65,000 Cr of FII money does not flow into the domestic equity markets every month, when such quantum of money does flow in, it moves the markets. November 2020 has been one of the best months for the Indian equity markets in recent years. A couple of big global risks have been addressed during the month – the uncertainty of the US Presidential election and the timelines of an effective vaccine for COVID-19.
If not for anything else, purely for academic interest do track what happens to the US Dollar Index and how the MSCI EM equity index moves over the next few weeks. Extrapolating the RISK ON trend of November would not be prudent, but the liquidity tap will continue to be on across most developed markets. Their central banks do not really have a choice in this regard, fiscal and monetary measures will force investors wider on to the risk curve for some more time.
In the market, we can either have good news or good prices. Maybe the economy will get better, maybe it won’t. The key is to judge each data point on it’s merit rather than going by the credentials of the person talking about these data points. There is no downside to being wrong in your statements, but the downside to being wrong in your actions is real. That is the difference between a market commentator and a market participant – skin in the game.
Q2 FY2021 has been very good for India Inc, the improvement in margins and cash flows was predictable. The bounce back in revenue in some industries was not. That said, one needs to watch for signs of managements becoming more growth focused in their actions to believe their words. When managements expect better times, they invest into the business. When they don’t, they tighten their purse strings and conserve ammunition.
The next few months should be interesting in this regard. We’ve seen these cycles before, giving higher weightage to tangibles rather than getting carried away by narratives is the prudent thing to do. There isn’t yet a shortage of good businesses at reasonable valuations, though not many are cheap right now.