Fed gives clearer trajectory

One of the most awaited data points of the previous week was the Fed minutes. Not surprisingly, the Fed did highlight the risk of growth driven inflation. But, the Fed was also emphatic that any rate hike was quite some time away. It also underlined that any Fed action would commence in the form of tapering bond purchases and rate hikes will only follow much later, if justified. That takes away any immediate risk of hawkish policy and that has worked in favor of markets this week. It reduces pressure on RBI. 

Checking COVID resurgence

One thing that became clear in the last few weeks is the ability of the Indian economy to fight against the resurgence of the pandemic. India may be behind in the vaccine race, but it is catching up. Just look at hard numbers; India has vaccinated nearly 15% of its people. In the Indian context, mass inoculation was never going to be as smooth as many of the smaller nations. Markets are looking at the positive side that the response mechanism is up to the COIVD challenge. While the problem could still linger, there is now a clear trajectory of revival in economic growth in FY22. 

Q4 results are actually better

The flow of results has been slow this quarter but if you look at the 700 or so companies that have announced, net profits are clearly higher. Of course, one can argue that this turnaround in profits is driven by two sectors viz. metals and oil. But the fact is that even in a tough quarter, the sequential profits are up by nearly 10%. What is more, the Indian markets are underpriced if you go by the net profits / GDP ratio. For the fiscal ended Mar-21, the ratio of net profits to GDP stood at 2.6%, the highest level in the last four years. This profit growth has come despite a steep spike in the price of commodity inputs. So, things could only get better from here. 

Finally, there is TINA factor too

Talk to any broker and the one thing they would tell you is the deluge of new account openings. A lot of young minds are entering the market and for most of them equity is not only an option but also an outcome of lack of other options. Unlike in the 1990s when debt used to pay 14-15% returns, the scene is very different today. Investors are clear that bond yields will be tepid, gold is a hedge and realty is unpredictable. That leaves the equity story to grapple with. One trend through the recent tumult was the steady VIX at around 20 levels. Forget about Sensex levels; equity investing is here to stay and that is what Sensex @ 50,000 indicates!