UP Elections: Increasing Equity Allocation

 In Blog

Dear Friends,
Best wishes for a colorful and Happy Holi!
The landslide victory in the Hindi heartland of Uttar Pradesh/Uttarakhand implies that the BJP tenure is broadly assured for the next seven years. This not only implies political steadiness, but also that bolder reforms can be pushed through.

This sets the bullish backdrop for our stock markets, both in medium and in the long term. This leads us to recommend increased Equity allocation by up to 15%.

However, the trickier part is the timing, as the markets will open with a positive GAP tomorrow and will be trading at historical highs.

We do not advocate buying at these elevated levels. In view of a number of global factors, there may be more attractive entry opportunities that may arise, in the coming months:

  • European Interest Rates: While rate hikes by the US Fed are discounted in the markets, rate hikes in Europe along with a tighter monetary policy are not yet factored in
    • It should be noted that Inflation has been up-trending in Europe and has moved up from close to zero levels to 2.0% in Feb 2017
  • President Trump: May fail to deliver on one or more of the areas that he has promised, such as lower Taxes, increased Infrastructure & speedy Deregulation
    • For example deregulating Dodd Frank requires a threshold of 60 Senate votes which is not easy to muster in the currently turbulent landscape
  • European Elections: Election outcomes in Netherlands / France may further reinforce the nationalistic & protectionist tendencies witnessed in both UK & USA
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