Post Election scenario in India has been Euphoric. Markets have sizzled new highs, FII's are pouring money in India with great optimism, Mutual Fund Industry for the first time has crossed 10 lac crore mark and have been net buyers for the quarter, Rating Agencies which downgraded India's rating sometime back again upgraded India's ratings. NDA swept the National elections riding on the Modi wave and India has pinned huge hopes from NDA especially our respected PM Shri Narendra Modi. The development story of Gujrat is evident which made Indians in other parts lay their trust on Narendra Modi, The trust factor was well evident globally also.
Since the election results Brokerages have been fairly optimistic on the Indian Markets and giving new Projection highs along with time frame. Word in the Air is that we are in a Bull Market which shall sustain consistently over the next few years. Sensex Predictions by some Market players have gone up to bizzare levels.
Indian Markets are already at all time highs and the projection that we are in a Bull market which shall continue are based on certain premises:
1.) Government is stable for the next 5 years and should impart smooth functioning.
2.) Prime Minister Modi and his Team have announced a slew of reforms soon after assuming the chair....Insurance Bill, Infrastructure Development, FDI in Railway, FDI in Defence, Developing of 100 Smart cities, Cleaning of Ganga, Single window approvals for setting up businesses etc etc etc.....This has raised the confidence of people across the board Nationally and Internationally.
3.) The GDP growth of Indian Economy had bottomed out wherein it grew at 4.7% last FY. It is expected that Corporate earnings will go up thus contributing to the growth.
4.) Inflation has been coming down over the last few months making it a case for Rate cut by RBI in the coming months. If not in 2014 then certainly in Q1 of 2015 if the downtrend in Inflation sustains. A Rate cut will certainly add to the profitability of corporates. Also Govt has been pushing RBI for a Rate cut to boost the action on Corporate front. RBI however has gone slow on rate cut this maintaining the wait and watch situation.
5.) US economy is steady and has grown at 3.5% in Q3 2014. QE has been tapered by Fed as a resuly of economic steadiness and Fed has decided not to increase the rates for the time being. At the same time Japan and Europe have gone ahead with tapering to maintain the liquidity. This should keep the money flowing in Indian Markets especially India.
6.) China has slowed and no unfortunate event looks likely in the west.
7.) Current PE of the market is 19 and 1 year Forward PE of the market is close to 15 which is still below the dangerous benchmark of 22.
8.) Down slide in crude prices and the cut in Petrol and Diesel has added to the overall positive sentiments and lowering of inflation.
All this positivity is good and instills confidence in the Indian Market. Nobody can predict the markets however amidst all this positivity lies some caution....
1.) A lot in future will depend upon the implementation of Government Policies. What has moved the makets are the announcements. The implementation is yet to come in from the governments side. Although it is too small a time that the government has assumed power I feel the implementation of announcements shall make the key difference in movement of markets henceforth.
2.) Indian Markets have been dominated by FII's and this time too it is the same. Beyond the India Inc Performance markets will follow the global cues and depend on the same. Flight of capital from the FII side for any reason in future will lead to corrections.
3.) Corporate Earnings, Inflation shall influence the Markets going forward.
4.) Crude prices should remain stable or go down from current levels of $80.
So what should be the investment advise in the current scenario:
Many of the stocks are at an all time high along with the Sensex and Nifty and many are trailing hence it is more of a stock pickers market. Retail investors may not be able to go the right way through direct equity hence Mutual Funds look the best.
Markets even though in a bull phase as expected shall witness range bound volatility and hence Equity exposure Via SIP mode through Mutual Funds is the best as it shall average out the costing in case of any corrections.
Investors with surpluses and high risk profile may opt for Lumpsum Investments in Equity MF's however the same shall add to the risk. Horizon in this case should be min of 5 years.
On the Debt side sooner or later the rate cut looks to be in the pipeline if Inflation moves down or remains stable at current levels giving RBI the comfort. Decrease in crude prices had added to the comfort level. 10 year Gsec has moved down to 8.19-8.22 levels. Exposure to Income / Duration Funds with a horizon of 18-24 months looks good as rate cuts will lead to rally in Bonds and thereby enhancing the value of Debt Funds.
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