Equity Market Outlook
With the budget and elections behind us, focus should now shift to earnings. Q4 Earnings season concluded on a mixed note – the BSE200 earnings reported a strong growth off a weak base (mainly aided by Corporate Banks), worries of a slowdown in consumption led by Auto dampened market mood. In the June quarter 11.3% of the BSE200 Index saw an upgrade of >2% in FY 20 earnings whereas 55.3% of the Index saw a downgrade. Downgrades were more visible in Stable segment with 40% Stables and 15.3% witnessing downgrades in excess of 2%. Similarly, 8.4% of Cyclicals were upgraded >2% and only 2.8% of Stables were upgraded >2%. Though June quarter earnings are expected to be tepid as most high frequency indicators indicate a slowdown, management commentary w.r.t. growth outlook across industries will be keenly watched.
Globally, post the Fed’s June MPC meeting, Economists have pulled forward their expectations of 25bps rate cuts to July and September (vs. Sep and Dec previously). Global Markets surged in June with the MSCI world Index rising 6.4% MoM, up 3.4% for the quarter with equal contribution from Developed Markets (+6.5% MoM and +3.4% QoQ) and Emerging Markets (+5.7% MoM and -0.3% QoQ). Oil rose sharply in June with WTI rising 9% and Brent rising 3% MoM to close at $66.5/barrel. For the quarter though, Brent fell 3% QoQ and still trades at a comfortable range for the India economy.
Debt Market Outlook
The FY20 final Union budget provided an exceptional challenge to sound credible without deviating heavily from the interim budget targets. Given this, the finance minister delivered a remarkable balancing act. As with almost all budgets, revenue numbers will still get challenged especially given the ongoing economic slowdown. However, this is a creditworthy optimising given constraints and leaves the bond market reasonably satisfied. Also noteworthy is the fact that RBI Governor Shaktikanta Das, alongside two other Monetary Policy Committee (MPC) members, has seemingly been sympathetic towards some fiscal expansion and would likely have not considered this as a constraint for further easing. With the finance minister actually showing further consolidation, the trigger for further monetary easing becomes even stronger. This alongside RBI’s move to positive liquidity (core system liquidity is already around INR 80,000 crore positive and is likely to go towards INR 2,00,000 crore by September post RBI dividend) and the global backdrop of sharply lower yields paints a continued bullish environment for quality interest rates.
(Anoop Bhaskar is the head of equity, while Suyash Chaudhary is the head of fixed income at IDFC Asset Management Company. The views expressed are personal)