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A New Beginning! - Alpha Edge, October 2019

In the midst of the festive season, we at BridgeMonte, wish you a very Happy Dussehra on this auspicious occasion.

On this day eons back, the Pandavas completed their exile and ventured for a new beginning. Well, India Inc.’s profitably too which was in an exile for the last few years is set to make a new beginning with the slew of measures that the Government has begun to undertake.

With the much needed fiscal push, India Inc. has got a shot in the arm as corporate earnings can now push higher due to the corporate tax cuts. The intent shown by the government will definitely increase confidence within India Inc. and shall lead to a ‘New Beginning!’.

On the global front, the slowdown has become much evident and corrective measures have already been taken by major economies and we believe more monetary and fiscal measures are to be followed. However, Brexit and US-China trade talks would be the key events to watch for, in the months ahead.

On the domestic front, the Indian government with the help of RBI are trying to bring back the economy on track. A direct tax code with a significant simplification and lowering of personal taxes will go a long way to boost the demand, triggered by likely increase in consumer spending. While these tax cuts will help in boost the private sector, a focused approach on NPA resolution and bank recapitalization are needed to kick start credit growth as well.

With the fiscal stimulus announcement, we have increased our allocation to 100% in equities in our Aggressive portfolio. In the Large Cap space, current valuations are reasonable if not cheap and any incremental returns will only come from earnings growth which is underway. As to the Mid & Small Cap Space, the price and time correction over the last 18 months have rendered them relatively cheap vis-à-vis Large Caps. In the past, whenever the relative performance or valuations of Mid & Small Caps have touched the bottom extreme of a pattern , the journey ahead for them has been very fruitful.

In the Fixed Income space, RBI has announced a fourth consecutive rate cut, totaling a 135 bps reduction in 2019 and maintained its ‘accommodative stance’ with a dovish tone. Going forward, factors such as Inflation, crude oil prices, fiscal pressure, and global yields would drive the movement in interest rates.

We believe that the yield curve may steepen, due to the large increase in gross market borrowings in FY20 over FY19 along with low demand for government bonds due to excess SLR in the banking system. This could put upward pressure on yields at the longer end. Hence, we believe that exposure to debt markets should be taken through the short term to medium term debt funds with a high-quality portfolio.

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On Thin Ice! - Alpha Edge, September 2019

At the onset of the festive season, equity markets continue its turbulent journey. The recent announcement of Q1 FY20 GDP growth, at 5% (lowest quarterly GDP growth in the last 6 years) has added fuel to fire. The major reason for the decline in the GDP has been a steep drop in consumption growth (3.1%).

The sharp fall in GDP warrants a policy action at a massive scale, as the economy is struggling to find solid ground. This weakness in economic activity can add further stress to already beaten down tax collection. With very less scope of a big fiscal push, the Indian economy is literally stranded ‘On Thin Ice’

On the global front, the US and China are back to talking terms on trade concerns, China and Germany are planning for a fiscal stimulus and Brexit has been delayed are few positives amid the global economic slowdown worries.

On the local front, the weakness in consumption demand and liquidity concerns have prompted the government to take crucial measures such as capital infusion for PSU banks, clearing government dues and GST refunds in a time-bound manner and rollback of surcharge on capital gains for FIIs.

The measures may not be enough for the economy to break the shackles. However, it highlights the intent of the government to give a much-needed push to the lingering economy. Many such measures but at a larger scale are expected from the government. Any delay in such an announcement will add to investor’s concerns who are already skeptical with several broad activity indicators having a poor show.

Hence, we continue to be watchful on equities per se, and any exposure towards equities should be considered in a staggered manner. But we also believe that such turbulent times will provide enough opportunities for the investors to reap the benefits in the next 2 to 3 years.

In the Fixed Income space, after a sharp drop of ~90bps in 10-year G-sec yields between May to July 2019, the bond market consolidated in August. While the recent news flow of RBI was broadly neutral and valuation attractiveness has also narrowed, given the growth-inflation dynamics, we may expect some action in the next two policy meetings.

However, we continue to believe that the yield curve may steepen, due to a large increase in gross market borrowings in FY20 over FY19 along with low demand for government bonds due to excess SLR in the banking system. This could restrict a major rally at the longer end of the yield curve. Hence, we believe that exposure to debt markets should be taken through short term to medium term debt funds with a high-quality portfolio.

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When it Rains, it Pours! - Alpha Edge, August 2019

Markets seem to have taken a cue from the rains that poured thick and fast. Nifty ended the month at 11,118 down 5.7% from June end and Mid cap and small cap indices were deep in the red. This downslide can be attributed to unfavorable tax developments on FPIs during the budget, challenges with NBFCs liquidity and global growth concerns.

The tax implications as per the Union Budget has prompted the FIIs to take a flight to safety. This had a significant impact on market sentiment which led to the sell-off. The way heavy downpour slows the pace of life, but when the clouds clear and the sun shines, the benefits are enjoyed in the harvest season. Similarly, the current turbulent times will provide enough opportunities to enter the market to harvest the benefits in the future.

On the global front, the Federal Reserve reduce the funds rate by 25bps to soften the effects of intensifying external headwinds. Whereas, China has seen the lowest GDP growth in the last three decades, Germany along with other European countries are in dire straits. In UK, analysts worldwide are expecting a hard Brexit leading to a hard landing for the economy.

