Another Positive Opening For Indian Equities

The Indian equity markets continued its dream and the indices closed at another all time high closing levels. While the Sensex closed at 23871 (Up 320 points) or 1.36%, the Nifty closed at 7108 (Up 94.50 points) up 1.35%.  

After the exit poll results it is now clear that the Bharatiya Janata Party (BJP)-led National Democratic Alliance (NDA) is tipped to form the next government with many exit polls projecting a clear majority for the coalition in the just-concluded Lok Sabha elections. This has resulted in sentiments changing and everyone on the street turning bullish. Now before everyone starts contemplating the possible effect of BJP forming a government at the centre after 2014 General Election, let’s recap in short the current state of the economy. Over the last 10 years, India has flirted with Centre-Left economic policies with large scale enactment of entitlement programs and other welfare economic policies on one hand, and creeping privatization of PSU companies through sale of equity in open market on the other hand. There has been a clear departure from previous experiments of investment promotion and job creation to sale of government holdings to private companies. As a result, we have moved from low fiscal deficit level of 2.54% achieved in 2007-08 to a high 4.1% (after adding off balance sheet items and items for which money has not be disbursed by Government, the actual fiscal deficit would be much higher. Also note that FRBM Act mandates a fiscal deficit target of 3%to ensure sustainable growth parameters). The high fiscal deficit of 4.1%, high and sticky Consumer Price Inflation of 8%+ for over the last 5 years, now has greatly impacted the structure of the Indian economy. On one side, we are seeing increasing wage pressure and low consumption rates set in, and on the other hand, job creation has been the slowest over last 15 years led by low investment rate, slowdown in service sector growth and manufacturing sector growth. To put this simply, there is more gloom in the economic environment than bloom to speak about.

However as the BJP Government takes charge at the centre there are quite a lot of sectors that are expected to witness a good amount of traction. The first and the foremost sector is the infrastructure where the road projects are likely to witness good inflow of orders. In the earlier BJP times and in Gujarat Power has been given importance and hence most of the Power companies are likely to benefit. Divestment of PSU is also likely on the cards and hence most of the PSU counters are also likely get benefited. The other sectors that are likely to get positive impact are Oil & Gas, Engineering and Power Financing companies.

If we take a look at the movement of markets over the last few days, it is clear that the stocks from sectors mentioned above are actually managed to provide better returns. What we would like to harp on is, these are the sectors where one can look for long term investment.

While this is for the long Germ, there are certain other factors in short term which are likely to make impact on the markets. The INR continued to make an up-move against the USD and closed at Rs 59.68 per USD. Now what sort of action the RBI takes to maintain it here needs to be seen. If the INR appreciates further, there is possibility of exporters getting affected. However in the short term it is positive for the Indian markets.

While this was the scenario on the domestic front, Global markets remained quite range bound yesterday. The European indices closed in green with significant gains. The Dow however closed marginally up (0.12%) as the retail sales figures announced yesterday were quite sluggish.

The Asian markets are also quite mixed bag with Nikkei trading in red with loss of 52 points (Down 0.36%) followed by Shanghai Composite down by 0.15%. Other Indices are however in green with Straits Times almost moving up 0.90% and Hang Seng Up by 0.11%. The SGX Nifty is trading with gains of 23 points (Up 0.31%). We are expecting the Indian equities to open with positive bias. However some profit booking may happen in the later hours of trading session.