifying Foreign Portfolio Investor (FPI) investments to Foreign Direct Investment (FDI). With some conditions, the new framework allows FPIs to invest in companies beyond the 10% limit. The FPI must get approvals from the government and the investee company. The rule doesn't apply to sectors with sectoral caps. The new framework can benefit Indian companies by making it easier to attract more foreign investment. It is interesting to see how its impact is unveiled.
This volatility may seem daunting, but it also brings opportunities for the well-prepared and strategic. Market corrections aren't the time to panic—it is the time to prepare and to invest in high-quality assets at discounted valuations, setting the stage for substantial future gains.
A similar thought was echoed when CLSA reversed its tactical allocation to India. From 10% Overweight, it increased it to 20% Overweight. It considers India as "arguably the principal scalable growth opportunity in emerging markets" after the recent correction.
Another often overlooked aspect of a correction phase like this is an accumulation of liquidity in the market. This considerable liquidity at the disposal of domestic investors can trigger a bounce back, contingent on favorable fundamental factors. The ongoing SIPs of retail investors are a strong indicator of this liquidity. According to recent AMFI data, equity mutual fund inflows surged to ₹41,886 crore in October, marking a 22 percent increase from the previous month.
My dear readers, I want to reinforce the importance of a long-term approach rather than reacting to temporary market fluctuations.
View these market dips as opportunities to strengthen your portfolios and leverage the long-term growth potential and resilience of the Indian economy.
Despite short-term challenges, several factors could bolster market recovery - Increased government spending, positive monsoon effects supporting rural demand, and opportunities in underperforming mid-cap and small-cap stocks. Accumulate in phases and adopt a staggered approach to buying fundamentally strong stocks or funds. This reduces risk and optimizes your average purchase price.
Approach the current market scenario with confidence and foresight. Use this phase to fine-tune your strategies and position yourself for the market's eventual rebound. Preserve liquidity for opportunistic investments in underpriced assets.
Stick to Your Plan. Continue SIPs in equity funds to take advantage of lower prices during corrections. Avoid making portfolio changes unless your long-term goals or risk tolerance have shifted. Let time and compounding work for you while the markets sort themselves out.
Strengthen your portfolio - Look for Value Buys.
Ignore short-term noise.
Embrace Inaction - Stay calm, Stay invested.
Best Regards
Dr. Tarunika Jain Agrawal Ph.D.
Alpha Research
Disclaimer
The above views are our expectations of the economy, market and investments. The views may or may not play out accordingly. You are requested to do your own due diligence before making any investment
