Equities Broadly Range-Bound, Tech And Banking In Focus…

The domestic economy has now come to the fag end of the lockdown era with more concessions granted to business entities to open their gates and start work. But the actual implementation of the liberalized scheme of things would depend very much on the state governments, as the intensity of the controls required from state to state is vastly different. This is linked to the severity of the local conditions with respect to the spread of the pandemic. An interesting tool to understand the conditions is the Nomura India Business Resumption Index (BRI). The index tracks business activity on a weekly basis and the index shows a pick-up in business activity in the last couple of months. The index has moved up from 73.40 in August beginning to 77.40 in September beginning. This is quite a
bit of pickup in activity from the lows of April and May when the index value was at 45. While the trend shows an improvement in the business conditions with gradual unlocking, whether we will be able to sustain the gains would depend on getting an upper hand over the spread of the pandemic.

The liquidity conditions and the regime of lower interest rates, and the probability of placing corporate debt at reasonably lower rates augur well for those entities who have borrowing requirements for business expansion. The fact that the RBI may continue the accommodative policy for a prolonged period aids development of business plans on more foreseeable basis. The inflationary pressures which are there may also help production and output expansion in response to higher prices. With oil prices between US$ 40 and US$ 45 levels, the impact of fuel prices on the price level may be very marginal at this juncture. A prolonged period of relatively lower interest rates would be the biggest boon for the equity markets. The primary reason for the green shoots of growth would be the easy money conditions. There have also been speculations about another tranche of fiscal stimulus from the central government.

The linkages of the domestic markets with overseas markets is more visible today, with global factors having an impact on the domestic indexes as well. Some of the factors that are of consequence to the markets would be the direction of the central banks policies across the world, where derailment of the current stance may happen due to inflationary pressures, the geo political tensions especially the developments around China, the US elections which may have some implications for the China policy on trade and tariff, and finally, the light at the end of the tunnel as far as the pandemic is concerned through a vaccine.

The markets have clearly run ahead of the economy, and the level of sensitivity of the indexes to even small negative news will be very high at these levels. Therefore, one needs to look at well managed portfolios with an excellent track record to invest into, both from the mutual funds and the PMS space.

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