Events in US could boost Indian markets, but invest with care

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Events in US could boost Indian markets, but invest with care

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Read more on - Polity | Economy | Schemes | S&T | Environment

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• Rising when Capitol was attacked: The day Trumpian supporters stormed the legislature, the Dow Jones Index rose (all time high 30829)! The markets were happy about the Democrats winning the Senate (50:50) and with VP Kamala Harris they have a slender majority. So another huge stimulus is arriving. Radical policies (tax cuts, breaking up Big Tech) won't as no support may be possible.
• Politics and commerce: Investors now sense that politics is having a limited impact on markets, as "markets are about trade and commerce and these are so big and powerful, that politics is a minor factor". Global wealth, money and liquidity is overriding everything else. 
• Indian case: The year 2020 saw equities rise due to huge money flow from the US, and Rs.2.22 lakh crore FPI money went into stocks since April 2020. Both Sensex and Nifty went up by more than 60% each! The year 2021 won't be different. So big money at low cost of interest will enter emerging markets.
• Local investors: The Indian HNIs and retail investors too put in big money into the markets from April 2020. 77 lakh new accounts were created from April 2020, compared to 2.12 crore till March 2020. Total is now more than 2.9 crores. Most are first-timers, riding a new wave, and can be hit badly if it turns.
• What about the RBI: It will continue the accommodative stance and not raise interest rates. So stocks will keep gaining. A broad-based rally is on. Markets are now basing their hopes on the vaccination drive.
• Indian economy at inflection point: If the Covid curve has indeed flattened out, and economy returns to the pre-pandemic levels, things will be optimistic. Rural India is resilient, and GDP contraction isn't that bad. 

1. Macro indicators are not collapsing, with CPI based inflation at 6.8% in Q3 of FY 21, expected to be 5% in H1 of FY 22. 
2. Real GDP is to contract not by a frightful number, and may expand fast in H1 of 2021-22
3. Reforms announced in past years may work well, and the PLIS can attact FDI. Housing sector may do well.
4. Company earnings are showing growth after a period of lull. (an earning upgrade cycle)

• Risk factors: If the foreign players slow down, or move out, and if the economy doesn't pick speed fast, the markets will stagnate and then decline. Both the US local situation, and end of Covid-19 are the key determinants. Since all this is beyond anyone's control, individual investors must carefully look at their portfolios.
• Running ahead: Some say that markets are running ahead of the fundamentals. New risks will bring instant correction. The Budget 2021 will matter a lot. Higher inflation, and RBI's policy change will also be negative for markets. GDP growth needs to rise quickly now. But mostly, people are bullish rather than bearish.

Read more on - Polity | Economy | Schemes | S&T | Environment

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