Stay Invested With A Focus On Defensives In This Dicey Market

In the recent past, traders seemed to have established their dominance in the Indian stock markets. This is because markets have become vulnerable to every event, be it micro or macro. Markets tend to become highly volatile on the occurance of an event, but there is complete lull in the absence of any trigger, making it difficult for the delivery-based investors and traders to enter. The long term investors, who were inclined more towards mid-caps and small-caps on the view that the momentum of these stocks was better than the largecaps, are now sitting on losses since the reversal during mid-January 2018. Meanwhile, the large-caps have reversed and become little expensive, while the broader market stocks still appear to be waiting to bottom out. The only active participants are intra-day traders, not because they are making profits, but only to re-trade and get their cost back after the loss-making trades.

In the Indian stock markets, only one-third of the total traded shares have been delivered every year till date, except for FY2014-15, when more than half of the traded shares got delivered as if for a pre-election rally and continued with the momentum. Here again, we cannot deny the fact that markets may bounce back and initiate rally any time before the general elections in 2019 on the hopes of Narendra Modi getting re-elected for the second term.

At the moment, immediate hiccups for the markets may come from the dollar yet again gaining strength against the Indian rupee, escalating trade war fears between the US and China and the fluctuating crude oil prices. Recently, Donald Trump hinted at imposing 10% tariffs on additional USD 500 billion worth of imports from China. This time China may retaliate by selling off US treasury bills, which will drag down the US bond yields, ultimately giving a further upside jerk to the dollar and also the crude oil prices. The OPEC meeting scheduled at the end of the current week is expected to end without any consensus. Major producers, Saudi Arabia and Russia, have signaled hike in crude oil production, while Iraq, Iran, Libya and Algeria may face bottlenecks. Meanwhile, Trump may invoke NOPEC Cartels Act to file suits against OPEC for manipulating the prices so far. All-in-all, we expect crude oil prices to either sustain or move up in the near term.

As for India, the RBI could easily justify another rate hike expected in the December policy review on the ground of rising inflation. The FPIs and FIIs are offloading their holdings and may continue to do so in the near future. However, there are couple of silver linings to this cloudy scenario, such as revitalisation in the macros and the expected normal pace of monsoon, which may bring in some capital in the markets. Also, the Q1FY19 corporate earnings will start coming in from the next month.

We can only say that it would be prudent to ignore the benchmarks or even the broader market movements for now and focus on the sectors and industries. Some of the defensive sectors, such as pharma and PSU banks can be bet on for a change, as these have already seen bottom- fishing followed by initial resistance breakouts. The energy and NBFC stocks too are heading northwards. Other defensives such as IT and FMCG are trailing at peak levels, while the CPSE, infra, metal, media and PSE are still inclined southwards. Considering this, we suggest you to stay invested and enter in small quantities for now, and although the near or even medium term outlook is dicey, the markets will likely ramp up in the long run.

(Subscribers can send their feedback and queries on technicals portfolio guide to fnieditor@dsij.in).