Amid US Elections, stay focused on domestic consumption stocksNov 07, 2016(14:52)
Equity markets globally are going through time correction since July, ahead of the US presidential elections scheduled to take place on 8th November 2016. Initially, the majority of market participants believed that it was an easy victory for Hillary Clinton and that she could win with a wide margin against Donald Trump. But as the campaign progressed, Trump has managed to turn the focus on him taking advantage of the FBI probing on Clintons emails. However, the FBI has found no criminal wrongdoing by Clinton and has cleared her of the allegations a day before the elections. Post this; probabilities of Clinton winning the elections have become higher.
The majority of opinion poll results are also in favour of Clinton with at least a 3 point lead in the CNN poll of polls pointing towards a 45% victory for Clinton as against 42% for Trump. Likewise, of the 538 electoral votes, polls indicate an upper hand for Hillary with 216 votes as against 164 for Trump, with 158 crucial electoral votes that could turn the tables. Market participants expect Hillary Clinton to maintain the status-quo in all economic and foreign policies, whereas Donald Trump is likely to create a lot of uncertainties in the economic and foreign policies.
At this point, Clintons victory has a higher probability which could result in gains in the equity markets. A probability of Trumps victory is less likely, but if it happens, could bring about a sell-off in the equity markets. Post the appointment of the new US president, further direction of the markets is likely to be determined by the economic and financial policies adopted thereafter.
Indian investors should devise an investment strategy to tide over the volatility by revisiting their existing holdings and planning for fresh investments in a systematic manner, taking into account upcoming events such as the US FOMC meeting scheduled in December 2016, referendum and elections in some of the European countries. Within the existing holding, it may be a good strategy to reduce the exposure to companies with global currency exposure and increasing exposure to companies focusing on domestic consumption. Also, it is advisable to switch to good quality stocks trading at reasonable valuations, exhibiting consistent earnings growth.
Investors should focus on medium to long term positives for the Indian economy and increase the exposure to companies that focus on domestic consumption. A stable government at the centre, implementation of the GST, lower crude oil prices, and lower interest rates, measures taken to clean up the banking system, higher domestic consumption as well as a stable currency, augurs well for companies focussed on domestic market. It may be a good strategy to invest in some of the quality stocks from sectors like automobiles and ancillaries, financials, cement, infrastructure, consumer goods, metals & mining and oil & gas among others which are expected to benefit from the positive factors in the domestic market in the medium to long term.
M Rajendra Prasad