Stock Markets - Right time to be greedy

The long-term prospects for India’s economic growth have not suffered any serious damage though the current inflationary environment has led to a higher interest rate cycle which temporarily threatens growth. The latest growth estimate released by Fitch pegs India’s GDP growth at 7.7% which is a relatively good growth rate though it may have slowed down from its earlier gait of 8%.

The valuations are reasonable and the fact that the Indian markets have underperformed the other BRIC markets barring Brazil over the last 12 months makes India pretty attractive. However, worries of a return of global crisis and their contagion effects are clouding sentiments for the time being.

The direct tax collection (personal income tax and corporate tax) grew by 23% to Rs 1,01,600 crore in the first quarter of the current financial year. The advance tax numbers for the corporate sector as a whole have gone up by 18% in the first quarter of this year compared to the first quarter of the last fiscal. The over-all numbers depict a not-so-bad situation. The banking sector’s advance tax numbers were largely positive whereas the scenario was mixed in the other sectors and a conclusive trend has not been identifiable. One would need to watch the results carefully before taking a fresh guard in the market.

The biggest trigger for the market will be the progress of the monsoon which appears to be largely satisfactory thus far. However, it is early days yet and market participants are closely watching the situation on the ground. The second trigger will be the quarterly numbers of the bellwether stocks in each sector with us entering the earnings’ season. The third trigger which could be a big one is the continuation of reforms that this government was expected to bring about. Further, one must not lose sight of the Euro Zone concerns which keep haunting the global sentiment.

The inflationary situation has not led to any meaningful let-up. A good monsoon may ensure that the situation does not go out of hand any further and pull it back from the brink.

The interest rate scenario will largely be influenced by the inflationary situation in the economy. As pointed out earlier, with little sign of inflation easing off, there is little evidence to say that the interest rates have peaked out. A bumper monsoon will certainly help to cool off the inflationary expectations. But it would be premature to arrive at any conclusion about the progress of the monsoon. The sectors which are interest-rate sensitive such as real estate and automobiles will continue to face the heat. Companies with high debt and high net interest expense will continue to bear the brunt. Investors need to look for cash-rich companies who may be able to get higher yields on their cash and consequently return a higher other income.

The global markets are highly volatile and the economic woes of the West don’t seem to end. China raising its interest rates does not augur well for commodities. The unsettled look in Europe continues to torment investors and the sentiment appears to carry a negative bias. The current market is ripe for retail investors to enter in selective stocks with at least a year’s horizon. The sentiment of fear (as opposed to greed) has ensured that many of the stocks are available at reasonable valuations. A systematic and staggered investment plan needs to be worked out with an expert’s advice. Now is the time to be greedy since the street is fearful and the time is conducive to pick up value stocks with a long-term horizon.

- Sandeep Nayak, ED & CEO - Retail Broking, Centrum Broking