Triggering The Growth Curve

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The Indian markets are placed at a relatively better position as compared to other emerging markets. Most Indian companies are driven by domestic demand and therefore not much affected by the international scenario. Therefore the corporate sector seems likely to remain on firm ground. The only, but less concerning point, would be the sustained large inflow of funds. But looking at the growth prospects (IMF estimate of 8.5 per cent GDP for FY11), we are in for a relatively better position vis-à-vis other markets. The period of Q4FY10 and the results have been a mixed bag. Some of the companies outperformed, the rest lagged behind.

An analysis of 550 companies with over Rs 50 crore market capitalisation shows that revenues in the quarter grew by 31 per cent and profits by 29 per cent over the year-ago period. But the cement sector was a disappointment, along with some others with a lacklustre performance. Going forward, the likely triggers for the markets would be in the sequence of monsoon, Q1 monetary policy, easing of European and Chinese concerns and adoption of the Kirit Parekh Report. The monsoon and the decision over the Kirit Parekh Report would also enable us to gauge the government’s efforts to reach the FRBM targets and hence would also guide investors to conclude on their investment decisions in India.

The monetary policy would also be an important factor as it will throw light on the emerging economic scenario, inflation, demand-supply conditions and the interest rate situation.

The government has, in fact, taken several steps carry out the long-awaited reforms. Inflation is likely to remain at the centre of the monetary policy. A good monsoon is likely to ease the supply side concerns to some extent but still much more needs to be done on the policy front. With the government’s efforts to keep the demand momentum going, the inflationary scenario is likely to remain on the higher side in the short term.

The Eurozone crisis is definitely a big concern because of the involvement of some of the larger economies. But these issues will get resolved with the passage of time. Hence, in the mid to long-term view the global markets are likely to regain the lost ground. The Indian markets are already in a sweet spot and are only going to recover from this stage. Some of the sectors we would rely upon are pharmaceuticals, infrastructure, textiles and mid-cap IT. We are more bullish on the mid-cap stocks than the large-caps. There have been policy measures taken in several countries to improve the existing healthcare segment.

Additionally, the thrust on medical policies is also likely to boost the development of the sector. The recovery of the European region would be based on cost-cutting measures that may result in higher outsourcing from the region. As for the retail investors, the investment idea has always been to take informed decisions – make proper allocation of funds based upon the individual’s risk profile – stay invested for a longer period of time and book profits once the target is achieved.