FPI concerns: Since the budget announcement, there has been a continuous selloff by the foreign portfolio investors, who have cut exposure to domestic stocks amid fear of a higher tax outgo. The foreign investors also weighed FM Nirmala Sitharaman comment that overseas investors functioning as trusts in India will have to pay the tax surcharge proposed in the Union Budget.
Sitharaman on Thursday 18th July ruled out any relaxation for foreign portfolio investors (FPI). Additionally, any relaxation for foreign portfolio investors (FPI) was ruled out by FM Nirmala Sitharaman on Thursday after she said that overseas investors functioning as trusts in India will have to pay the tax surcharge proposed in the Union Budget.
"FPIs should consider the option of structuring themselves as companies rather than trusts to avoid paying the increased surcharge announced in Budget 2019," quoted Sitharaman
Following this, the net investment of equity and debt segment reported the worst sell-off for the month registered by Foreign portfolio investment (FPIs), who remained bearish with net selling of Rs 1,404.86 crore from Indian equities. In fact, Thursday’s selloff at Rs 1,405 crore was worst since the Rs 1,449 crore FII outflow recorded on June 6, 2019
Post the Union Budget, FPIs have flushed out Rs 5,673 crore from domestic equities, being net-sellers on 11 out of the 13 trading sessions.
Auto slowdown: The auto stocks have been touching 52 week lows on account of continued weakness in demand. The Indian automobile industry has failed to shake off the slowdown that has been plaguing it for months now. Auto sales across all segments continued the downtrend in June as manufacturers cut production to keep inventory in check amid weak retail sales and subdued consumer sentiment.
Slowing income growth and Non-banking financial companies (NBFC) crisis are primary reasons for the current slowdown compared to earlier cycles which had been triggered by global events like Asian crisis, Dotcom bubble, global financial crisis, etc. The recent NBFC crisis had a twin effect on demand. It curtailed financing to new vehicles, and NBFC were financing customers who were not preferred for financing by banks. Hence, revival of lending by NBFC is critical for demand revival.
Over FY19-21, vehicle prices are estimated to jump 13-30 per cent (1-2 per cent per annum over previous decade) due to safety, insurance and emission related compliance costs. Come April 2020, India will upgrade to BS-VI from BS-IV emission standard Given that general price hike over the previous decade was 1-2 per cent per annum, a sharp increase in vehicle prices over FY19-21 can restrict the recovery.
Consumption slowdown: Nielsen has lowered its 2019 growth forecast for FMCG to 9-10% from its previous outlook of 11-12%, citing macroeconomic factors such as slowing growth and the impact of a deficient monsoon. In the first half of the year, growth in FMCG sales was 12%, lower than Nielsen’s earlier prediction of 13-14% for the same period
The slowdown in growth was more pronounced in rural markets, even as they continued to grow ahead of urban. Rural is slowing down at double the rate of urban, something that could reflect in the upcoming June quarter earnings of some of India’s biggest consumer goods companies. The rural slowdown is most pronounced in north India, followed by the west. Haryana, Madhya Pradesh, Uttar Pradesh, Maharashtra, and Assam are among the states leading the slowdown.
What to do in such tough times in the market?
The Sensex has given 5.5% returns in last one year. However the midcap index has given -23% returns since Jan’18. The fall in small cap index has been brutal to the extent of -32% returns since Jan’18.
Over a longer term timeframe, markets will move up after undergoing some pain in the near term. We advise to not go stock specific and start nibbling in mutual funds through lumpsum or SIP route.
A balance of bluechip, multicap and midcap funds can be chosen to invest. Person with higher risk appetite should look to invest more in midcaps and small caps funds.
Some of the good funds which one can look at:
· Axis Bluechip
· HDFC Top 100
· Axis MultiCap
· L&T Midcap
· Kotak Emerging Equity
· Mirae Asset Emerging Bluechip
· Reliance Small Cap
· SBI Small Cap
Source: Referred Economic Times, Business Today, Business Standard, Livemint