INSUBCONTINENT EXCLUSIVE:
For the markets, June ended on an unmistakably optimistic note
With the Nifty just about 2% shy of its all-time high, chartists were quick to anticipate an imminent breakout
of June, only to stall and leave them grappling with what appears to be yet another false alarm.As much as one would want to pin the blame
on the chartists, it would be unfair to find fault with them
from the RBI and FIIs turning net buyers in June, adding fresh momentum.But the real question: Even if the market breaks out, Will the rally
the unexpected liquidity bonanza from RBI against the broader global uncertainties still looming large
Let us dive in and explore.To understand this, let us look at the two key engines on which markets are run
One, the valuation re-rating and the other earnings upgrade
The first one has done more than its due part a long time back
Not much steam is left there as the markets are already trading at a huge premium to historical averages
If at all, there could be only downward adjustments
Given the robust macro in terms of falling twin deficits, rising reserves, moderating inflation and resilient currency in India, multiples
are likely to sustain despite being at elevated levels without any major correction
Live EventsNow, let us look at the other engine which is corporate earnings
Do we have a cushion there? Is there a case for a big earnings upgrade? This is where the structural weakness in the economy creeps
in.Unfortunately, the key economic drivers are all stuck in low gear
Be it private consumption or private investment or net exports, all of them are struggling to move out of the range
Now, with renewed tariff uncertainties amid a downgrade in global growth outlook, it is unlikely that we will witness any meaningful
private investment as a percent of GDP has fallen to below 11% in FY25 from the level of 12.3% in FY23
When it crossed the 12% level in FY23, it gave a glimmer of hope that the private capex at last would turn the corner after being stuck at a
sub-12% level for more than a decade
But that hope was short-lived as it fell to 11.2% in FY24 and further estimated to have slipped to sub-11% in FY25.Now turning attention to
private consumption, which constitutes over 60% of the GDP, it fell from a growth rate of 6.8% in the pre-covid era to 4.1% in FY20
After a brief recovery, it slid back into the slippery zone where it struggles around 5.5% in FY23
Here again, estimates are pointing to much lower levels in FY25
With both private investments and consumption struggling, no prize for guessing that income growth will be the one that will be hit hardest
That is where payroll data spills the beans
As per that, net payroll additions under the employee provident fund were -5.1% in FY24 and -1.3% in FY25.In summary, no hiding from the
fact that the structural side of the economic story is on the slippery side, at least in the medium term though longer-term drivers continue
to be intact.As a result, we find ourselves in a contrasting market setup
On one hand, the macro environment remains strongly supportive, likely cushioning the market against any sharp correction
On the other, the absence of meaningful earnings upgrades amid already stretched valuations limits the case for a decisive breakout in the
indices.This suggests that the sideways spell is here to stay for a while, with the markets unlikely to break out of their current range in
That said, given the strength of both FII and domestic inflows, we can expect multiple breakout attempts
fishing and value strategies compared to momentum strategy which was the rewarding strategy when the markets were on a one-way run last year
For those momentum days to come back, a long wait may be ahead
For now, it is time to settle for a sideways market, but not a stagnant one
Rejoicing times for bottom-up stock pickers!
