How come the markets are up?

The markets closed the year 2019 with a bang. While the broader market was down, the Sensex and Nifty are both up 14% and 12%, baffling most market watchers.


Q: Didn’t the government’s estimate of real GDP growth this fiscal year come in at a mere 5%, the lowest since the global financial crisis? Markets: Who cares?


Q: Didn’t the estimate say nominal GDP growth will be the lowest since 1975-76, thus casting a cloud over average earnings growth estimates? Markets: So what?


Q: Didn’t the government data show that the government sector is the biggest contributor to growth, implying that the private sector is even weaker than the dismal headline numbers show? Markets: Ah well.


Q: Are we certain that the crisis in the Middle East is over? Markets: Of course it is, didn’t Trump tweet ‘All is well’? Worrying about the Middle East is soooo last week.


Q: Didn’t the World Bank say that global growth in 2020 will be a mere 0.1% point better than last year? Markets: We’ll see about that.


Q: And didn’t it say the economic recovery in India is going to be slow and shallow? Markets: Just you wait, we’ll have an awesome Budget. Also, check out how the Purchasing Managers Index for December has rebounded.



Why is there so much optimism??

Morgan Stanley’s chief US equity strategist Michael Wilson has pointed out that the US Fed, the European Central Bank and the Bank of Japan are together expanding their balance sheets at the rate of $100 billion a month. There are also signs that the worst of the slowdown is over....Global Composite PMI is at an 8 month high in Dec 2019. With abundant liquidity, a trade deal of sorts and a bit of a bounce in global growth, what more do we need---that is what the markets seem to be thinking. The weight of money has a way of easily finding arguments to support it.


All eyes are on the Budget which will be presented by our FM on Feb 1.


Source: Moneycontrol and L&T MF

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