MARKET OVERVIEW 2018

MARKET OVERVIEW 2018

Bull markets climbs the wall of worry, 2017 had only worry of valuation and earnings which is yet to come as expected by many and markets are pricing for much better days ahead. Earnings were good and did not match the Price traded as investors are always optimistic in a bull market.  This bull market is a combination of a face change in Indian economics from bureaucracy to transparency and the so called domestic liquidity which is driving the markets. Liquidity never runs behind an asset class which has nothing to return. Equity investment has returned handsome gain with fundamental value and yet markets are talking about Liquidity driven rally.

What we need to look for 2018?

Key factors to be watched during the 2018:

• Asset class Opportunities: 2017 was a year which had a great previous couple of years into equities and all other asset class was not great performer and money chased equities. 2018 there are more opportunities than equities when we look at Risk Reward Ratio. Commodities have rallied in 2017 and looks to have more opportunity. Interest rates are moving high and have a great opportunity with a good risk free return at current yield which can give a safe haven opportunity to earn modest returns rather than taking odd risks in the market after a great run previously in equity and commodities. New asset class in the race, Crypto which also will make a big way for investors to diversify (risk is there but can be rewarding if there is a legal battle to be won). Bullion there is a great opportunity in this asset class with global uncertainty and interest rate risk world wide which is yet to unfurl.

• China: This economy can be a joker in the pack which is unnerving many investors when we look at their debt bomb which is just climbing. Every incremental debt is adding lesser and lesser GDP to their economy. Soft landing of the economy might turn to be hard landing.
• Crude: This can be another joker and any rise will be a joke. But for short term this joke should be accepted as ARMCO the pricy asset of Saudi is for sale by way of IPO and for this to be successful Crude needs to be positive and high. So for short term there is a headwind for India and many emerging economies as they will have Balance of Payment issue. India particularly with Domestic liquidity driving the markets this tends to be a tough year.
• Interest Rates: Everyone were looking at falling interest rates for last 9 years, now for last one year there is a turn in this event with rising interest rates in US and China. This can have a hard effect if this trend continues for long as easy money era might come to an end and which might have already happened. This phase we believe is short lived, but can have short term jitters for investors who were basically traders.
• LTCG: We can call this term as a Draconian measure for particularly equity investors who were short term to medium term. Last year Union Budget had already reduced the LTCG for real estate from 3 to 2 years which was one hint that other asset classes will also have to have a change. 2009 Finance bill had talked about this issue and wanted 3 years as LTCG and bring down the difference between short term and long term. If this is going to be passed in this Union budget then there can be a short term jitters. Note: this fall is a great opportunity for long term investors.
• Tax Moderation: This is a closed watch issue. Finance Minster had planned to reduce Corporate tax from 30% to 25% in a staggered manner and yet to start it. With US already reducing the tax for corporate to 21%, the need of the hour is to stick to the plan and reduce. This can be a simple addition to the bottom-line of companies and a great boost for EPS for companies. Probable is markets might have already priced in this.

 

Overall equity is a great investment tool in a longer run and any correction will be a great opportunity to buy. Caution to be noticed before buying on dips. As dips need to be analyzed for their reason and the chances of recovery after the fall.

 

We wish our customers and well wishers a great New Year 2018 and wish you a fun and knowledge filled year.

 

Do connect for more ideas and opportunities on investments.