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Markets continue recovery while government focuses on strengthening growth

Much of the recovery in equity markets over the past couple of months is due to the tax cuts for corporates, announced by the Finance Minister, and a series of other administrative measures announced. One can expect more such measures to trigger the economic recovery.

Equity markets in October 2019

  • The large cap oriented Nifty continued to build on the strength seen in September, closing up 3.7% in October. With this move, the Nifty has made up for most of the losses earlier this year. 
  • The midcap also recovered during the month, but still continues to trail the larger companies by a wide margin. 
  • The S&P 500, as measured in INR terms, (US Markets) also closed on a positive note for the month.


Debt markets in October 2019

  • Median returns of the Top 10 liquid funds averaged 5.8%, down from the past year as interest rates have been coming off.  
  • Government 10 year bond yield inched up by about 8 bp in October, as the reduced tax rates led to concerns on fiscal deficit and the possibility of the government increasing its overall borrowing program. 


Factors affecting markets

  • Much of the recovery in equity markets over the past couple of months is due to the tax cuts for corporates, announced by the Finance Minister, and a series of other administrative measures announced. One can expect more such measures to trigger the economic recovery. 
  • The economy, on the other hand, continues to grow at a slower rate than witnessed in the past and we are yet to see any evidence of the recovery. With the government intent of getting the economic trajectory back on track, it is important for investors to watch out for early signs of recovery. 
  • With several measures being taken by the government, we believe corporate growth should pick up momentum soon. A weak market is a good time for investors to increase their equity allocations. Equities continues to remain attractive compared to alternative asset classes like fixed income and real estate. 
  • There are concerns over the global economy, especially in light of the trade war between US and China. Experts believe this situation can benefit the Indian economy, as some of the global corporations are looking to setup manufacturing units as an alternative to China. 


In Summary

Markets continued on the recovery trajectory in October and thus recovering most of the previous months’ losses. While economic growth remains weak, recovery is expected to be aided by government measures like the corporate tax cuts announced recently. On the whole, wise equity investors might consider this a good time to increase equity allocation.


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