Equity indices may see gradual uptick

The Indian market is clearly in a state of polarisation. The indices don't represent the true picture where only a few stocks, which can be counted on the fingertips, have been receiving inflows and buying interest. All other stocks, from different sectors to a wide spectrum of market capitalisation, have undergone a substantial correction from the peak. Such situations are very rare and uncommon.

This is despite a marked improvement in the important macros like inflation, bond yields, crude prices and interest rate outlook. The central bank boldly cut repo rate by 25 basis points on February 7 and changed policy stance to 'neutral' from 'calibrated tightening' which was considered a pro-growth move. The budget also was a good balance between fiscal prudence and populism, giving a boost to the ailing rural consumption

With the US Fed giving indications for easing its double-barrel attack of interest rate hikes and balance-sheet shrinking, international macro-headwinds appear to be easing. Though the domestic flow through SIPs continues, there is evidence of a slowdown in domestic money put in equity mutual funds off late. However foreign investor interest seems to be coming in bits and pieces with no particular trend emerging.

The overall earnings picture provides a contrasting situation wherein during the previous four quarters, non-BFSI was providing the much-needed earnings cheer when BFSI was lagging in terms of earnings performance. However, during the current quarter Q3FY19, BFSI has shown remarkable improvement in financial performance, and non-BFSI acted as a bit of spoilsport. The non-BFSI performance was clearly weighed down by oil marketing companies (OMC) on the back of steep oil prices. Growth in the non-banking financial companies (NBFCs) is undoubtedly slowing sharply as a consequence of the shock triggered by default of IL&FS in September 2018 and some other accidents post that.

Given the current market scenario, the earnings reported by companies suggest a gradual recovery setting up; however, sustenance of the same would be a key monitorable, along with the demand scenario during the pre-election period. Irrespective of the election results, in the longer term, whoever governs India in the next five years will enjoy the dividends of significant structural reforms implemented by this government.

The action plan has to be to nibble into companies with good pedigree managements where there is high visibility of business traction and earnings growth. One needs to identify certain themes which may be beneficiaries seeing the demographic advantages and disruptive changes which are envisaged. We remain positive on select financials, building materials, consumption, niche healthcare and automation.

The writer is head of equity advisory, Centrum Wealth Management