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ZyFin reports Indian equities on firm footing


ZyFin, the asset management and advisory firm focused on emerging market ETFs, has published its monthly review of the major economic trends in the Indian equity and debt markets. 

The firm finds that the Indian equity offering stands on a firm footing when compared to most of its global counterparts. July saw the IMF stating that economic activity in India remained buoyant as the economy continued to benefit from lower oil prices, positive policy actions and improved confidence. According to the IMF, India’s external sector position in 2015-16 is broadly consistent with medium-term fundamentals and desirable policy settings.
It added that subsidy and social spending reforms would create space to support supply-side reforms in the country. Further, it suggested that in order to reduce external vulnerabilities and improve investment prospects, the government should continue with its fiscal consolidation activities besides passage of the GST Bill, further
subsidy reforms and easing domestic supply bottlenecks.
The IMF scaled down India’s economic growth projection by 0.1 per cent to 7.4 per cent for the current and forthcoming financial year citing the impact of sluggish global growth and exports and a slightly sluggish investment recovery.
Recent market events in Europe and the US have driven global investors, in search of yield, to relatively stable emerging market economies for better returns, the firm says. India remains a key recipient of foreign investment with portfolio inflows worth USD3,821 million since January’16 given its worthier prospects in the near term.
Likewise, steadily rising FDI inflows remain a stable source for financing India’s needs. Lastly, with India’s foreign exchange reserves at an all-time high of USD363 billion offer an import cover for nearly ten months besides being a defense against unfavourable currency movements.
The firm writes that given these dynamics, India’s current account deficit moderated to 1.1 per cent of GDP during FY16 from 5 per cent during FY13. Lower commodity prices of oil, metals and agricultural goods have been a supporting feature. Going forward, a rebound in oil prices may put pressure on India’s import bill. The expected redemption of Foreign Currency Non-resident Deposits worth USD25 billion during September 2016 could result in short term volatility in the Indian Rupee.
Indian equities ended the month with gains of 4.20 per cent in July, marking the fifth consecutive month of positive returns and delivering ~25 per cent (cumulatively) in the last five months. The firm writes that the market sentiment has been upbeat due to multiple factors including, but not limited to, good monsoons, passage of GST Constitutional Amendment Bill in the monsoon session, continued FII inflows and conducive global markets.

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