The monsoon has arrived & it has arrived with a BANG!
Conversations with Mr. Arun Thukral, MD & CEO - Axis Securities
Jun 30, 2016
The monsoon has arrived, albeit with a delay of 10 days (approx.) but is catching up fast. The Nino 3.4 index has turned negative & approaching -0.50C - the threshold value below which the El Nino (phenomenon responsible for past 2 monsoon failures) will get neutralized. The country-wide seasonal deficit of ~12% has been reported for first month of monsoon but it is fast recovering. The weather agencies have forecasted for delayed start for monsoon & copious rains in the coming months viz., July-September. Good & evenly distributed rainfall will play a major role in improving the rural consumption & alleviate the rural distress. Coupled with the pay commission award disbursals, improving rural economy could spiral into improvement of consumer demand across segments.
United Kingdom has voted to opt out of the European Union in the referendum conducted on
June 23rd, 2016. Though the process of parting out will be carried out over the period of next 2-3 years, the event has caused anxiety & uncertainty among the market participants. The fear of contagion & the likely slowing of the economy in rest of the EU bloc have also added to the apprehensions. The only positive development from the whole process is that the likelihood of rate hike by US Fed has been deferred by at least 6 months, the crude oil & commodity prices have corrected on expectations of demand slowdown from EU.
The month of July is important for two reasons viz., the Q1FY17 result season starts from 2nd week & the monsoon session of Parliament will resume in 3rd week of July. Last quarter results (Q4FY16) have been in line with expectations. Barring Petroleum & Public Sector Banks, the rest of the economy has shown signals of earnings recovery. The process of bottoming out of earnings cycle is underway & we expect tangible recovery in the second half of FY17. Double impact of good monsoon & soft commodity prices could drive the corporate earnings faster than estimated. Parliament is expected to deliberate over the much awaited GST bill along with other reforms in the forth coming session. If cleared in monsoon session, GST may get implemented in FY18, helping drive the economy at an accelerated rate.
Indian economy is on growth path & the factors responsible to gather momentum are being put in place, one by one. But the headwinds in form of global uncertainties & provisioning in the banking sector on domestic side do exist, which may cause the markets to overreact temporarily. One should take the associated corrections to accumulate quality stocks with growth potential to build his/her portfolio.