Market View: We continue to believe that market is likely to remain volatile in the near term. The recent sharp rally from the lows of March 23, 2020 can be attributed to bargain hunting along with FOMO (Fear of Missing Out) by investors.
However, we may not touch the lows seen during March end as that carnage was driven by some technical factors. To write that story in short, FIIs also have exposure to debt and equity in their portfolio, similar to what we retail investors do.
Generally speaking, debt and equity prices move in opposite direction. It means, if equity goes down, bond prices go up (bond yield goes down; yield and bond prices move in opposite direction). On 9th March, US 10-year G sec yield had fallen to 0.32% from 1.5-1.6% levels seen in the mid of Feb 2020. However, after falling to those levels, 10-Yr G sec yield spiked to ~1% levels on 18th March, within a week.
As a result, FIIs were butchered on every asset class – be it equity, debt, gold. There was a complete panic and they were selling left-right & centre. Emerging Market saw the brunt due to selling by ETF portfolio managers.
We have come up ~23% from the lows of March 23, 2020. But we are watchful of policy reactions of Government/Central Banks across the world which we believe could be the most important driver for the world economy.
On the other hand, there are several +ve developments which have occurred or likely to occur in near future like lower crude price, lower trade deficit with china, MSCI & FTSE rejig ($6.4 bn passive inflows this year – largely in next 3 months), higher capital allocation to India on back of lower global interest rate/higher liquidity and manufacturing units likely to relocate to India from China.
As a result, long term investors are likely to make good return, if they stick to right asset allocation, in our view. We recommend our clients to continue with running SIP/STP and spread the additional lump-sum investments over next 3-6 months in few tranches.
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