“A market is the combined behavior of thousands of people responding to information, misinformation, and whim.” – Kenneth Chang
Economic activities are back to pre-covid era. Profits are rising, reflected in lowering P/E multiple. Tax collection, power consumption etc. are rising. And above all market is flush with liquidity, thanks to lower interest rates and money thrown into market by many central banks.
So, markets have all the reasons to rise high but why should I be cautious. It’s not that only economic matters affect the markets. Socio-politico matters also have deep impact on markets in short to medium term. Because unstable politico-socio situation in the economy dissuades economic actors to work freely. At the moment following socio-politico and economical events ask us to be cautious on stock markets:
- Afghan Developments & China-Pak Nexus
- Third Wave of Corona
- Union Budget
- LIC’s IPO
- Corporate Results
- Central Bank’s Monetary Policy
Let’s analyse them one by one.
Afghan Developments & China-Pak Nexus: More than the multi-billion investments India made in Afghanistan, it is the peace in India and especially in J&K that is at stake with Taliban taking over Afghanistan. China & Pakistan will use Afghan land and it’s radical population to keep India entangled in dealing with terrorist activities. And announce to the world that India is an unsafe country to do business with and other negotiations. Indian government is putting in its efforts with US & Russia and many other countries to tackle this to its advantage. But at the moment it’s the matter that need to watched out keenly for next 3-6 months.
Third Wave of Corona: We all have gone through the worst phase of our life during the second wave of corona. With situation grossly under control now, lot of medical facilities revived or established and unparallel vaccination drive, we still can’t have sigh of relief. Virus is changing its pattern every now & then. And with its changing variants, it may cause panic. Festival season over next 2-3 months is to be closely watched. And any situation like second phase may cause heavy economic losses this time.
Union Budget: The budget is just 3.5 months away from now. Though government is dynamically working to address the situation, still Budget has its own significance as it lays down the roadmap for the whole year and is a forward-looking document. What the government has in store to encourage foreign & domestic investments, MSME entrepreneurs, middle class taxpayers and other stakeholders. Key to watch out is how government will influence consumption and domestic manufacturing.
LIC’c IPO: LIC is expected to come with its IPO towards the end of the calendar year or early next year. The size of its IPO is expected to be anywhere around One Lakh Crore, which is huge. It is expected to suck a lot of liquidity from the markets that may cause some correction. Though kind of money that is flowing to the markets through regular sources like mutual funds, insurance & pension plans, will certainly lower its impact.
Corporate Results: Good profit numbers from the corporate were not the results of their rising business activities alone. Savings on interest payments because of loan restructuring and huge savings on operational costs because good strength of employees working from home, also contributed to their higher bottom line. Now with the trend reversing, they will see their operational cost rising over last year and also interest savings already absorbed into current profits, corporates will have to work hard to record significant business activities to show higher profits which is quite a task.
Monetary Policies: Monetary policies of central banks across the world are also an important event to watch out for and be cautious. US has already indicated its intentions to increase interest rates. Such actions from US and other countries will reduce liquidity and may cause FIIs/FPIs to move funds from India to US. Even in India, with inflation above 5 it is a challenge for RBI to keep low interest rates.
Above are some of the concerns that we have at the moment. And we shall stay cautious on the markets over next few months. At the same time, at InvestmentMitra we are sure that we are going into one of the large bull-run and it will be a wonderful opportunity to make money from stock markets.
Once again Team InvestmentMitra wishes you Happy Ganeshotsava!
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Thank you.
Happy Investing!
Team InvestmentMitra