Market Expected To Remain Range-bound

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We all know that during FY09-10, the equity markets rewarded the investors by registering stupendous gains on bourses. BSE Sensex recorded a gain of 77 per cent. During the same period, the Mid-cap index gained 126 per cent and the Small-cap index gained 154 per cent.

A large part of these gains came in the first of the year. However, second part of the year remained almost flat. During Q1FY11 also, the Sensex again remained somewhat flat and recorded a growth of meager 0.05 per cent amid the global concerns and Euro zone debt crisis. However, during this period, mid-cap and small-cap indices gained around 4 per cent and several stocks from this segment made investors happy.

A lot of factors are likely to affect the market going forward, both positive as well as negative. As a result of this, it is very difficult to predict the market direction at this point of time. While domestic factors are largely supporting the market, international cues are not giving right signals. Problems in Euro zone area and flip-flop data points coming in from the US are having negative effect while strong domestic growth numbers and good corporate performance are positive indicators.

The domestic economy has been witnessing inflationary pressures. RBI has stepped in and raised the policy rates, i.e. repo rate and reverse repo rate by 25 bps each. This is expected to ease off the inflation concerns. In the near future, effectiveness of the recent economic measures, the corporate earnings, measures in upcoming monetary policy on 27th July, 2010 and level of monsoons in the country are expected to be the key drivers for the market performance. Given the prevailing economic scenario, we feel sectors like oil & gas, IT, pharmaceuticals and power could be outperformers.

We have seen good performance from auto and FMCG sectors. However, it is difficult to say if that will continue. In my view, the investors should remain cautious and they should invest systematically in the equity markets. There is absolutely no doubt that in the near term the markets are expected to be range-bound. As we have seen, mid-caps and small-caps have outperformed large-caps with a great margin during last few months, such a trend could continue selectively.

I feel the investor with aggressive risk appetite should focus on investing in undervalued stocks with robust future growth visibility in the mid-cap and small-cap space. Mid-cap space is still left with some undervalued stocks and investors should focus on them.

The stock selection in this regard will certainly play a huge role. I have already mentioned some sectors that will certainly outshine others in terms of return. Investors can select companies from those sectors according to their investment range and risk appetite. However, conservative investors are advised to maintain portfolio with a bias towards large-cap stocks.