Beating the inflationary pressures is critical for a broad based outperformance.

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The year gone by has been a mixed bag – of pluses and minuses. GDP growth touched a low of 5.4% for Q2.Earnings growth came down proportionately and even more in some cases Why did it happen?

It was an election year for the country and for key states .The ruling government offered freebies which reduced the ability of the government to spend on capital expenditure.  The key implication India may not see an upgrade in the country rating anytime soon.An upgrade at a country level has multiple positive impacts which help a country to contribute more to world progress and secure better position while negotiating with trade partners or in attracting investment.

What is needed to be looked at?

1. GDP no’s quarter on quarter

It is expected that the economy might take Q4 to fully recover.This is as it generally takes 2 quarters to overcome any slowdown in the economy.the GDP nos for the year are likely to be in the region of 6.25-6.5% per annum depending on the pick up in 3rd and 4th quarters.

2. Earnings growth for the top 500 companies

These are likely to bottom out by Q4 end. Markets are likely to be in the region of 25000-26000 Nifty if the bottoming out happens as per our expectation. Inflationary pressures are there in the US which make it difficult for interest rate cuts to be there. The benefit of that is higher earnings which is likely to be seen next financial year.

3. Liquidity and fund flows

Sip flows continue to be strong and hence downside risk is limited. This continues to be a good enabler of liquidity every month. flows will come on a stock specific basis. Stocks across the spectrum are likely to benefit from that once bottoming out has happened.

4. GST collection growth year on year

Year on year basis December GST has grown by 7.3% .It has fallen from initial double digit percentage on account of social spending.

5. Credit growth

Credit growth has been in the region of 10-12% with major banks and NBFC’s.with the rural recovery in consumption it is expected that businesses will make good use of credit to grow with the recovery.

6. International factors on account of President Trump

President Trump is likely to look at tariff barriers by India and China seriously. If he raises tariffs inflation will need to be borne by the US Consumer which may not be good from interest rate cut point of view. A reciprocation would be expected as is the case with any economic diplomacy.

7. Interest rate cuts -both internationally and in India

It depends to the extent which US imposes tariffs. If the US imposes higher tariffs then inflation will be imported by them resulting in slimmer chances of a rate cut.if inflation in India is higher then we may also see less of rate cuts.

8. Narrative of the budget in India

Most of the key states elections are over .if the socialist tendencies continue to influence the government even more then capex will be impacted. That said the fine print needs to be seen to be believed.

This year is more of a stock pickers market rather than being dominated by any particular trend.Flexicap as a category is likely to do well along with large and midcap in Mutual Funds and pooled vehicles. Carpe Diem!

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