India Markets Weekahead – Set for new high with no roadblock in sight

January 6, 2013

A resolution for the U.S. “fiscal cliff” helped the markets cross the psychological Nifty benchmark of 6,000 to close the week up 1.82 percent at 6,016.

Though I expected a spirited rally, what we witnessed last week is a strong consolidation around 6,000 which could form a solid bottom for the next leg of the rally. This is also facilitating the entry of domestic retail investors which is visible in the mid-cap and small-cap volume and performance. The BSE small-cap index moved up 3.71 percent whereas the BSE mid-cap index gained 3.13 percent.

The next hump could be the “debt ceiling” which needs to be tackled by the end of February.

The UPA government continues with its fiscal prudence measures and is expected to go ahead with a diesel and LPG price hike which will bring down the fiscal deficit in the coming year. This led to the rally continuing for oil marketing companies.

Infosys, which kicks off the results season on January 11 may not be in a position to enthuse either the markets or the IT sector. The commentary from the management seems to suggest that they may miss the benchmark yet again. The recent retrenchment due to “non performance” sends out mixed signals. Overall, India corporate performance is expected to confirm an uptick compared to the previous quarter.

IIP data expected this week may continue to be weak but the market is looking forward to 2013 to change the tide. In line with slower economic growth, it is expected that inflation numbers would pare down before the RBI policy, laying the ground for a rate cut.

The markets seem set for the next leg of the rally to a new high beyond 6,350 as I don’t see any roadblock in the next few months. Equities as an asset class outperformed in 2012 but this was missed by the sceptics, mostly domestic investors. We would see a rush of “fence sitters” giving the next big push along with a fresh allocation of FIIs.

In the short to medium term, the only risk I foresee is the consensus on the street suggesting a huge bull run while markets have defied this in the past.

(Any opinions expressed here are those of the author, and not necessarily of Thomson Reuters)

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