India today stands at triple
advantage positions.
Liquidity
Sentiments
Fundamentals
The liquidity in the system has been gradually modulated from a
negative to positive. The Banking liquidity in the system was transformed from
negative Rs 170,000 crs in Feb 16; to today, where the Liquidity is positive Rs.
63000 crs. This liquidity has eased the pressure on interest rates, in turn
reduced the borrowing cost and has provided a demand flip for asset purchase.
The stock market liquidity is driven by both domestic & foreign investors.
Between Retail & Institutional players, demand for equity in FY17 in excess
of 60% than potential supply between govt. disinvestment & issuance. This
excess demand is keeping prices elevated.
The sentiments are improving on account of host of positive actions
& reforms coming together:
·
The passage of GST bill
·
Good Monsoon
·
7th pay commission
·
Thrust on improving the ease of doing business
All the above factors has boosted the sentiments of investors
domestically & abroad (significant rise in the FDI & FII inflows -
US$17.3 billion & US#6.2 billion respectively).
Most vitally, the fundamentals of the economy are on a very strong
footing. The current account deficit has been tamed and stands at -1.06% of the
GDP. The fiscal deficit in the economy is projected to be at 3.5% of GDP. The
CPI inflation is at 6.05%, which while at the upper end of RBI’s threshold, is
still well below the levels seen 2-3 years ago. Moreover, the low crude oil
prices and good monsoon is expected to tame the food inflation over a period of
2-4 months and help mitigate the CPI inflationary pressure. This has led to a
gradual reduction in the repo rate of around 150 bps point in this current rate
reduction cycle. Moreover, the GDP growth rate is at above 7% and is expected
to the 8% mark in the medium term future.
Having said that in short term the market volatility may hurt the
investor but a long term view will yield positive results.
Investors with a low-moderate risk appetite can utilize various asset
allocation strategies and still obtain the potential gains of equity while also
reduce the risk exposure on their capital.
