GLOBAL CAUSES INDIAN EFFECTS

GLOBAL CAUSES INDIAN EFFECTS

 

Indian markets are linked to global markets in more than one way. The Indian economy is well integrated with the world therefore world events impact the markets. Global investors also choose to invest in markets that are attractive. Indian economy therefore is always seen in contrast to other global economies. It is but natural sentiments of global investors make an impact to the investment inflows.

 

Several factors like possibilities of US Federal Reserve rate hikes, exit of Greece from Euro Zone, and a host of mega initial public offerings (IPOs) in Chinese markets have contributed towards outflow of foreign money from Indian equities (almost $2 billion) from the highs of cumulative inflows this fiscal year. Despite that the Indian benchmark indices have managed to hold ground. The enhanced retail participation, highlighted by highest ever Mutual Funds buying of over Rs 32,000 crore ($5.2 billion), in Q1FY16 has more than offset the impact of foreign institutional investors (FIIs) selling.

 

An imminent US Fed rate hike has been one of the most talked about global events, which may cause volatility across all equity markets. However, an eventual hike in Fed rates is already built into investor behavior and may not come as a shock. Hence, the actual event may lead to a short-term blip, but may not be a major concern for the markets, especially, when India remains as one of the fastest growing major economies, attracting a major share of global funds.

 

Secondly, investors have been wary of economic slowdown in China, which may have a far-reaching impact on global funds allocation. Conversely, a slowdown in China bodes well for both the Indian economy as well as equities. Declining pace of economic growth in world's largest consumer of industrial commodities, has already affected a steep correction in commodity prices. India, backed by enormous domestic consumption, benefits from this reduction in commodity prices, which reduces the overall cost of growth. Moreover, global investors would also increasingly favour India in a bid to chase growth, which is reflected in Indian indices

outperforming their Chinese counterparts.

 

Lastly, the anxiety around Euro break up, which could have induced a risk off sentiment, has already been put to rest. With Greece working out an arrangement with its lenders to avoid a sovereign default, global investors would be able to better manage fund allocation towards emerging markets like India, without having to worry about safeguarding against contagion arising from Greece default.

 

On the domestic front, while economic growth has already started to turnaround, recuperation in widespread corporate earnings is still elusive. Nonetheless, we are already starting to witness recovery in corporate earnings in few pockets. We believe, by the end of current fiscal, there should be meaningful improvement in both corporate earnings and overall demand scenario. Though Sensex earnings have declined by 0.4% in FY15, we expect it to grow at ~18% in the

next years each.

 

Indian economy continues to remain at a sweet spot with decline in crude prices, lower agricultural and industrial commodity prices, and lower interest rates across the globe. We see the economy and equity markets turning structurally positive. And while markets have been range-bound so far, we believe this is an intermediate consolidation in midst of a multi-year bull run.

Happy Investing

Source:Icicidirect.com