A month ago, in this column, we simulated three potential post-election result scenarios at the bourses. As it turned out, it was the first scenario that played out, with the BJP sweeping the polls to return with an absolute majority of its own. As predicted, that has led to a euphoric rally, though there are sporadic signs of it losing steam.
So, which way is the market poised to move herefrom? I have never figured out how market ‘experts’ forecast near-term market movements, but I remain reasonably confident that for those with a three-to-five-year time horizon, there exists ample opportunity to revisit the drawing board and reconstruct their portfolios to pack it in with investments that can have them laughing their way to the bank, in due course.
How so, one may well ask. There is still a foreseeable lag in earnings improvement, the economy is still sluggish and the fiscal deficit, which had been kept under a tight leash till recently, now threatens to bloat again. Then, there is the ominous shadow of the US-China trade war slowing down the global economy as well as the prevalence of rough economic headwinds in 2019, compared to the benign tailwinds that existed in 2014.
On the other hand, I for one, expect that this government’s management of the economy will be better in this, their second innings. The Prime Minister’s choice of Finance Minister is an interesting one, to say the least, and the generational change could augur well for a break from routine. Over the tenure of this government, I expect the direct and indirect tax rates to be further rationalised, tax collections to be improved using e-surveillance to track and penalise defaulters and perhaps, even a fiscal stimulus very soon, to reboot the economy.
Lower international crude oil rates and lower interest rates could cap inflation, and businesses that realign themselves quicker to the rapidly changing domestic and global scenarios could grow exponentially.
Meanwhile, SEBI’s re-categorisation of funds in the equity space last year has made comparative evaluation more feasible.
Thus, a rejig of portfolios could be in order for those holding funds that have turned laggards since. Earlier, the standard excuse we heard for relative underperformance from a fund house was, “Oh, ours is the only fund that adheres to the mandate, while the rest are boosting their alpha by going beyond and taking disproportionate risks”. Now, it is no longer a ‘virtue’, but a rule to be adhered to for every fund within a specified category.
We keep a beacon eye out for those funds that survive and perform relatively better sans abnormal risks when the market conditions are tough, and prefer to pack our portfolios with those, even if they aren’t the numero uno performers in their category.
To sum up, the pre-election and post-result rally could be used to exit relative underperformers and re-invest into potential winners, given the changing landscape. At our end, we have commenced the exercise in preparation for the inevitable ‘Dances with Bulls’… Have you?