Market Strategy for May: April Correction Provides Buying Opportunities ::Edelweiss

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Negative sentiments outpacing positives

Indian markets have been experiencing pessimism in the recent past and the cynicism became acute in the last one week. Nifty has corrected by 10% from its life high and markets have experienced this type of severe correction first time in the past one and half year. Few factors which have adversely affected the market performances are:

• Slow pick up of the Government Infrastructure
• Weak corporate performance leading to Continuous earnings downgrades
• Unseasonal rains and monsoon uncertainty. and
• Uncertainty of MAT on FIIs

However, if we look at the other side of the window, there are a lot of positives factors that the Indian economy has been experiencing and fundamentally India remains a good investment destination. In fact, Indian equity markets were riding the bull over the last one year and recorded 31% return in CY14. Several things have been working in favor of Indian markets are:

• Retail inflation came down to 5% from a very sticky 10% levels backed by benign global food and commodity prices.
• Lower inflation has led the Central bank to cut rate by 50 bps and banks have started reducing their lending rates as well.
• Moody has upgraded India’s outlook to positive.
• The government is continuing to take measures to improve things at the ground level.
• QE in major economies continue to provide global liquidity.

Indian Markets- may provide short term pain; but long term story is intact

Overall we feel that this market correction can continue for the next few months but the confidence in Indian markets will return. The government has ensured that in FY16 there will be a strong a thrust on infrastructure. There has been a 64% YoY increase in budgetary allocation for roads, railways and power. Once the investment cycle and consumption starts improving, we will see it flow into corporate results as well. However this can take about 1-2 quarters. Hence, markets may consolidate and wait for some positive news on infrastructure spend & improvement in demand scenario.

LINK

https://www.edelweiss.in/research/Market-Strategy-April-2015--Correction-Provides-Buying-Opportunities/10005881.html