The India Volatility Index or the fear gauge VIX is hovering around the 26-mark, making stock market investors nervous due to the election linked syndrome. Markets have taken a nose dive in the last 10 days due to US-China trade tariff wars, election outcome and selling by foreign portfolio investors. The VIX has been climbing higher ahead of the Lok Sabha elections outcome and many analysts are expecting the VIX to test the higher range of 34-36 levels in the next few weeks on the back of increase in “out of the money Put and Call transactions”. Money which was moving to debt funds has also slowed down due to defaults and deferment of maturity by various corporates. Hence, money is moving to bank fixed deposits as during these uncertain times investors want their capital protected and sentiment will be the main driver of the market during the months of May and June. Hope it does not turn out to be a May Day for the Indian stock market. Given all the outcomes and assumptions that the market men are baking in, the scope for disappointment could be higher and the market could see some drawdown post the elections. The NSE 500 is a good representation of the Indian GDP with consisting companies posting profits in the range of Rs 4 to 4.50 lakh crore. From a bottoms up basis, the earning growth for FY20 could be much higher than what the street is estimating. In case select PSU banks (very high expectation by the street) post a 10-12% earnings growth next year, this could create an additional delta of over Rs 50,000 crore to the Rs 4.50 lakh crore base. Indian stock markets could be substantially higher in the next 12-15 months’ time frame, on the back of improved FY20 earning growth supported by public and private sector banks, information technology and consumption companies. The local Indian stock market drifted lower on the last day of the week, registering losses for eight straight trading sessions in a highly volatile session of trade. The key benchmark indices, the S&P BSE Sensex and the Nifty 50 closed lower by 95 points and 22 points respectively. So whenever there is a stock market correction, investors should also increase their equity allocation in a systematic manner in a fund or stock of their choice. One should also stay invested in their mutual fund scheme as per their financial goal, asset allocation and risk profile as in spite of the volatility as trying to cash out is not an easy option to safeguard the investment. There is no specific stock write up or recommendation this week as we feel the markets to be volatile next week and hence investors should not participate in the trading game.
Rajiv Kapoor is a share broker, certified mutual fund expert and MDRT insurance agent.