In 2014 when the current administration was voted to power with full majority, there was no stopping for the rally. Stocks surged as if there was no tomorrow. Come to 2019, the rally is less than spectacular for a more resounding victory than 2014. Some say that the market is yet to digest the outcome. Some say it is already priced-in. But, for a more convincing reason, one has to look beyond the local cues. The pressure is elsewhere.
Since early April, Asian markets have given up all the gains they made in the Ist quarter on account of rising rhetoric on trade tensions between US and China. India was no exception, though post exit polls, it recovered much of it. With ETFs pulling out money across emerging markets on fears of escalating trade war, negative global cues have come as a show-stopper for Indian markets. Now the question is who is going to trump whom in the tug-of-war between negative global and positive local cues?
No one knows the answer. But this friction has given a brilliant window for those sitting on fence still. With so much of cash sitting on sidelines (both from mutual funds and HNIs), it is question of time before local cues trump the trade war tantrums, though edgy credit markets in India will continue to be an overhang for a while. No prize for guessing which index benefits the most when local money starts gushing. Small and mid-cap indices will see a smart come back when local funds start finding better use for their idle cash as they fancy the broader space of small and midcaps more than the larger peers. Watch out for interesting times for broader space!