We are at an interesting phase of the market trajectory. The long term policy measures
implemented by the current Government, like demonetisation, GST, etc., despite initial
hiccups, have slowly but surely started to yield positive returns in terms of economic growth.
Demonetisation has led to an incessant flow of money into mutual funds to the tune of Rs
5.75 lakh crore between 1st November, 2016 and 30th September, 2018.
The debt and a part of the liquid component of these huge inflows, funded the NBFCs
through their issue of Commercial Papers. This led to a very rapid growth in the lending
books of NBFCs. As we have seen in the past, sometimes too much is not good and tends to lull us into a sense of self-aggrandizement, which is what I suppose happened to NBFCs, culminating in the current problem of asset-liability mismatches.
However, that is now out in the open. I suppose everyone has realized where they stand and are trying to course correct; adequate systems are being put in place to resolve the ALM problem and avoid any risky indiscriminate lending.
In the meantime, one interesting situation which has developed is that the markets have
become very light and totally de-leveraged (as NBFCs have liquidated their funding books substantially, LAS being the lowest hanging fruit, to ensure their immediate repayments). Markets also saw FPI outflows backed by reverse arbitrage as the cost of carry in the futures markets went down.
We also see that MF flows are still very strong, with AMFI data showing that the industry has added Rs. 10.17 lakh SIPs each month, on an average, during the FY 2018-19; the average SIP size was about Rs. 3,165 per SIP account. And we are seeing, perhaps, the best quarterly results since the last 6 quarters!! The results for the NIFTY50 universe of companies reported a 21.5% revenue growth, during H1FY19. I suppose as we negotiate the immediate future, which is full of state election uncertainties and the global trade conflicts, in the run up to the general election, this 6 to 9 month period may provide an opportunity to buy equities that, perhaps, you may not find for the next 5 years!!
Happy Diwali and Prosperous Investing to all!!
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