The recent weeks are seeing the trend turn in several areas. Investment flows are looking very different with the persistent selling of FIIs in Indian equity.

News flows are also not looking great in February. For instance, first we had the budget levied long term capital gains tax on equities. Then, SEBI banned overseas stock exchanges like the SGX from using Indian indices to create products. Now, the PNB scam and the risk of its contagion effect on PSBs. Finally, the rising prospect of early elections in end 2018.

But these are more in the nature of reasons to explain market direction. The real reasons seems to be far more serious and structural. The uncertainty of global commodity prices, risks to fiscal discipline being maintained, upward pressure on inflation, possibility of rising interest rates, and the alarming prospect of a return to coalition governance are clearly worrying global investors. The higher volatility in global markets is definitely not helping matters either.

After enjoying decent macro tailwinds for a very extended period of time, we seem to be heading into a phase of macro headwinds. Such a phase inevitably leads to a lot of top down basket selling of the indices by global investors. Events of the past few weeks seem to reaffirm the onset of this selling trend.

Will this trend grow into a flood or will it reverse quickly? We will know in the coming weeks.



“The safest and most potentially profitable thing is to buy something when no one likes it.”– Howard Marks

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