Rising Tide

In the year 2010, Indian markets have done exceedingly well. This year India’s GDP growth was close to nine per cent, which is pretty high. Besides, India Inc also has done well. In fact, India has even scored better than some of the developed markets despite many scandals. As far as the third quarter of this fiscal is concerned, it would also be pretty good and there is no reason why the earnings of corporate India should not be growing well above 20 per cent. Also, our own forecasts assert that the third fiscal would produce stupendous results for India Inc. Going forward the interest rates, which were benign till now, are bound to increase as the banks have started to hike the deposit rate. In the future, the lending rates would also increase. However, it will not impact the corporate earning in the third quarter. Recently, the triggers for the market have been PSU disinvestments, which did not happen during last several years. We had some quality players like Coal India and some other PSUs hitting the market, which saw good response from domestic as well as Foreign Institutional investors (FIIs).

Going ahead, global investors would be looking at India from two perspectives. The domestic consumption theme that is playing out pretty well till now, is expected to carry on. Also, one needs to look at the interest rates as well as the inflation rates since both of them would go up with the rising crude oil prices. Otherwise, the macro fundamentals remain fairly strong and robust.

The inflationary scenario is going to impact the markets in two ways: first, the food inflation, for which an early respite seems unlikely in the near future. The other one is inflation related to commodity prices. Also, crude oil that was earlier trading around at USD 70-80 per barrel is at present trading at around USD 90 per barrel. This increase has affected the oil companies and other sectors as well. Now with the base rate coming into effect, lending rates are expected to inch up. Some of the banking stocks that have seen a sharp correction in the recent months, 10 per cent correction from here on would provide a good opportunity for investors and we could see some buying interest in this sector. The credit growth is playing at 18-19 per cent and if that inches towards 20-21 per cent, we will see a positive impact on some of the banking stock.

As for the global markets, we all are getting positive vibes from some of the developed economies such as US and Europe. However, we will wait until a clear picture emerges. When global markets start performing again, you will see a lot of FIIs going to these markets. That’s when one would see a correction in the Indian market. As for the stocks, most of the consumption-related themes would do well. Sectors such as banking and automobile would perform brilliantly. Having said that, I will closely follow the Automobile sector since it is rate-sensitive. Also, companies with strong cash flow would give good returns. My advice to the retail investors in the current market scenario would be to look at how much they have invested in the market rather than the absolute Sensex or the Nifty level. Assuming that Sensex is at 20,000 but if a retail investor has hardly invested in the market, it would not work very well for him. So, he has to allocate some amount of the money in equities since equities in long-term perform well. Also, any correction in the Indian market should be viewed as a buying opportunity.