Can a Modi win in 2019 election propel Nifty to 12,500 within a year? We take a closer look at what Jason Monteiro, AVP- MF Research & Content at Prabhudas Lilladher has to say.
After seeing heavy correction, the domestic stock markets have taken a breather on the the back of easing global crude oil prices and a strengthening rupee. Sensex and Nifty will remain range-bound in the run-up to the general election, says Jason Monteiro of Prabhudas Lilladher. The 10,000 level will act as a support for the Nifty 50, and if the BJP Government is voted back to power, the Nifty 50 may touch the 12,500 level over the next 12 months, he says.
Sushruth Sunder of FE Online recently interviewed Jason Monteiro, AVP- MF Research & Content at Prabhudas Lilladher who shares his outlook on the stock market,mutual fund inflows, and impact of the 2019 elections. Here are the edited excerpts:
The stock markets remain volatile owing to various domestic and global macro factors such as currency depreciation and crude oil prices. What is your near-term outlook on the stock markets?
We maintain a cautious outlook for the equity markets. The bellwether indices are expected to remain range bound in the run up to the general elections. Now, with the NBFC issue settling down, a strengthening rupee and a 25% correction in crude oil price, the markets have got a breather. Yet, other geopolitical risks, mainly stemming out from Brexit and the US-China trade war, remain to be a concern. Back home, ongoing State Elections will add to the market volatility.
How do you see the elections impacting the direction of stock market?
The 10,000 level will act as a support for the Nifty 50. If the BJP Government is voted back to power, the Nifty 50 may touch the 12,500 level over the next 12 months. A hung parliament, like that seen in 1996, could turn out disastrous for the markets, taking the Nifty 50 to the 9,000-9,500 levels.
What factors would drive the stock markets going forward?
Favourable election results, starting with the State Elections, will provide a boost to the markets. A US market correction may affect global sentiments, however, we may see money flowing into emerging markets. For the current year till September 2018, emerging market indices have underperformed the US market. As such, US stocks now look less compelling as compared to emerging market stocks.
A weak dollar and slower interest rate hikes by the US Federal Reserve could bode well for emerging markets including India. FII inflows have been broadly negative for the current financial year, till October 31, 2018. A revival in foreign inflows, as we have seen in November till date, will provide support to the market. Also if NBFCs are able to overcome the liquidity squeeze and revive loan disbursements, market sentiments will pick up further.
The October equity mutual fund inflows have remained resilient despite volatility in market. Will these flows sustain in the near-term?
Net inflows have been rising over the past few months due to lower redemptions from equity mutual funds. If we break up the components of net inflows, we see that Gross Sales remained steady at around Rs 23,000-24,000 crore between August-October 2018, while redemptions reduced over the period to Rs 10,183 crore from Rs 15,702 crore.
Data of the past few years reveals that redemptions tend to increase in the last quarter of the financial year. Over the same timeframes, gross sales increased only marginally in comparison. If gross sales continue at the current level, we may see a reduction in net inflows over the next few months.
Along with this, SEBI’s diktat on commissions paid to mutual fund distributors may negatively influence the gross sales. In October 2018, SEBI banned upfront commissions and upfronting of trail commissions paid by mutual funds to distributors. A reduced incentive to sell may translate into lower inflows for equity funds in the coming months.