Carnage continued in equity asset class. In line with global peers Indian headline indices corrected nearly 2 per cent in the week gone by. Fall was primarily led by Banks, Financial Services, Metals, Pharmaceuticals and Realty stocks while consumption, infra and IT stocks remained resilient. Return of political risk on domestic front and US President Donald Trump’s dictate to establish new global trading norms have rattled the markets. Political risk will continue to affect markets, businesses and the Indian economy in the months ahead, till the general elections are out of the way. 

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Globally, Donald Trump is political risk incarnate, with his penchant for protectionism. The saving grace is the return of political risk comes at a time when the Indian economy is finally recovering, after the twin blows of demonetisation and the goods and services tax (GST)’s teething troubles. Global economic growth has also been picking up. 

In India, much now depends on rural economic recovery which holds the key to strengthening of demand revival which largely hinges on normal monsoons. 

Macros are turning cautionary. India’s current account deficit (CAD) rose to $13.5b (or 2% of GDP) in 3QFY18 from $8b (1.4% of GDP) in the year- ago period. CAD widened to 1.9 per cents of GDP in 9MFY18 from 0.7 per cent in the year-ago period. Oil prices are back on upward trajectory, Brent crude is trading past $70 per bbl, while WTI Crude Oil is catching up fast. Saving grace has been stable INR and valuation comfort post deep correction in equities in February and ensuing month. Nifty now trades at a PER of around 14-15x FY20e., which is reasonable for fresh investments.  

Silver lining to recent deep correction has been improving fundamentals on micro front. Pick up in automobile sales both CV and PV, improved volume off-take and realisations of cement, infrastructure, affordable housing and rural housing are growing at a decent pace. 

Rangebound trading is likely as we head into a three-day trading week which will also have F&O expiry for March 2018 series. Given, the valuation comfort; 9800 on Nifty should act as base while it would be difficult for markets to surpass 10,300 in near term. Buying on declines with focus on Infra, Cement, Housing Finance companies along with select private banks is likely to yield better returns for traders. Investors may start deploying money on select stocks in phased manner. Mantra is to start by deploying 30% of investible money in the ensuing week.     

(By Dharmesh Kant, independent market analyst)