‘Market expecting positive end to the elections’
market around the expected margin of victory. It is too early to say but looking at previous elections the patterns look somewhat similar, namely, high expectations in the beginning, some nervousness during and a positive end. At the end of the day the market is still expecting the incumbent government to win and secure policy stability/continuity.
In our view, as soon as the elections are over the market will quickly focus on the budget, due in July, with possible increase in capital gains tax as a major concern. The FPIs continue to view India positively given the ongoing consumption/capex story playing out over the medium term. That said, the sentiment has changed over the past few months.
China is being looked at more positively and the belief is that the worst may be over for the economy and consequently the markets. Given the huge underweight stance by most Foreign Portfolio Investors (FPIs) in China and the very cheap valuations, there is a ‘fear of missing out' (FOMO) on a strong market rally. Hence, we believe funds have reallocated from India to China over the past month or so.
The earnings season has so far been mainly in line, if not a little disappointing. Coming into the earnings season, the focus has been towards the IT and banking industries, and if the narrative moved towards the worst being behind, then the market would move higher. This has played out for the banking sector with NIMs (net interest margins) starting to normalise and the re-rating of the sector we believe has just started, albeit the recent Reserve Bank of India (RBI) regulatory intervention has once again dampened sentiment.
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