Several experts are saying that 2019 will be bad for investors citing trade war, Fed rate hikes, global slowdown and domestic rising deficit and political uncertainty.
We had recommended exit from equities in August 2018 when Nifty was 11430, and now we recommend to start investing in equities again. The change in view is due to the following key developments –
Fall in oil prices
OPEC did manage to get a cut in production last year and crude oil prices rose subsequently, but the surge from shale oil again created oversupply and oil prices fell sharply. The abundant shale oil reserves and falling renewable energy costs will ensure that oil prices will now stay low for long term. This is a huge structural positive for Indian economy as we import almost 80% of our oil.
Consistently low inflation
Inflation has been a persistent threat for Indian economy but now it has been staying low offering a great opportunity for lowering the interest rates. There are strong chances of a rate cut in next RBI policy and the trend may reverse from rate hikes to rate cuts.
Election outcome discounted
Whoever come to power will have to continue with reform process so it is not something that will kill the India’s growth story. Though market will prefer a single party win with majority but even a coalition government may manage to run the country. A clear win will definitely jumpstart a rally but even otherwise, the markets will go up in long run.
Excellent corporate earnings
A cumulative view of all the Q3FY19 results announced so far 236 Companies
| Q3FY19 | Q2FY19 | Q3FY18 | QoQ | YoY | |
| Sales | 297,404.01 | 286,971.44 | 239,742.95 | 3.63 | 24.05 |
| Other Income | 15,326.28 | 14,230.03 | 12,978.53 | 7.7 | 18.08 |
| Operating Profit | 71,183.56 | 73,972.87 | 63,218.58 | -3.78 | 12.59 |
| Interest | 36,047.48 | 34,723.33 | 29,738.92 | 3.81 | 21.21 |
| Tax | 13,221.55 | 15,130.92 | 10,008.70 | -12.62 | 32.1 |
| Net Profit / Loss | 31,186.96 | 38,297.53 | 31,272.92 | -18.57 | -0.28 |
There is a strong YoY 24% increase in sales, profits are slightly down by -0.28%. The reasons are mainly rise in interest and tax. Falling oil and metal prices, and a possible low interest rate scenario will be favorable for future results.
Trade war impact on India to be limited
India is not export oriented and has insignificant share in global trade. The impact of global trade will be limited on Indian economy.
Fed rate hikes discounted
Fed is expected to be soft in future rate hikes and this being an expected event may not have a major impact on markets.
Deficit impact to be limited
Though media is lambasting the populist measures of subsidies but that is not all negative, it does boost rural spending and is a big positive for consumption sector.
Currency safer due to strong reserves
Fed rate hikes will strengthen dollar and if RBI cuts rate, it will further weaken Rupee, but India has strong foreign currency reserves to survive this risk.
Investments rising
In a dramatic change, India’s GDP is increasingly being propelled by investments instead of consumption. Increasing corporate investments indicate rising faith in future growth.
g-india-consumption-story-kXYD–621×414@LiveMint.jpg” width=”149″ height=”75″ />
Risks in economy
- Coalition government
- Falling consumption
- Lack of jobs