The one positive factor for the EM equity is liquidity . Its this huge surge in liquidity that has got the markets to its present heights . The earnings and other fundamentals are trying hard to catch up .
Indian Equity has also been supported by the the prospects of improved growth due to GST . However as of now the markets looks overstretched . Having said that the trend remains upwards . As developed markets returns remain very low … hot money has moved to EM in search of better returns .
Thus for them valuations are not the deciding factor , but trend is .
If the trend remains upwards , and central banks keep liquidity high the party may continue for some more time.
However for investors they are in a state of panic investing . The feeling of being left out of the mega carnival in Indian Equity is forcing them to invest at high valuations .
The market rally that started after the initial all fall due to Britxit continues . As market continues to climb higher on wonders if the fundamentals will be able to catch up ! Markets tends to move ahead of fundamentals be it bad or good news . That's why we sometimes feel the market may be running too fast .
In India NIFTY has moved from strength to strength . What are the major positives and negatives from the market :
So what all factors can spook the rally :
Market is like the little boy who likes to run either way . Fundamentals are like the parents who move more slowly . Once a while the little boy looks back and if he can't see his parents then he runs back towards them .
Indian Equity markets may open higher , supported by better than expected US jobs data. After recent consolidation markets looks prepared to move upwards supported by favourable global and local clues.
US jobs data on Friday has come much better than expected . This confirms the improvement in US economic situation . On the domestic front we have the GST and other reforms coming up for approval of the parliament .
As long term Investors we should take note India has reached an inflection point and can see huge wealth creation in the next 20 years . Now is the time to look for companies that can become the flag bearers of this growth .
However a word of caution for short term outlook of this market : markets are already trading at expensive valuations . Thus any small disappointment in terms of earnings , policy approval can spoil the party! And do not forget Oil , China and Britxit they will come back again to haunt the market .
The market just ignored all of these predictions :
After the initial sell off markets across the globe rebounded with confidence .
India market too seems to have reconciled with the consequences of Brexit! We have seen a sharp recovery across markets last week . In India we may see more upside form GST news .
So all in all as the impact of Brexit is yet to be felt in the economies , markets in its own prudence has decided to concentrate on more immediate news . Also Brexit reduces the probability of any F
Interest rate increase by Fed for this year !
So more liquidity … more asset bubbles … and the party continues !
We may expect some consolidation coming this week . Trades will continue to remain long on NIFTY with stop losses in place .
Investors may now start looking at small / mid caps in the Indian equity market . There are a lot of companies in this space that can see an inflection point once the overall economy improves . With GST and a good monsoon there are exciting times ahead for the Indian market .