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Investment Outlook – The Current Equity Market Scenario

 10 Oct 2019

If you are into equity investments, you might know that global equities have faced one of the most difficult and challenging times in August 2019. The emerging war between the United States and China as well as India's constant economic slowdown scenario has had a major impact on the performance on equity shares in the market. At the end of this recession period, the mid-cap and small-cap funds failed 1.5-2.0 percent whereas the large-cap funds witnessed a complete failure.

In fact, the Gross Domestic Price (GDP) growth of India fell below expectations of around 5.7 percent. The downfall in the GDP growth in the current year imposes risks to the current RBI's GDP growth expectation for the financial year 2020, which is 6.9 percent. As long as the Indian economic condition doesn't improve and the catastrophe in the NBFC continues, the equity markets in our country will suffer downfalls. According to the current reports, the equity market will continue to stay volatile unless the issues are addressed in the proper way.

Government Measures for Improving Indian Economy and Financial Sector

As per the recent reports, the Indian government is working on the financial and economic growth of the economy and taking essential measures to improve the market condition. On 5th July 2019, the government had implemented a surcharge on cap profits for Indian as well as international investors; however, the decision was reversed considering the current financial status of the economy.

Not only that, but the government had declared several measures to improve liquidity, control the auto sector slowdown, and draw the attention of foreign investors in specific regions. Another important measure that did rounds on the Internet was the merger of 10 renowned public sector financial institutions into four. These financial institutions mergers led to larger banks with a better balance sheet. The amalgamation not only improved the performance of the banks but had a major impact on the economy as a whole.

Indian Government to Receive Dividend and Surplus Capital Transfer from RBI

Reserve Bank of India announced the continuation of its famous interest rate cut policy. RBI introduced an exceptional 35bp cut. Experts believe that RBI will introduce 60 to 75bps cut in October 2019. The current reports suggest that the Indian government will be receiving around Rs 1.76 trillion from Reserve Bank of India. The sum also includes a one-time surplus capital transfer as well as a yearly dividend. These surplus capital and dividend are specially provided to help the government make up for the downfall in tax income. In addition to that, this will help improve the liquidity in our economy. The longer monsoon and the rainfall period which extended the expected duration have a good impact on the agriculture growth of the Indian economy.

If seen from the global point of view, the war between the United States and China has a negative impact on the overall global economic outlook. Not only has it increased the volatility rate but it negatively affected the economy. In order to balance the economy, global banks are adopting a dovish outlook that could make it uncomplicated for the Reserve Bank of India to cut rates.

Even though the international economic growth is slowing down, the rates of Brent Crude oil have reached &60 per barrel (that's good news for the Indian financial sector). But with this slowdown of the global economy, the Indian Rupee, as well as the Chinese Renminbi, has seen depreciation by 4 percent and below 7 thresholds respectively. The current emerging sectors witnessed FPI depletion in the month of August. Unfortunately, our country was not an exception. Indian witnessed an outflow of approximately $2.3 billion in the equity sector.

The Current View on the Financial Market

According to the current sources, the appraisal in the equity sector is working in favor of equity investors. The middle and small capital PE estimations are reported below their average. As far as the overall outlook of the financial and investment sector of India is concerned, the equity market has more or less balanced the investor's risk. The current record suggests that the equity market will provide investors with a reasonable rate of return in the long run. Considering the recent economic crisis and the escalating war between the United States and China, there is a high chance that the equity market will offer modest returns to its long-term investors.

But, that’s not it! If the recovery phase (especially, in the festive season) is taken into consideration, the market is expected to show some great improvements. Even though the equity sector in India and international sectors seem pretty weak, they can improve with the current policy actions, government measures, and trade-based agreements.

As far as the Indian equity segment is concerned, the NBFCs and huge corporations can improve the equity sector. Currently, it is safe for investors to invest in mid and small-cap funds through the SIP method.

Also Read: Investment Outlook – The Debt Market and Its Growth as Per September 2019

 

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