Despite Volatility, Indian Markets Stay on Course

After experiencing a remarkable upward trajectory in the equity market over the past four and a half months, most of us are undoubtedly celebrating the substantial surge in our portfolio values. This resurgence follows a challenging period of 18 months starting from October 2021, marked by significant drawdown. However, recent developments have introduced a new dynamic to the scene. A notable shock came in the form of inflation figures for July, which surpassed the Reserve Bank of India’s comfort level. The inflation rate surged to a 15-month high of 7.44 per cent in July, compared to 4.87 per cent in the previous month. Encouragingly, core inflation exhibited a month-on-month decline.

Adding to the uncertainty, the latest release of minutes from the US Federal Reserve’s meeting reignited concerns about potential rate hikes in late 2023. It emphasised that with a robust hiring momentum, the US Federal Reserve is likely to maintain the benchmark rate within the current range for a longer period than anticipated. This development was clearly mirrored in the ascent of the US benchmark 10-year yields, which reached 4.366 per cent – their highest level since 2007 – and have surged by almost 40 basis points month-to-date. Elevated yields traditionally do not bode well for the equity market. However, we believe that this recent spike may not be a sustained trend.

India’s equity market outperformance appears to be underpinned by robust economic growth and corporate top-line expansion. Recovery driven by policy initiatives has invigorated investments and the anticipation of a manufacturing upsurge propelled by the global supply-chain reconfiguration further enhances the landscape. The stability of the market is reinforced by the consistent influx of robust domestic flows into stock market liquidity. The heightened volatility in the equity market can also be attributed to valuation concerns.

However, even within the prevailing context of tight liquidity and apprehensions about a global slowdown, we are of the opinion that we are unlikely to witness a significant plunge in the equity market. This assertion is rooted in the fact that the consensus EPS estimate for MSCI India has been consistently revised upwards in the past 6-8 weeks, underscoring the resilience of the underlying corporate profitability. Meanwhile, in a scenario where the market is scaling record highs and new investors are actively participating in the bullish trend, it creates a fertile ground for potential stock market scams. These fraudulent operators often employ a ‘pump and dump’ scheme, typically focusing on Penny Stocks.

Our cover story in this edition delves into the intricacies of penny stocks, providing a detailed understanding of the opportunities they present and ways to identify them. It’s important to note that investing in penny stocks requires a specific psychological disposition as it may not be suitable for everyone. Furthermore, there are a couple of other intriguing stories that align with the current landscape. One of these discusses whether it’s the right time to secure partial profits considering the market’s jitteriness at higher levels. Another story examines the essence of investing as a forward-looking endeavour. In my view, long-term investors should maintain their positions in quality stocks and the short-term market fluctuations should not dissuade them from their investment strategies.

RAJESH V PADODE
Managing Director & Editor