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E-Conversations by Mr. Arun Thukral, MD & CEO, Axis Securities
Apr 30, 2018 | Source: AxisDirect
Indian markets have exhibited tremendous resilience over the last couple of weeks amidst positive cues from the central bank (RBI maintained status quo, lowered inflation band), Meteorological Institutions (both IMD & Skymet guided for ‘normal’ monsoon) and global front where the political tensions in Middle East and economic tensions between US and China abated. These advances in the market have come in wake of rising crude oil prices (which is currently trading around $74/bbl) and rising US 10 year yield (trading shy of 3%), the former being a bigger concern for Indian economy.
Quarterly earnings have been in line with estimates with no negative surprises, so far. We expect the corporate results to perform an encore’ maintaining the trend of annual growth on the back of consumption led demand following a good harvest in kharif and rabi crops. Sectors like automobiles and auto ancillaries, rural consumption, FMCG and consumer durables, retail banks and NBFCs, metals, engineering goods and infrastructure companies are expected to post good to better results. PSBs are likely to disappoint.
The resolution of non-performing assets has picked up pace; one case has already been qualified with a resolution plan in place while few more cases are being worked upon. Good properties especially in steel and cement sector are being aggressively bid for which will lead to a relatively less haircut to be taken by the creditors. As NPAs get converted to ‘performing assets’, the stress on the balance sheet would reduce, allowing banks to concentrate on regular business activities. Overall, the economy is on an improving trend although small pitfalls/ uncertainties regarding domestic macros (due to oil price rise) and global liquidity persist.
Important events to be looked upon in the near term are a) US Fed meet, and its outcome on policy rates and pace of tightening, in the first week of May 2018 given the fact that the macro-economic variables in US are improving and b) Karnataka elections outcome in the mid of May 2018. Acceleration in the pace of tightening in the US will cause further hardening of US yields thereby attracting fund flows towards US debt with a high probability of outflows in emerging markets including India. Markets will also have a close eye on the outcome of Karnataka elections.
Equity investments have historically beaten inflation by wide margins thereby creating wealth in the long run notwithstanding short term volatility. Instead of getting carried away by short term volatility, an investor has to look at the BIG picture and focus on his investments.
Feel free to share your comments/ insights for our research, products and services.
You can directly share your experiences with me at arun.thukral@axissecurities.in.
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