India’s equity markets are typically driven by sentiment. So, when the going is good, the markets zoom, but when bad news strikes; equities crash. This has been the traditional view of the role of sentiment as a driver in the equity markets. But what is the ground reality on sentiment in the markets today? Manik K. Malakar spoke to a series of experts to find out how sentiments sway the markets today…
Have India’s equity markets, in your opinion now become immune to bad news from the domestic front at the very least? For example, on April 12, 2012 even though IIP numbers were weak the markets rose by 133 points that day to close at 17,332 points.
D.K. Aggarwal - CMD, SMC Investments and Advisors: Not really. Actually IIP numbers have been quite volatile. There are diverse views regarding the dependability of sources from which the data is collected to calculate IIP numbers. Further, the clear signs of the slowing economy and weak IIP give confidence to the markets that there is a good chance that RBI would cut interest rates aggressively. That's largely the reason for market rise.
Sudip Bandyopadhyay - CEO, MD - Destimoney Securities: To a large extent, domestic news flows have a limited impact on Indian capital markets, at present. Very clearly global news flows, sentiments and the liquidity situation, will be the prime driver for the Indian capital markets in the near future. In the absence of meaningful policy reforms and fiscal measures, the domestic economy is rudderless and ambling along. Hence domestic news flows have very little lasting significance for the markets.
K Jayraman - Research Associate, Bonanza Portfolio: We can’t come to conclusion that India’s equity market is immune to bad news from the domestic front, with just the one incidence of IIP numbers. The Equity Markets generally reacts in advance and on the announcement, if there is any major variation from the expectation, then there would be further movement accordingly. Indian Equity Markets are in sideways movement for the last 45 days awaiting some positive news or other.
Milan Bavishi - Head Research, Inventure Growth and Securities: This data is not reliable when CSO’s revision came for the Jan’12 IIP data from 6.8% to 1.1%. So it’s better to track IIP data for at least 8 to 9 months to get the overall picture of the growth in India. Thus market had reacted on the expectation of a rate cut on 17th Apr 2012 (This cut did happen to the extent of 50 basis points) which helped Sensex to gain 0.77%. The markets are now more efficient and can discount bad news in advance and thus react on the future expectations.
Preeti Gupta - Senior Research Analyst, Fairwealth Securities: The current macroeconomic challenges for India come from decelerating economic growth (GDP), high fiscal deficit, slowdown in industrial activities, inflation, higher interest rates etc. At present, I feel that these noisy issues are already factored in the domestic equity markets and may be the reason equity markets have started ignoring it. However, any unexpected or unanticipated event will definitely have impact on the markets.
Gopal Maliwal - Chairmen of Shilpa Stock Broker: It’s not correct to say that now Indian markets are immune from domestic bad news. Weak IIP numbers have already been priced in. also NIFTY has taken into consideration Infosys’ guidance which indicates a challenge. So it is contingent upon severity of news.
Uday Narayan Dubey - VP, Research & Institution Business: Not really, I think some news is priced in and some will be discounted. Overall I believe the news like IIP and slow growth are priced in and issues like GAAR is not priced in.
Is there a sense of cynicism?
D.K. Aggarwal: Absolutely. The market mood is quite subdued with concerns on various fronts such as political, economic, reforms and policy making. Globally investors are closely watching the developments on these parameters.
Sudip Bandyopadhyay: Yes, there is a sense of cynicism in the market regarding the domestic situation. Political constraints and fiscal compulsion have together made bold government policy decisions extremely difficult. The lack of political will is also disturbing..
K Jayraman: The economic reforms and the overall political environment are not as congenial as per the market expectations. The Government is not in a position to effectively push the reforms Agenda and also constrained to take tough decisions on various subsidies. Therefore we can say that there is a moderate sense of cynicism in the markets over the domestic situation.
