View on Indian Equities: Ajay Bodke

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A long pause announced by the US Fed signals a momentous shift when compared to market expectations of around 3 to 4 rate increases of 0.25% each by the Fed just 6 months back.

This is likely to significantly ease pressure on Emerging Market (EM) currencies and allow their Central Banks to embrace aggresive monetary easing. This is particularly the case for EMs like India where domestic inflationary prints are benign and inflationary expectations well-anchored.

High real interest rates are impeding aggregate demand and acting as a strong headwind for both consumption and investment focused sectors like automobiles, consumer durable goods, Real Estate , Capital goods etc.

We expect RBI to cut repo rates by 0.25% at least twice over the next 6 months to spur sagging demand demand and provide monetary stimulus to the economy. This is likely to bolster interest rate sensitive sectors like BFSI, autos, durables, Real estate etc.

After massive outperformance since the start of CY 18, Information Technology (IT) sector will have to navigate twin challenges of lack of strong currency tailwinds as also large over-ownership by institutional investors vis-a-vis benchmark indices.

A weakening USD can lead to increased imports in sectors such as metals, chemicals etc necessitating industry and policy makers to be more vigilant & quick in their tariff responses to prevent any dumping especially with anemic domestic demand impulses.

Any spike in risk-on trade benefiting EMs like India needs to watch with caution global crude oil prices.

If global crude oil prices remain rangebound then a weakening USD, expectations of aggressive monetary easing by the RBI, end of the provisioning cycle for NPAs by the banking system & likely recoveries over the next 2 years aiding surge in profits as also revival in corporate earnings in high-teens on a conservative basis over FY 20 & FY21 will spur strong performance by Indian equities. A decisive mandate on 23rd May 2019 by the Indian electorate will strongly bolster the upward trajectory”

Ajay Bodke
CEO (PMS) Prabhudas Lilladher

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