Narrowing Global Bull Market – are Indian markets toeing the line?

By Gaurav Kulshreshtha | 25 July 2018

Market is up but you are not making commensurate returns from equity investments – Well you may not be alone!

Citi analysts believe that the global bull market has entered the final stage of an equity bull market. This phase is characterized by narrowing equity market leadership into growth and momentum trades, expensive stocks getting more expensive and has typically produced bubbles in the past. These can be career-threatening for active fund managers following value strategies. Nonetheless, continued EPS growth still keeps equities rising but with greater volatility. This Phase lasted 16 months in 1980s, 32 months in the 1990s but only 4 months in the last cycle (2007). The next Phase which typically follows the current phase, is when bear markets begin.

While we may have entered the late stage of the global bull market, however Citi analysts believe that it is too early to call the end of this global bull market, especially since their ‘global bear market checklist’ still shows only 3/18 red flags.

Source: Citi Research

They remain constructive on global equities and expect 2018 to be another year of synchronized growth with global EPS growth expected to be ~16%, mostly driven by US tax cuts. The leadership appears to be narrowing into US equities and IT sector this time around.

However, any sharp slowdown in the world economy would be a key risk – it could be triggered by excessive monetary tightening, escalating trade wars or significant problems in China, in their view. Close monitoring of these risks is thus, extremely important.

In the Indian context too, it appears the narrowing bull market hypothesis is playing out. While Sensex is up (as on 16th July) ~+7.4% YTD, but the broader market is still struggling, with BSE 500 down -1.9%, Mid Cap Index down -15.6% and Small Cap Index down by -18% during the same period.

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