Markets May Remain Range-Bound For Next Few Months!

Equity markets do look like they will be in for a rough ride for the coming six months at least owing to the medley of events set to unfold during this period, viz., state elections in India by December-end, US Fed rate hikes, ECB’s possible interest rate hardening, RBI’s stance on interest rates, weakening rupee and the trade war fears, which impact the market sentiments more than anything else. 

In spite of these visible headwinds, we find that the Indian economy is in great shape and the drop in crude oil prices is a great news for the markets. The corporate earnings should provide comfort to the markets in such testing times and the second half can be predicted to be flattish with a positive bias. We predict Narendra Modi to be re-elected as the Prime Minister of the fastest-growing economy for the second term. The work done in the first four years by the current government will start showing positive results in the coming years. The consumption story is intact in India and we will continue to see improving macroeconomic environment, going ahead. The stock prices should reflect the positive economic undercurrent sooner rather than later. 

Globally, the markets have reacted to comments from both the US government and China. I personally think the recent decision by the Trump administration has put a question mark on the country’s acceptability as the world leader among the comity of nations. The stance taken on global warming and trade restrictions by the Trump administration are not palatable for a majority of the countries who cherish global economic integration and promote globalisation. 

Coming back to our favourite subject of portfolio construction and management, we find that investors have extreme tendencies when they participate in equity markets. They either buy stocks and hold them for the ultra-long term without monitoring or they indulge in overtrading and churn their portfolios more frequently than required. In one of our most interesting cover stories, we have in the current issue advised various rebalancing strategies that can be adopted by long term investors in order to earn higher risk-adjusted returns. Do let us know if the the observations we have shared with you in the cover story are useful to you. 

Also, the defensives become fashionable when the markets tend to turn volatile. In our detailed special report on the defensives, we have have explained how best to use defensives in volatile markets to beat the key benchmark indices. The first half of 2018 has been difficult for the mid-cap and small-cap investors. In our special report, we have reviewed in detail those stocks where our recommendations have belied our expectations. We have explained in detail our views on the past recommendations and have suggested a plan of action on these underperformers. Hope our communication will calm down your anxiety and you will be able to focus on markets more objectively going ahead. 

Overall, the market situation is not conducive for the stock prices to jump higher, neither is the situation worrisome enough to suggest that the stocks prices will plummet. The range-bound scenario may continue for one or two quarters more, till some more clarity emerges on the global events, including the possibility of the trade war, global interest rates, FII selling, election results and earnings quality. 

Use defensives more in the current market situation and remain diversified. It is high time investors got rid of losers in their portfolios and restructure their portfolios by adding potential winners. 

Happy Investing!