On the local front, the weakness in consumption demand and household income prospects along with the waning risk appetite of lenders has been affecting economic growth. We are experiencing a serious slowdown in consumption as can be seen in sales of Automobiles, FMCG and other discretionary products. The earnings season has been a mixed bag with only Corporate lending Banks able to save the day.

Even with the recent fall, the valuations do not look cheap, and increasing concerns around global trade tensions and economic slowdown may continue fueling the market volatility for some more time. Any exposure towards equities should be considered in a staggered manner.

In the Fixed Income space, RBI has announced a fourth consecutive rate cut totaling a 110 bps reduction in 2019 and maintained its accommodative stance and a dovish tone. Going forward, factors such as Inflation, spatial and temporal distribution of monsoon, crude oil prices, fiscal pressure and global yields would drive the movement in interest rates.

We believe that the yield curve may steepen, due to large increase in gross market borrowings in FY20 over FY19 along with low demand for government bonds due to excess SLR in the banking system. This could put upward pressure on yields at longer end. Hence, we believe that exposure to debt markets should be taken through short term to medium term debt funds with a high-quality portfolio.

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TsuNamo...So? - Alpha Edge, June 2019

The curtain has fallen on the Indian political melodrama, General Elections 2019’,and the Knight in shining armour is back with an overwhelming victory. The result not only reinforces the belief in some of the policies undertaken during their last term, but also ensures of its continuity by providing the much needed stability in policy making.

A stable government is positive for the market especially as it could push through pro-growth policies with greater ease but it is going to be a long journey. Currently, the economic indicators are not in line with the excitement around Modi’s comeback. Consumption demand and GDP growth have slowed considerably, the liquidity crisis has not been resolved and unemployment is at a 45 year high. Hence the reservations, TsuNamo…So?

Globally, at one end, the major economies such as the US, China and Europe are showing signs of a slowdown and the escalating trade war is brewing a perfect recipe for market turbulence. While at the other end, the moderation in yields globally is hinting of rate cuts, indicating more liquidity to fuel equity markets, especially emerging markets such as India. Further, the slowdown has also resulted in lower commodity prices which will not only help improve India’s trade deficit but also the profitability of corporates.

On the local front, other than the landslide victory by NDA, the liquidity crisis has been making the rounds as DHFL missed a scheduled payment at the beginning of June. Apart from that, the result season was below consensus estimates due to weak volume and operating profit in the consumer sector.

We maintain our cautious stance as valuations are expensive, whereas, the earnings season has been a mixed bag and increasing concerns around renewed global trade tensions may lead to short term market volatility. To manage the short term volatility, we would like to raise our cash allocations by 10% if Nifty crosses 12400. Any incremental exposure towards equities should be made in a staggered manner.

In the Fixed Income space, RBI has announced a third consecutive rate cut totaling a 75 bps reduction in 2019. Given the near term inflation outlook remains benign and growth is moderating, it could provide some space for further policy easing. However, any future action by RBI is likely to be data dependent and in our opinion, this rate cut cycle is likely to be a shallow one.

Large increase in gross market borrowings in FY20 over FY19 along with low demand for government bonds due to excess SLR in the banking system could put upward pressure on yields at longer end.

We believe that the risk-reward ratio still is unfavorable for any duration play and exposure to debt markets should be taken through short term to medium term debt funds with a high-quality portfolio.

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Hold Your Breath! - Alpha Edge, May 2019

We have entered the month of May and all eyes will be on the General elections and its outcome on 23rd May. A clear majority to the incumbent government will give a huge boost to the Investor and Business community, as a stable government can provide a stable environment for economic growth.

Due to the structural reforms in the past few years, we believe the economy is at an inflection point towards higher growth. The outcome of the current general elections would further determine the path and trajectory of economic growth. Hold your breath! as we inch closer to the D-day that may decide the future of the three trillion dollar economy.

On the global front, stock markets continue to gyrate on every dodge and parry in trade talks between the U.S. and China. The recent tweet by Mr. Trump on likely escalation in tariffs with China has raised concerns again. Amid the rising tensions, China’s top trade negotiator, Vice Premier Liu He, will visit the U.S. for talks this week, on May 9 and 10, according to an official announcement. We have to keep a close watch on the developments and we believe it would be too early to conclude that the trade deal talks have failed.

Interestingly, the economic indicators for both the US and China have seen improvement in the last two-three months supported by their monetary and/or fiscal stimulus. Recent US GDP growth numbers and normalisation of the inverted yield are good signs for global equity markets. Oil price up-move has led to concerns about inflation, however current inflation is running below most global central bank targets. This makes a good case for an accommodative stance for central banks globally.

On the local front, we continue to believe that, elections and its outcome which is expected on 23rd May would be the key event going forward.

Apart from that, earnings announcements, consumption demand, liquidity and financial stability, monsoon forecast, oil price movement, and global trade tensions would be the other factors affecting markets.

We continue to remain cautious as valuations are expensive and any exposure towards equities should be in a staggered manner and for mutual funds via SIP/STP.

In the Fixed Income space, 10-year G-sec has moved up by 10bps since the latest RBI policy, notwithstanding the 25bps rate cut. The current inflationary environment is benign and favours monetary easing. However, Rs 7.1 lakh crore of expected borrowing program for the fiscal year is keeping the yields high despite easing monetary policy.

We believe that the risk-reward ratio still is unfavourable for any duration play and exposure to debt markets should be taken through short term to medium term debt funds with a high-quality portfolio.

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