After a couple of months of turmoil, October brought cheer for investors in most major economies. There was heavy buying in the US and European stock markets along with those in India.
In India, festive season support for stocks has been the dominant trend of the past 10 years.
The Dow Jones Industrial Average was the best-performing index among the major markets in dollar terms, with gains of about 10 percent, so far, in October, according to data from Bloomberg. Brazil’s Ibovespa, the DAX, the CAC 40 and the S&P 500 rose 5-8 percent.
In emerging markets, Turkey stole the limelight with a 25 percent gain. The Philippines’ PSEi Index and India’s Sensex gained 5 percent and a little over 2 percent, respectively. In rupee terms, the Sensex rose 4 percent.
The advances in these markets came even as geopolitical and economic challenges continued to plague investor sentiment. However, actions taken by central banks and governments seem to have calmed their nerves.
Buy on dips
Additionally, the drop in market levels gave long-term investors a chance to buy stocks at relatively cheaper prices. Some analysts said such dips are a great opportunity as they maintained their bullish stance even amid uncertainty in the long term.
“We are overweight on equities in our strategic views,” analysts at Blackrock Investment Institute said in a weekly note on October 24. “A higher risk premium and worsening macro backdrop lowers our expected equity returns. But we expect central banks to ultimately live with some inflation and look through the near-term risks.”
Tactically, they said, they are underweight on developed market stocks as central banks look set to overtighten policy and activity stalling.
“Rising input costs also pose a risk to elevated corporate profit margins,” they added.
The strategic view they mentioned is a long-term view, while tactical refers to expectations with a horizon of 6-12 months.
In the highly uncertain short-term environment, analysts said clarity is emerging on some important trends: the US economy is slowing down and the most likely scenario is a short and mild recession, which the market has largely discounted.
“India’s growth too will be impacted by a global slowdown, but India will be the least impacted large economy,” said VK Vijayakumar, chief investment strategist at Geojit Financial Services. “This environment, coupled with the resources of domestic institutional and retail investors, can hold the market in good stead and can take it to new record highs, but high valuations are a concern.”
He advised investors to buy on declines in performing sectors including banking, capital goods, telecom and autos. Selective pharma and FMCG stocks would be good hedges in this uncertain environment.
What pushed Indian market returns higher was better-than-expected earnings in some crucial sectors. Banking companies beat expectations and reported higher credit growth. IT companies said the outlook was not as grave as was expected.
Blackrock Investment Institute does not have an India-specific view but it is neutral on emerging market equities on the back of slowing global growth. Within asset classes, it leans towards commodity exporters over importers.
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