Fate of Indian share market revival may depend on two jokers in the pack: Raamdeo Agrawal

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Published: October 25, 2018 5:55:53 PM

Even as we continue to severe volatility in the stock market due to a cocktail of domestic and global factors, Raamdeo Agrawal of Motilal Oswal says that the fate of Indian share market in the near future will depend on two important ‘jokers in the pack.’

According to Raamdeo Agrawal, oil prices and FII behaviour are likely to dictate the course of Indian stock market in the near future.

Even as we continue to witness severe volatility in the stock market due to a cocktail of domestic and global factors, Raamdeo Agrawal of Motilal Oswal says that the fate of Indian share market in the near future will depend on two ‘jokers in the pack’. The course of Indian stock market in the near future will be decided by crude oil prices and foreign investors’ behaviour, Raamdeo Agrawal said in a media conference call. He noted that oil prices went up to $85 per barrel, and that has weighed on stock market sentiment.

Earlier this month, brent crude oil price shot up to $85 per barrel, a level last seen in 2014. Added to that, the government’s directive for OMCs (oil marketing companies) to bear Re 1 cut per litre also added to woes, Raamdeo Agrawal said. However, oil prices have now receded from this year’s highs, and a lot of correction in the stock market has been done. A major portion of the correction is over, he said.

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The second joker in the pack is FII behaviour. In October so far, FIIs have pulled out over Rs 35,000 crore from Indian equity and debt markets. On Wednesday alone, the FII outflow figure stood at Rs 2,046.54 crore, according to data available with NSE. Raamdeo Agrawal said that foreign investors could become net buyers very quickly, but the same cannot be said of domestic investors.

Taking stock of the recent correction, Agrawal noted that the last one month has been challenging, with small and midcap indices shedding up to 13%. The individual level correction has been even more, and the markets are going through a corrective phase, he said.

Confluence

Various factors came together to play havoc on Indian stock market, Agrawal said. First up, domestic mutual fund flows slowed down. Further, prevailing high valuations of the companies was another major reason, as there were over a 100 companies with over 40-50x PE. Raamdeo explained that these high PEs would be sustained if there is consistent inflows as it prompts mutual funds to keep buying the same companies and that keeps PE at high levels. However, in its absence, such high PEs are not sustainable.

Raamdeo Agrawal said that according to acceptable GDP-to-corporate profit norms, India Inc should have about Rs 9-10 lakh crore of corporate profits. However, the current figure is much lower at about Rs 4-5 lakh crore. Added to these factors, IL&FS default also weighed on the share market.

Is a revival underway?

Raamdeo Agrawal said that the economy is doing well, and one should not lose heart. He advised that it is very important to be in the market, when the market is reversing. Even high quality companies must not be bought at very high prices, he said, adding that he is hopeful that the current volatility will subside soon.

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