Friday, July 31, 2015

Equity Markets hold their nerves in Turbulent times

July 2015 proved to be an eventful month in the history of Financial Markets: World markets oscillated between hope and despair as the 'Greek Paradox' and the 'Chinese Nightmare' unfolded amidst extreme uncertainty. After days of claims and counter claims Greece was granted another bailout by the European Union with some tough terms for the revised package. A crises has been postponed for the time being. But the bigger jolt came from China, as news of a major Chinese slowdown made severe dents in the commodity markets. All commodities fell in tandem as the US Dollar hit new highs exerting pressure on Gold, which hit multi year lows and slipped below the $1100/ ounce mark. Other metals in the metal pack hit new multi year bottoms as slowdown in China became evident. Crude oil continued its unabated southwards journey slipping below the $50 mark for 2nd time during the year.
 
Events on the domestic front brightened for India due to the soft commodity prices, but our politicians continued to play hide and seek by disrupting parliamentary proceeding day after day. The fate of several crucial bills including GST, Land Bill etc. still hangs in balance. The saga of Q1 results presented a mixed bag with muted growth in profits for a majority of the companies. While IT sector surprised with better than expected results, the Pharma majors and PSU banks disappointed with a drag on their bottom lines.
 
Markets remained resilient through the July mayhem, and have begun the August series on a positive note. Most analysts are again sounding positive on the future growth of our equity markets, based on the following reasons:
  • Monsoons have picked up contrary to the dismal forecast, and sowing of crops has been good in most parts of the country
  • Greece has reached an agreement with EU which augers well for the Euro-Dollar stability
  • Passage of GST bill may prove a sentimental booster for markets
  • EPFO would start investment in equity markets from August
  • However, bottom lines would start improving from December quarter only
Our markets may have made a bottom at around 8000 levels on the Nifty. A retest of these levels may not be ruled out in case of extreme pessimism. Otherwise, we can hope to see substantial re-rating of our markets in second half of this fiscal, when the positive effects of soft commodity prices and low interest rate transmission would be visible. Given that China will considerably slowdown India may find itself in a sweet spot. This augers well for our equity markets in the medium to longer term.