It was expected that the world market will find some sanity post the increase in liquidity triggered by BoJ, ECB and PBOC recently. But we are seeing sharp headwinds in the global market with continuous fall in oil prices and slowdown in China which is impacting the rest of the world. European market has reacted negatively due to concerns over deflation. India is underperforming due to a lack of domestic triggers and low expectations from the forthcoming Union Budget.
Fear has overwhelmed the market, in a very volatile manner. Nifty has corrected thrice to a 52 week low in a consecutive manner leading to a 21 month low at 6,869, and is currently at 6980. The next question is whether this trend will continue in the downside, given the chaos in the global market. This risk to liquidity was acknowledged by the central banks of US, ECB, Japan and China who are increasing the liquidity in the economy to support fiscal activities and currency market. We would like to highlight that historically, such global mismatch does unveil an opportunity to invest in India. This is not the time to sell but to invest in a structured manner though the global risk can negatively impact India during the near-term.
Gold, in the global market, has sharply increased from $1,062 to $1244 YTD which is 17% up in just more than a month. Global bond yield has come down sharply while Japanese Yen has appreciated against USD by 8% in the last couple of days. Oil has fallen back to $31. These are signs of a high sensitivity in the global market, increase in risk averseness and the unpredictable implications to the equity market. It will be important to find more supporting factor in the developed market to bring confidence in the equity scenario.
The US 10-year yield has collapsed from 2.27% to a low of 1.69% on YTD basis, which is 58bps in a span of 42days. This does highlight the sharp change in the US economy outlook due to continuous expansion in the slowdown of rest of the world. We recently had the first FED rate hike from zero to +25bps in December 2015. Post which, the market expected about 4 more FED rate hikes during 2016.
The domestic investors are stepping into a conservative mode, MF net inflows has shrunk to Rs 276 crore in February till date compared to Rs 7,327 crore in January and Rs 4,467 crore in December. Going forward, the domestic focus is likely to shift towards the Union Budget. As the global market finds some support with actual increase in liquidity, the market can find some shore. The domestic market expects the Budget to be a non-event given the setback on reforms. It is expected to be a balancing act where the government plans to remove the supply side bottlenecks, increase rural & infrastructure spending and increase in services tax rate since GST is likely to be implemented over the long-term.
The overall market expectation is low; will the government table an overhaul plan against the non-event expectation?