Play It With Patience

The Indian markets are more resilient as compared to others at this point of time. We are witnessing a phase where the government is attempting to strengthen the economy and this has helped sustain the index levels. Deregulation of oil prices, increasing the public float limit and the stake sale of public sector units may weigh on the sentiment in the shorter term but over the longer term these steps are welcome and will be appreciated by the investor class as they will add depth to the market. Progressively, these steps will make a good case for India’s market cap to GDP ratio to nudge up from its historical levels.

Speaking about markets, there is little optimism globally for India to rally given that most rallies were synchronous. With a large cross-section of the world under adjustment it is unlikely that India will break out from the current levels very soon. The discount / premium with China is bridged and the Dow is looking to go lower. We are a commodity-heavy index and with subdued crude prices it is unlikely that we are going any higher from here. The current result season is important for the markets as the previous three quarters have seen sell-offs after the numbers were announced. As of today, the scenario is hunky-dory but any shocks will have ripple effects on the overall valuations.

One also has to keep in mind that the Sensex earnings forecast is back-ended and it is important that we do not falter today or the future will be more circumspect. The range that we are looking for the Sensex is between 15,900 and 18,400. We also feel that the markets are quite fairly valued and the upside is capped at this point of time. If the market breaches the lower point then we feel that the markets may witness good correction from that point. Actually, what we feel is that we need a global rally and that will not happen in a single day but we may see that happen in the next eight to ten quarters. Another important aspect for the Indian perspective at this point of time is the inflation. We are witnessing double digit inflation which is a cause of concern. But at the same time we also feel that the base effect is likely play an important role which may ease off the inflation a bit.[PAGE BREAK]

The government is very optimistic about bringing the inflation down to a comfortable level and therefore we have to maintain a ‘wait and watch’ policy and look upon how the inflation pans out in the next one year. On the interest rate front, we feel that the Reserve Bank of India is likely to increase its key policy rates in the upcoming monetary policy which will result into a revision of the base rates of all the banks that were announced recently.

This will act as a positive for the banking sector as a whole. Sectors such as auto, FMCG, infrastructure and banking should be the core bets. These sectors are likely to perform well compared to the other sectors. We are bullish on the infrastructure space as we believe that the execution rate will pick up and will bring in positive vibes for the sector. As of now our suggestion to the investors is to stay invested in the markets for a back-ended pay-off.