INSUBCONTINENT EXCLUSIVE:
2017 was a dream year for global equities in general and Indian equities in particular
However, 2018 seems to be quite different
In recent times, the damage seen in Indian equities has been substantial
This has been especially more prominent since mid-January, when the benchmark indices touched their all time highs
The fall has been even more severe for smallcap companies
The BSE Smallcap index for instance is down by ~15.8% from its all-time high figure.
A more in-depth look at the BSE-Smallcap index further
From the 860 odd stocks that are part of the index, ~85% of them have declined more than this ~15.8% figure from their respective peaks (not
tag attached to them seems to have fizzled out in recent times
In FY18, the Sensex, BSE-100, BSE-Midcap and BSE-Smallcap indices rose by 11.3%, 10.6%, 13.2% and 17.6% respectively
However, if we look at data over the past six months, the returns of the Sensex, midcap and smallcap indices have been at par with the
indices up by ~6%, ~6% and ~3% respectively
In fact, in the quarter gone by, the Sensex outperformed the other two indices, falling by a little over 3%, while the mid and smallcap
indices fell by ~10% to ~12% each.
Moving on to fund flows, it was the domestic mutual funds that took the cake in FY18, with the net
inflows into equities standing at over INR 1.2 trillion
words, domestic fund flows (and thus household savings) into equities had a strong role to play in keeping the markets firm over the past
Developments such as demonetization, RERA implementation and other rules regulations discouraging investment towards other asset classes
had a role to play towards more funds being flown towards equities, with the latter asset class being the preferred due to lack of
Not to forget, interest rates have been at their lowest in many years, not enticing savers to park their money in debt instruments.
This
On the other hand, investments towards equities are very low, falling in the mid single digit region.
For market bulls, the argument has
And thus, a slight change in percentage of money moving towards equities (from amount being allocated to physical assets) will turn out to
be a substantial figure in absolute terms (given the low base)
And this trend is expected to continue, thereby making the case for equities quite strong.
As much as we would like to be on board with this
thesis, the fact is that money in India - retail money especially - flows into equities keeping in mind the market sentiments and that too
usually with a lag effect
As and when the markets continue to perform better with time, the money inflow only rises
However, the same holds true in contradictory times as well
flows towards equities start drying up
This is a trend that has been observed in the past, not only in India but globally in almost every market cycle
And we believe there is no reason for this to change, given the nature of human beings
As and when equities start underperforming or when their performance does not match up to expectations of market participants, flows are
cash that they are facing at present.
As we have been saying for a while now, in our view 2018 is likely to be quite the opposite of 2017,
which saw a run up in stocks across the board
This time around, a lot of factors will play their part in testing market sentiments and the endurance levels of market participants
Some of these also include the busy political calendar (state elections and the noise leading up to General Elections in 2019), the emerging
inflationary concerns and the expected impact on interest rates, discussion revolving rural income and farmer wages, and the monsoons, among
the equity investing bandwagon.
Be assured that we remain bullish on India and believe that there is no match to equities as a wealth
But this view is over the longer term
Short-term blips are bound to make the markets move in a volatile manner, which is something that new investors may have a hard time dealing
