VIEWS ON BREXIT 26 June 2016 :

Ø  "Brexit" is now a reality - the outcome of the voting in United Kingdom came as a huge surprise for the market which was assuming "Bremain" till last week.

Ø  On the back of negative sentiment, there is a possibility of near term declines in global equities as well as other risk assets.

Ø  Indian markets will be only marginally affected by “Brexit” as we believe that the fundamentals of Indian markets remain intact,  supported by a strong growth momentum. In the near term a good monsoon is likely to improve domestic demand.

Ø  Investors may see some near term sell-offs as buying opportunities for long term investing.

Equity Market Update

Ø  Given the binary nature of this vote we were reluctant to aggressively position portfolios for one particular outcome where we could add little value on estimating remain or leave.

Ø  Even though the event is behind us, there could be increased volatility and prolonged period of uncertainty in global markets.

Ø  We will need to keep a close watch on the second order impacts if any, on the banking system in Europe.

Ø  There could be shifts in global asset allocations and portfolio mix – GEM and ETF flows could be negatively impacted in the coming weeks.

Ø  However, the Indian economy stands out in this context and remains well placed to manage the volatility.

Ø  A good monsoon and accelerating GDP growth/corporate earnings keep us optimistic on the market outlook.

Ø  We expect domestically oriented businesses to continue to perform better in this backdrop.

     On an overall basis, we see no changes to our equity market outlook. We expect corporate earnings to see a pick-up in the second half of calendar year 2016, led by domestic cyclicals and interest rate sensitive sectors. We believe earnings growth will average closer to 13-15% p.a. for the financial year 2017. A strong pick up in corporate earnings growth in FY2017, full transmission of lower interest rates and expanding return on equity (ROE) for corporate India makes us very optimistic about the outlook for Indian equities in the medium term.

Source : DSBR MF