Akhirachhey din aa hi gaye (good days are finally here), at least for the market for now. And I am of the firm belief that a positive cycle may well get triggered with the buoyancy in the market that helps the sentiment to turn positive, enabling the political set-up to take some bold measures that get translated into positive economic and corporate numbers and so on. Though the market may have run too much too soon and there may be a sharp correction waiting to happen soon, most analysts across the world are of the view that the Indian market is now in for a secular bull run.
Though the BSE Sensex at one year forward PE of 15.6 times is trading at a premium to the MSCI Emerging Market Index, it is still lower than its historic average of 15.9 times. With corporate earnings likely to catch up, it may still have enough room to continue its journey upwards with many more triggers to come from a pro-industry pro-market Prime Minister, who firmly believes in the reforms agenda and has a strong mandate to implement it. And, as the saying goes ‘even god helps those who have good intentions and clear conscience and make genuine efforts to achieve their goals’. If early indications are anything to suggest, the turnaround signs have become more visible across all parameters than they were before.
Massive inflows from foreign institutional investors (FII) expecting a strong and stable government that will rein in fiscal deficit and bring down inflation by addressing the supply side concerns have led to immense liquidity being infused. This has enabled the Reserve Bank of India (RBI) to suck excess dollar inflows to prevent the rupee from rising sharply.
The stable rupee and the CAD coming down to a low of 0.2 per cent of gross domestic product (GDP) will give enough room to the central bank to think of rate cuts provided the monsoon remains satisfactory and inflation does not become a matter of concern again. With the new government in place, international rating agencies have also thrown enough hints of reviewing their stance of downgrading the sovereign rating.
Otherwise also, the Indian market looks comparatively encouraging in view of the fact that most other markets, especially the emerging markets, are facing one or more structural issues. The fact that India’s GDP grew at sub 5 per cent level for the last seven quarters raises further hope that things can only improve from here on. Also, retail investors have remained totally absent from the market and will come back in a big way. This will add further fuel to the Bull Run that will gradually gain depth and breadth with wider participation in the days to come. However, investors are advised to enter the market on sharp corrections but at the same time exercise abundant caution. The biggest problem is the build-up of very high expectations from the present government. If the expectations are not met, even partially, it may result in a big hammering of the market. Investors will, therefore, do well to choose good themes across mid and small caps and tightly hold on to good stocks they already possess for decent returns in the days to come.
Vol. 8, issue 3 | June 2014