Financial Market @ September 2016

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

·         7^th 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.