The Road Ahead : Markets to remain tricky

Global clues, Political developments & liquidity would be Key factors


Wow! It's a great feeling to be back on the blog after a gap of more than one month. First of all thanks to all the readers of the blog who have showed tremendous faith in the blog and have been kind enought to wait patiently for updates on the blog. I am penning this post from myhometown Jaipur. I arrived here on Saturday afternoon and the city welcomed me with a scanty shower that changed the mood of the climate. Today also we witnessed a short span of showers and cool breeze was blowing. Jaipur , as always, has been close to my heart and every time I come here I make plans of settling here, sooner or later. I am sure I am going to write a great chapter in my career soon and when I do that most probably I would be based at Jaipur. I am not going to open the cards further and frankly these are just some thoughts that come to my mind . I need some hard core planning to convert this into action. Well, lets leave this apart for now and turn to our all time favourite .....yeah...of course...the Great Indian Stock Markets......As I am writing this post , there are few questions in my mind which I am and probably all the readers are trying to find answers to.
  • Where is the sensex headed ?

  • Will global factors continue to impact our matkets ?

  • What about impact of recent political developments?

  • How is the Indian economy placed and its impact on markets ?

  • Markets have recovered recently from lower levels ? have I missed the rally...should I buy now or wait for a fall ?

  • Should I put my money in bluechips or Midcap stocks ?

  • Which sectors are expected to perform better in coming quarters ?

  • Will markets go up till diwali and then fall ?

  • What is the FII mood on Indian stocks ?

  • How will the IPO's do in the coming months?

  • Can sensex touch all time high this year again ?

The list is not ending ....so let's put a brake and try to explore what the markets hold for the future.

The Bounce Back

Investors were trying to forget the jerks of March 2007 as the markets pulled back smartly from there to create a life time high, however the month of July brought another shocks in form of Sub prime crisis and clouds of uncertainty over domestic political uncertainty. Indian markets got glued to the global markets and to add to the woes came the political drama over the Nuclear treaty with US. It looked as if the things have come to an halt and the bull run is over. However, the markets again took an U-turn and recovered to a greta extent backed by buying at lower levels and assurance from US govt that sub prime lenders would get relief.

Global Markets would continue to Impact

The sub prime fear is far from over and looks like it will continue to haunt the US as well as asian markets for time to come. For those readers who are not aware of what sub prime crisis, I would put it simply as defaults by borrowers of loans with changes in interest regime. The US housing markets had witnessed tremendous growth in numbers of defaulters on home loan borrowings especially to the segment where the quality of borrowers was not good and hence the chances of default are more. You can read more on Subprime Crisis on Wikiepedia.

Can Sub prime crisis happen in India ?

Given the sharp surge in real estate prices and hardening of Interest rates and given the way the property market is growing on the financing options available, we can say Indian is not immune to sub prome crisis. Howevever, we are in the eraly stages of the cycle and the real impact would be known in the coming 3-4 years.

Political Concerns - Roadblock to reforms

The question is not limited to whether left will pull out the support to the UPA government or whether the Indo-US Nuclear deal will go through or not . A bigger concern is that will the government be able to take the reforms path forward without any roadblocks ? geberal perception is that, even though the government may eventually save its seat, it will have to put the reforms on back burner while doing so. Political concerns or in other words the overruling of politics over economics will prove to be a dampner on the moods of the market.

FII's ...will they buy or sell ?

Well they are in the business of earning money through stock markets and they do indulge in profit taking at times. However, I do not think that FII's would leave the immense opportunity that India as a growing economy offers to the Investors. If we see the investment pattern of the FII's in the last 6 months, we would find that FII's have been net buyers in 5 out of the 6 months. So who say's they are running out. I believe that FII's would continue to pour money in India and keep booking profits too as and when they find an opportunity. Overall, FII interest in India would continue.

Indian Economy - On the growth Track ?

Indian economy grew at the rate of 9.3% for the quarter ending June ,2007. As per the Central Statistical Organisation manufacturing sector grew at 11.9 per cent, ‘electricity, gas & water supply’ at 8.3 per cent, ‘construction’ at 10.7 percent, ‘trade, hotels, transport and communication’ at 12.0 per cent, ‘financing, insurance, real estate and business services’ at 11.0 per cent, and ‘community, social and personal services’ at 7.6 per cent. The growth rates in ‘agriculture, forestry & fishing’ and ‘mining & quarrying’ are estimated at 3.8 per cent, and 3.2 per cent, respectively during this period.

This shows that we are moving steadily towards the target of 10% growth, but again one has to watch the political development which may result in slowdown in the growth.

Also we need to fast takeover our neighbour China, whose economy is growing at a scorching pace of 11.3%.

Blue Chips Vs. Midcaps

Well that's a tough question and one needs to take a call based on individual investing pattern and risk apetite. Blue chips on one hand provide steady growth with more stability during the downturns, Midcap stocks offers skyrocketting returns which can turn into earth shaking tremors as well in times of downtrend. I would advice a mix of both. An average investor should have 60% blue chip exposure and 30-40 % midcap exposure to get a balance in the portfolio, but again it depends on individual investment needs and objectives.

The Outperforming Sectors

Capital goods, Private sector Banks, Cement, Financial Services and chemical and fertliser space looks good from sector perspective. IT would continue to be underperformer for some more time until investors get a clear picture on how these companies tackle the stromg rupee and manage to grow at higher pace.

IPO's continue to delight

The performance of recently listed IPO's gives us a feeling that good IPO's would continue to shower money on the investors and bad IPO's would be punished irrespective of the sensex levels. Hence, Investors would do well to invest money only in good IPO's.

To summarise, the outlook on the Indian Stock market is cautiously optimistic. One should understand that there are factors that can pull the markets down. However, as I always say, long term investors would always be winner. Short term investor will need to keep themselves abreast of global as well as domestic developments. Stock specific stories would continue to rule the markets.

4 comments:

Kunal Bhasin said...

Hi Soni,
Good to see an article...
Wht are these Jaipur plans...

Rgds,
Kunal

Anonymous said...

Dear rajesh,
it was a delight to see an article on the blog after a big gap. I hope we will see more of it coming now. I would like to know your views on the shipping sector. which according to you is the best pick in the shipping pack ?

thanks
prem

Ranjan said...

There are so many ifs and buts that the stock markets looks scary and definitely not for the faint hearted people like me!

Anyway a great post.

manoj said...

which sector will be worst hit if subprime crisis happens in India..will it be the banking sector ?