Is the worst behind us?

2018 turned out to be a dampener for most businesses in India with flat performance for majority.

There were of course some outliers who either did very well, or did terribly, but that's a given in any market scenario. So what were some of the key influencing factors and hows the outlook for the rest of the year?

1. US-China Conundrum

One big overhang on the global markets was the US-China tariff war which went on from extremely hostile stances in mid 2018 towards a more sobered down agreement in 2019. The curtains are yet to be drawn on this battle, as both sides are hard bargainers. However one feels we are close to the end of this chapter and an agreement will soon be drawn out detailing what each side intends to do, post which there should be no unpleasant shocks for the markets.

2. Effects of GST and Demonetisation waning off

The demons of 2017 were still playing out to some extent in 2018, with many businesses grappling with the new regulations. Cash flows remained poor, and changing such a huge mindset for a massive population is not easy. 

However we are pleased to note that small businesses and even tiny vendors are moving on to banking and digital payments. It's heartening to see a vegetable vendor or a vada pav stall having a paytm code enabling for smooth transactions in the absence of cash. Several entities have benefited from rate reduction as well under GST norms, and slowly but surely these measures have come to be accepted as the new way of life. 

3. Inflation tapering off

WPI and CPI in India are at multi year lows. While this means better spending power for customers due to reduced expenses, it also indicates a change in monetary policy stance from our central bank.

There is surely a scope for rate cuts coming up this year provided crude or monsoons don't throw up any surprises. 

Whether the cut happens in the next monetary policy meet or in subsequent ones, the point is rates are bound to be heading lower and lending could get back on track soon. Besides term deposit rates are so unattractive right now, money will eventually make its way to corporates either through the debt or equity route which will help them plan for capital expenditures better.

4. Money flow can improve

One of the primary factors for the economic slowdown has been very tight liquidity. While banks have been grappling with NPAs and working on recovering the larger debts, they have been bolstered by an active government and PSU consolidation also has been positive for this sector. 

NBFC's were also facing more than their fare share of problems, and while there may still be some skeletons to come out of the closet, at least everyone is getting more vigilant and it could lead to better compliance norms in times to come.

Later half of this year should surely see better liquidity.

5. A stable government

While this topic will be polarizing and debatable for many, in my personal opinion, NDA is going to be back for a 2nd term, whether it's an absolute clear majority or they'll have to stitch together a couple of alliances will remain to be seen.

Recently the government has been doing a lot to favour it's vote banks, be it 10% reservations for the underprivileged, a budget boosting incomes of the middle class, GST reduction in real estate, alliances with key parties like Shiv Sena/AIADMK and not to forget the decisive actions on terrorist outfits within and outside our borders. 

Given the track record of Modi-Amit shah duo, they will bolster up sentiments before the elections and should surprise with their numbers yet again.

6. Stable global environment

Hostilities between major countries are also getting to a low point, with no name calling and fighting of late. Even Kim Jong Un and Trump are starting to see eye to eye.

Provided commodities and the rupee remains stable, we can now look internally at company performances, and ours being a domestically driven economy will benefit largely from a strong and steady leadership. We do expect better numbers from most sectors in the coming 2-3 quarters. 

Given the above circumstances, we feel it is better to start entering the markets in a phased manner by picking right companies which have been undervalued right now due to a negative overall sentiment. There are several fundamentally strong companies which are available at a significant discount to their right values, and it offer great potential for exponential growth in years to come. 

Technical indicators show a breakout may not be far away, and we are hoping it would be in the positive direction.

Perfect timing of the market may be as much of luck as it is science, but we are surely closer to the bottom than the peak. It is better to be in the market and take a slight dip, which allows one to average out by investing further rather than missing out on a rally completely.

And with this respect we are advising clients to start cherry picking stocks NOW. 

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