Nifty99000 100%

Sensex99000 100%

Article rating: 4.0
Article rating: 3.7
Article rating: 5.0
Article rating: 4.0
Article rating: 4.5
Article rating: 3.8
Article rating: No rating
Article rating: No rating
Article rating: No rating
Article rating: No rating
Article rating: No rating
Article rating: No rating
Article rating: No rating
Article rating: No rating
Article rating: No rating
Article rating: No rating
RSS

News

Are fizzy markets ignoring slippery macros?

Author: Kumar Shankar Roy/Thursday, May 3, 2018/Categories: Economy, Expert View

Are fizzy markets ignoring slippery macros?

The recent sharp depreciation in the Indian currency versus the US dollar and continued high commodity prices, for instance in crude oil, have only been able to make small dents when it comes to Indian equity investors’ confidence. If India’s macroeconomic position indeed deteriorates, as is being feared, in form of higher Current Account Deficit (CAD) and a weaker Balance of Payments, equity markets will not be able to look away for much longer. Celebrate March-2018 GST collections as much as you want to, but one number does not a market make. At the moment, the liquidity-fuelled equity market is trudging along nicely, displaying an almost saintly detachment from the macro troubles of the real economy. Therein, lies the danger.

Weak rupee

When it comes to Indian stock market investors, it is as if no bad news is bad enough. There is a section of investors who see light at the end of the tunnel even as higher crude prices, the weaker rupee, and high commodity prices cast an ominous cloud over the long-awaited earnings recovery. A weaker rupee is good for exporters and hence EPS upgrades in IT stocks have happened. But, exports are not the only cog in the Indian economy wheel which imports 80% of its crude needs. If commodity prices were to sustain at current levels, it is difficult to imagine that a large part of the listed universe will be comfortably able to pass on the input price hikes as if nothing happened. 

Banking on banks

The stock market may be ignoring the commodity price situation for a reason. India is no longer driven by commodities. It is fuelled by finance. Banks are the elephants of the Dalal Street! And no one wants to discuss the elephant in the room. PSU banks may be a pariah at the moment, but private sector banks are no different if one were to read the headlines carefully. Banks are expected to account for about 50% of all the projected incremental profits for FY2019 for the Nifty-50. Already, net profit estimates for the ‘corporate’ banks have faced some cuts. If loan-loss provision assumptions on stressed assets are higher than what is being pencilled in, the total earnings estimates of the Indian market will have to be relooked at. We can promise you, a relook at elevated valuations is never pretty as the Sensex stays perched atop 34,500 and the Nifty over 10,500. The Sensex equity index trades at 18.2 times one-year forward price-to-earnings ratio --- much higher than Brazil’s Ibovespa, China’s Shanghai Composite Index and Russia’s RTS Index which trade in 6-13 times range.

Oil scare

Oil remains on the boil. High oil prices are already putting pressure on the government’s fiscal position. In an election year, oil price hikes are a strict no-no. With growing clamour over high oil rates, any cut in excise duty on diesel and petrol to calm jittery consumers will add another layer of pressure. Do remember that it was low oil price and related smaller oil subsidies coupled with higher excise duties on fuel that helped India paint a better macro picture between 2015 and 2017. If the government has to give back some of those slippery fiscal gains as crude oil prices climb, things will look very different. It’s a season of politics and hence populism tendencies will overshadow rational economic approaches. Five states are due for elections before January 2019. And the mother of all, the general elections, are likely before May next year.

The perils of ignorance

If you have been following stock markets over the past 30-31 days, investors have tried to shake off macro negatives. The strong performance of IT stocks has been celebrated, with much elan. But the bearish implications of higher crude oil prices on the economy have been shrugged off. It is a large enough disconnect. The weaker rupee has been brushed beneath the carpet. Never mind the banking brouhaha. Too much hope rests on the weak shoulders of the elusive earnings recovery. It is always left to the 'next few quarters' when it comes expecting earnings upgrades. We do not know what exact trigger will start a chain of negative reactions, but understanding and respecting macros is a good exercise that even seasoned micro-investors must indulge in once in a while.

(The author is a financial journalist with over 13 years of experience)

Print Rate this article:
No rating

Number of views (267)/Comments (0)

Kumar Shankar Roy
Kumar Shankar  Roy

Kumar Shankar Roy

Other posts by Kumar Shankar Roy
Contact author

Leave a comment

Name:
Email:
Comment:
Add comment

Name:
Email:
Subject:
Message:
x

Videos

Ask the Finapolis.

I'm not a robot
 
Dharmendra Satpathy
Col. Sanjeev Govila (retd)
Hum Fauji Investments
 
The Finapolis' expert answers your queries on investments, taxation and personal finance. Want advice? Submit your Question above
Want to Invest
 
 

Categories

Disclaimer

The technical studies / analysis discussed here can be at odds with our fundamental views / analysis. The information and views presented in this report are prepared by Karvy Consultants Limited. The information contained herein is based on our analysis and upon sources that we consider reliable. We, however, do not vouch for the accuracy or the completeness thereof. This material is for personal information and we are not responsible for any loss incurred based upon it. The investments discussed or recommended in this report may not be suitable for all investors. Investors must make their own investment decisions based on their specific investment objectives and financial position and using such independent advice, as they believe necessary. While acting upon any information or analysis mentioned in this report, investors may please note that neither Karvy nor Karvy Consultants nor any person connected with any associate companies of Karvy accepts any liability arising from the use of this information and views mentioned in this document. The author, directors and other employees of Karvy and its affiliates may hold long or short positions in the above mentioned companies from time to time. Every employee of Karvy and its associate companies is required to disclose his/her individual stock holdings and details of trades, if any, that they undertake. The team rendering corporate analysis and investment recommendations are restricted in purchasing/selling of shares or other securities till such a time this recommendation has either been displayed or has been forwarded to clients of Karvy. All employees are further restricted to place orders only through Karvy Consultants Ltd. This report is intended for a restricted audience and we are not soliciting any action based on it. Neither the information nor any opinion expressed herein constitutes an offer or an invitation to make an offer, to buy or sell any securities, or any options, futures or other derivatives related to such securities.

Subscribe For Free

Get the e-paper free