Three decades of reforms and still miles to go
There is little argument over the fact that the economic and fiscal reforms initiated in 1991,
India were inevitable. These reforms did help in bringing the Indian economy back from the
brink of disaster; even though the adequacy and efficiency of reforms has remained a
matter of intense debate ever since.
Three decades of reforms have resulted in many structural changes in Indian economy. The
contribution of agriculture has reduced to about one sixth, while services now contribute
more than half of the GDP. The structure of foreign trade has also changed in favor of
manufactured goods and services. The balance of payment has remained robust. We have
faced three global crises (2000, 2008, and 2020) without an iota of problem.
Financial markets have remained an example to the world. India has perhaps been the only
major global financial market that neither shut down nor imposed any trade restrictions
during 2000 and 2008 market crisis.
Many recent steps taken by the government indicate that the policy makers are full
cognizant of the inadequacies of Indian economy. The new education policy, schemes and
incentives to promote local manufacturing and exports, farm sector reforms, etc. are
important steps that shall help in overcoming these inadequacies in the decade of 2020s.
Valuation benchmarks might have to change
The present argument that Indian market is “expensive but nowhere closer to bubble
territory” based on historical PE ratio trends, may become totally redundant. The market
participants might have to evolve new parameters for valuing the market that would be
appropriate in the evolving scenario.
More inside this issue
Market outlook for this week
The daily and weekly technical outlook & trend for Nifty remains “Neutral” for this week.
However, the monthly trend is now marginally negative. The outlook and trend for Bank
Nifty however remain positive on daily, weekly and monthly timeframes.
The latest corporate result season has started on a neutral note with the IT major TCS
reporting a good set of numbers, which though fell slightly short of consensus estimates.
However, the broadly the results are likely to be lower than the previous estimates due to
extended lockdown and continued logistic constraints.
Macro data continues to be little worrisome. GST collections in May (reported in June) fell to
eleven month low. Monsoon has stalled over north and north west India. Trade deficit has
increased and headline inflation continues to rise. The debt levels have risen and collection
efficiency has diminished in June quarter. RBI accepted yield of 6.1% on new benchmark,
indicating tolerance for higher yield.
Sector wise, steel mills have reported easing prices, while cement demand had been mixed.
Chemical and agrochemical sectors have are expected to be having good time. IT demand
remains firm, while there is some pressure on margins.
Some brokerages have highlighted that market valuations may be close to fair level and not
offer significant gain from the present levels. However, there is divergence in valuations
within major segment and opportunity may lie therein.
Indian Market (Equity)
Indian markets corrected in line Asian peers as the fears of reemergence of Covid19 spread
globally. RBI’s signal for higher yields also impacted the market sentiments. The level of
market activity cooled down. However, market internals provide mixed signals. Mid and
small cap continued to outperform the benchmark. Realty and metals were though best
performing sectors while defensives like IT and pharma were underperformers for the week.
PSU Banks and Auto were worst performers. The market breadth was even. Yields were
higher and INR weakened against most currencies.
Indian Market (Debt & currency)
Benchmark yields were higher marginally, so were overnight rates. INR continued to
weaken against USD, but was stronger against GBP, EUR and JPY. Ultra Short term funds
top performers for the week as the yield curve continue to steepen at longer end.
Commodity had a mixed trend this week. Crude, Gas and food prices were prices generally
lower, while coal was higher. Silver was a major loser while gold gained. Amongst base
metals, Aluminum was loser, while other metals gained. Steel was mostly unchanged.
Global Markets last week
Global markets had a mixed trend this week. US equities were marginally higher, while Asia
was mostly down. USD lost marginally. US yields continue to slide lower. Cryptoes were
major losers. Precious metals were mixed, with silver losing. Volatility spiked higher. PoBC
surprised with a rate cut.