As on last Friday, the domestic equity market lost little more than Rs 26 lakh crore from its peak market cap of close to Rs 160 lakh crore. This notional loss is roughly 14% of India’s expected GDP of FY2019. Enormous damage is done in the equity markets. However, surprisingly the fundamentals of the economy haven’t deteriorated so badly.

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It is lack of adequate liquidity in the hands of individual investors, the absence of any inflows from the foreign investors, a significant correction in the global equities and unnecessary exaggerated fear on the markets have led to steep fall in the domestic equity wealth which is unprecedented in terms of magnitude. 

Pain may continue till December due to forthcoming state elections and its implications for the 2019 general elections. It is worth taking the current pain in the markets and increasing the tilt towards equities in a phased manner Many quality stocks trade in single-digit PEs and many offer very good dividend yields also. 

Quality banks trade at a steep discount to adjusted book values after a long gap of over 13 years. NBFCs face liquidity issue, but not a crisis in terms of capital as they have contained their NPAs largely. The corporate earnings continue to grow in double-digits so far for Q2FY2019, though it is largely skewed in the favour of technology stocks. Oil price remains a concern, but over 10% correction from the recent peak and some correction in the global economic growth provide hope that more correction is yet to come in the medium term.

So far, the FIIs have sold over Rs 51,000 crore worth of equities in the current fiscal. However, any further major selloff is unlikely as a vast majority of stocks have lost a minimum 15% this year and rupee is also down over 13%. Hence, this is time to increase the tilt towards Indian equities now for creating substantial wealth in 2019. 

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The only potential risk to this view could be a scenario where national parties failing to muster near 200 seats individually in the forthcoming Lok Sabha elections. Such a scenario would lead to an increase in the focus of ruling parties on political compulsions rather than on economic objectives.

G Chokkalingam
(The writer is founder and managing director at Equinomics Research and Advisory)

Source: DNA Money