Will Markets Look Up in the Near Term ?

Jun 02, 2015 | 02:56 PM IST

As in life, sentiment plays a major role in stock markets. That is why despite India's economic and corporate fundamentals being under stress, the stock markets were on a tear in 2014, thanks to a decisive leader taking charge of the nation. Global portfolio investors loved Prime Minister Modi and believed the "policy paralysis" that had stalled India Inc would be a thing of the past. Billions of dollars flowed in and the Bombay Stock Exchange's (BSE) index, Sensex, hit record highs earlier this year, going past 30,000 points. Not surprising after the stellar performance of the stock markets in 2014, was driven almost entirely by the surge of hope after the spectacular victory of Modi in May 2014. The party had begun earlier, in late-2013, once Modi had been declared the BJP's prime ministerial candidate. While the Sensex was up 25% in 2014, many individual stocks and mutual fund schemes gave returns in excess of even 50% But then again, as in life, a lot can change in a month. The decision by the government to slap tax notices on foreign institutional investors (FIIs) to cough up a 20% Minimum Alternative Tax (MAT) for transactions done years ago has turned the sentiment tide negative for foreign portfolio investors. The Sensex is now at levels closer to 27,000 points, down almost 10% since those highs. Of course, the fall cannot be attributed solely to the tax demands, but it is clearly one of the reasons for the turn in sentiment. This is after pumping in more than Rs.2 lakh crs into Indian equities since September 2013 when Modi's PM candidature was sealed. Moreover, the recent fall has wiped out more than Rs.2 lakh crore in market capitalisation of companies listed on the BSE. While FIIs have not given up on India yet, their belief in the government and its promise before elections of a reasonable and clear tax policy devoid of nasty surprises has suffered a dent. So the market sentiment has definitely come to naught because of the manner in which the government has approached the MAT issue. We believe that the revival of the economy has now been factored in and 2015 will see stock markets driven by a change in the fundamentals of India's companies. Also corporate India's earnings are likely remain sluggish for the next three-four quarters and will bounce back in 2016-17. In 2015, equity returns are likely to be in line with corporate earnings that are expected to rise by around 10 to 15% and to expect a repeat of 2014 in equities in 2015 may therefore not be prudent for investors. However for the long term view there are positive triggers for the markets like the passage of the GST bill which should be taken very positively by the markets. The Land Bill is difficult to call and we need to see which way it goes. However we believe that these things will play out over the next two months. Indian markets do not have much downside from here and our base case view is that the markets should bottom out very soon. So is this a good time to buy India equities? India is at the start of a new business cycle. Overall economic outlook has improved a lot: GDP growth is improving, inflation is falling, interest rates are being cut and Indian currency rupee is stable vs many other countries. The new government under Mr. Modi is expected to provide good governance and do a lot of reforms. Major economic initiatives which have already undertaken by the government are in areas like coal, power, renewable energy, roads, defence, railways, and tax reforms. This combined with low prices in oil and commodities, improved business & consumer sentiments, along with pick-up in demand should lead to higher profit growth over next 2 years for Indian companies India is also looking good on most economic parameters vs. many other Asian and emerging market countries. Thus, India is a very attractive market to invest in right now for foreign investors. FIIs have been buying equities aggressively and this trend is expected to continue. Also importantly - other avenues of investments like real estate and gold are becoming less attractive to invest in. For eg., Gold has given negative returns in last two years and real estate prices have corrected in many parts of the country; whereas equity returns were 30% last year for the benchmark index (Nifty ). We expect this trend to continue in the medium term. So we advise all investors to believe in the India Story but take a more matured long term view on investing in Indian Equities and invest keeping a time frame of next 2-3 years which would definitely make huge capital side for investors as making easy money in equities looks unrealistic now.

 

ABOUT AUTHOR

Niveza Editorial Desk : We are a team of stock market nerds trying to stay ahead of the herd. We spend our grey cells everyday to a pave a smooth road for our clients in the shaky world of stock market. While...
FULL BIO

LEAVE A COMMENT

RECOMMENDED READING

Nifty held By Idea And Vodafone Merger

Share Market News - 27th February, 2017: Stock market opens positive but bears snap the winning streak. The Sensex lost 80.09 points to 28812.88 Nifty 42.8 points to 8896.7 Reliance gained 4.63% to 1237.0
Read More>>

Money Management - Shaken Not Stirred

What is money management? You may say spending responsibly and saving wisely. Though that definition sounds true, it doesn't show the real picture. Money management is not merely paying monthly utility bill and saving the surplus money. The evolved
Read More>>

Telecom Giants' War Of Supremacy; Market Climbs

Market This Week Market was expecting some profit booking as this was the expiry week, but along the way DIIs, FIIs contributed significantly by pumping in Indian equity market. Since the start of the week, investors looked
Read More>>

Reliance Industries Driven D-Street

Market Walk 22nd February, 2017: Reliance Industries driven market ended on positive note. The Sensex gained 103.12 points to 28864.71 Nifty gained 19.05 points to 8926.09 Reliance gained 11.17% to
Read More>>

Deal With Failures Like A Boss

Inspiring stories are not only about success, but they are also about how successful people deal with failures. If any success story just paints the uni-dimensional image of a person's success, it is bound to mislead the readers. Success can only
Read More>>