“Never test the depth of a river with both feet” ~ Warren Buffet
With the WPI index falling to lowest in 9 years at -2.33% and the retail prices rose by 5.17%, RBI kept the rates stable with an eye on possible US Fed rate hike and the oil price volatility. Forex reserves have swollen by almost $41bn in about a year taking the total to a record $344.6bn. Bond yields slightly hardened to 7.86% though lower by almost 100bps compared to same period last year.
The tax jibe (MAT) by the govt. has spooked the FIIs creating volatility and a good entry point for investors. The DIIs (Domestic Insti Investors) like MF, etc. have seized this opportunity to invest with a net buy of Rs 11,511 Cr, the highest in over 5years while the FIIs were net sellers for the 1st time in last 12 months. Reports of EPF to invest 5-15% of its incremental funds in stocks from next month would boost the market.
The US economy grew by just 0.2% vs the estimates of 1% in the 1st quarter of this year, clouding the possibility of a rate hike in June. China GDP expanded by 7% in the 1st quarter in line with the expectations of 7.3%.
Oil prices rebounded by about 20% in April, the strongest since the selloff began last June, on the assumption of easing supply glut, the decline in rig count in the US shale and continued conflict in Yemen. But, the stockpiling of oil in the US is at a record high and with the peak season (winter) gone, needs to see how the market forces react.
Currency: Is 64 the new 56? It seems like. The US dollar has appreciated over 20% against the basket of currencies (16 of them) in the past 2 years while INR remained the most resilient currency against USD last year. Though, we might see a depreciation vis-à-vis the USD, we’ve strongly appreciated against the Euro, Yen and the other trading partners, affecting the exports. Also to translate the govt.’s grand plans of ‘make in India’ into a reality, the current levels could benefit. But, we being the net importer (Oil & Gold) it would spike the inflation a bit. The equilibrium is achieved upon various factors of commodity prices, exports, inflows, etc.
What’s in it for you?
Equity: The markets have corrected and forward P/E of both the main indices (sensex & nifty) are trading at a discount compared with the 5-year average. Surely, we’re in a ‘secular uptrend’ in the long term and any correction esp. due to the international-based news/events is an ideal entry point. The golden rule of staggered (SIP/STP) remains good, though. The markets have factored so many good things already and expect to see disappointed results into this quarter also.
Nifty has a high resistance and support level at 8081, but historically May has not been a great month for Indian equities. So, increase the exposure at these levels for the shinier days to come.
Debt: A surprise rate cut is likely if we could handle the inflation in limits but the banks have been the spoiler till date. Hopefully, they begin to reduce the rates to provide leeway for RBI, in case the US Fed rate hike is delayed.
Gold: The stronger dollar and the China issues are weighing on this metal. The physical demand has been down by 9% in the 1st quarter of this calendar year. But, domestic value fluctuates with the currency.
Disclaimer: The views expressed are completely personal and investment decisions have to be made taking into consideration of one’s risk appetite, needs and timelines.
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