Expert Zone

Straight from the Specialists

As liquidity dries, time for fundamentals

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

The focus is back where it should be for equity investors – fundamentals.

In the past few years,  markets around the world have swayed to the wave of liquidity unleashed by central banks in a bid to get their economies back on track. The U.S. Federal Reserve, for one, was buying as much as $85 billion of bonds a month since September 2012. But that tap is beginning to taper with the Fed reducing purchases by $10 billion in January and another $10 billion in February.

We feel that this, together with a host of factors at home, sets the stage for a more sanguine approach to equities. I indicated in my note last month that we expect 2014 to be a year of fragile recovery for the Indian economy. The scenario will be similar for Indian equities.

There will be some improvement in GDP growth from around 4.8 percent this fiscal to 6 percent in the next, driven by implementation of stalled projects, debottlenecking of the mining sector, and higher external demand.

At the same time, the upside remains limited because the project pipeline has narrowed significantly. Further, the Reserve Bank of India’s stated stance of moderating inflation means interest rates will remain high in the foreseeable future. Banking credit growth has been sluggish this year and will continue to be so in the next fiscal.

India Markets Weekahead – An opportunity for investors

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Indian markets were down for a third consecutive week with the Nifty closing 2 percent lower at 5565 on weak economic signals and disappointing corporate results.

The rupee held on at 60.67 to the dollar.

The appointment of Raghuram Rajan as the next governor of the Reserve Bank of India (RBI) brought the market some cheer. Rajan, a former chief economist at the IMF, is seen as a pro-growth policymaker.

India Markets Weekahead: Prudent to hold cash

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Indian markets ended steady on Friday after rising to its highest intraday level in nearly two months. The Nifty closed up 0.33 percent at 6029, marking its fourth weekly gain.

A weakening rupee led to intervention by the Reserve Bank of India (RBI), which tightened liquidity and lifted short-term interest rates on Monday. Though the central bank’s stance against currency speculation has made it all the more difficult for speculators, it also sent bond yields soaring and led to concerns that an increased cost to borrowers would curtail growth that is already limping at 5 percent. Bond portfolios recorded losses, wiping out gains over the last few months.

India Markets Weekahead: Volatility to continue in results season

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

After a spirited rally the previous week, the Nifty moved in a band of 150 points between 5750 and 5900, ending with modest gains of 0.53 percent at 5868. It may seem small but the extreme volatility within this band caught traders on the wrong foot.

Time and again, markets prove that predicting them in the short run is hazardous. Investors welcomed the government’s bold decision to increase gas prices but reacted negatively to its ordinance on the food security bill. The already weak rupee cracked further to 60.35 against the dollar as the election gimmick could cost the state exchequer over $20 billion.

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