Preeti Gupta: I do not see any panic or distrust in the Indian economy as the current ongoing concerns are definitely manageable. However, the government should speed its efforts to recognize the problem and need to act accordingly.
Gopal Maliwal: Yes. Market depends on domestic situation. Economic slowdown due to liquidity crunch, lack of infrastructure, policy and corporate governance cause market movement heavily. The current high fiscal and trade deficit situation have been challenging for the Indian Economy.
Uday Narayan Dubey: Yes, I think we are still not doing our work seriously. I think the government has to take some strict and proper steps through policy so that we can return to normal growth path. Issue like retrospective taxations policy, clarity on GAAR, DTC and GST need to be cleared out so that we can achieve the targeted growth rate and sentiment can improve.
What are the issues that could sway markets in the Q1 FY 13 period.
Aggarwal: The quarterly results, monetary policy and in particular interest rate cut, FDI related decisions, global factors such as European situation and fed decisions.
Bandyopadhyay: In Q1 FY13, favourable policy action by RBI (reduction in interest rates, CRR, SLR), expectation beating results from large corporates and favourable news regarding arrival of monsoon, can cheer the market. On the other hand, absence of any meaningful policy action by RBI, less than expected performance by large corporates and negative news flow regarding monsoon will negatively impact the markets.
K. Jayaraman: The 4th quarter results of companies has just started coming and results of Infosys along with their guidance is not being received well by markets. Therefore the results impact could be there at least up to April end which could negatively or positively sway markets. The monsoon predictions are expected to be above normal and this is one factor which could sway markets. The international price of crude oil and stability of rupee against the US dollar are other parameters to take note of. The EU crisis and the stability thereof is another important event which could sway the market either way.
Milan Bavishi: Company results and economic reforms like FDI in aviation, multi-retail brand and finance bill may act as a trigger to the markets upside.
Preeti Gupta: The March Quarter FY12 results which would be a mixed kind of impact. Also rate cuts by the RBI would be important.
Gopal Maliwal: The major trouble for an economy is liquidity crunch. Another key event would be economic data like GDP, Inflation and IIP data. Also if you see from sector wise events would be the decision pending on FDI permission in aviation sector and GoM on Pharma policy to be held on April 25.
Uday Narayan Dubey: For Q1 Fy13, market participants want clarity on GAAR.
What are the immune sectors?
Aggarwal: FMCG, pharma sectors are relatively stable and immune to external volatility.
Bandyopadhyay: We believe that Pharmaceutical and FMCG sectors, to a great extent, are immune from short term volatility due to the inherent strength of domestic consumption and significant cost advantage (in case of pharmaceuticals). However, one needs to go stock specific even in the above sectors for achieving optimum results.
K. Jayaraman: FMCG and Auto Sector are relatively immune to external volatility. The demand for FMCG products and automobiles (both two wheelers/ four wheelers) are robust and continue to grow on domestic demand criteria. Also Indian Banking Sector is doing very well and RBI regulations on Indian Banks are very efficient and appropriate. The soft interest and expanded credit availability is bound to help the banking sector. Also interest rates sensitive sector like Infrastructure, Real Estate and Capital Good Sector could become beneficiary of low interest rates and increasing demand in lieu of the same.
Milan Bavishi: Given the economic instability and concerns of inflation FMCG, Pharmaceuticals and Healthcare and Education sector is the best bet to invest in Indian stock market.
Preeti Gupta: I am positive on the banking sector as any reversal in interest rates in Q1 FY13 would be the key driver to lead this sector. In the space, my preferred picks would be Indusind Bank, Yes Bank, BoB, Karur Vyasa, ICICI Bank. Other preferred sectors are Consumption and pharma.
Gopal Maliwal: Due to uncertainty in the market, defensive sectors like: Pharma and FMCG are most immune to external volatility.
Uday Narayan Dubey: India’s economy is consumption driven. I believe consumption theme will still play a major role. I believe sector like Auto, FMCG and banking will still deliver much better than other.