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Monthly Equity Strategy – April 2019


  • Strength of the US economy relative to market expectations is expected to determine the direction of the USD & bond yields and future action of the US Fed. For now, global equity markets have largely priced in a dovish monetary policy stance of global central banks including the US Fed, which drove a swift rebound in most DM & EM markets over the past 3 months. We would note that any resolution of the long-standing disputes between China and the US trade would extend the global equity rally. China and the US are currently holding discussions to address the trade related differences between them.
  • In this scenario of US growth slowing down and not a recession and global money supply remaining constant (instead of tightening), money shall chase growth. Therefore, anticipate more foreign flows into Emerging Markets. Within EMs, India’s macroeconomic fundamentals are relatively strong and therefore might be a beneficiary of EM flows.
  • Current market valuations imply that market is not in over expensive zone yet and sentiment are not in euphoric zone. Hence gradual / systematic investment is the most appropriate approach. It is therefore important that incremental exposure to Equities be taken only in staggered manner or through Asset Allocation products to ensure a reasonable risk adjusted return.
  • Global volatility induced by probable slowdown in world economic outlook coupled with increased uncertainty as we move closer to general election may indeed lead to some more volatility, thereby providing opportunity. Hence, each dip in the market may be used as an opportunity to build positions towards equal weight asset allocation (in staggered / gradual accumulation being more appropriate strategy).
  • However, on the flip side, one may reduce equity allocation, if markets breaches Nifty levels of 12000-12200 in the short term.