Expert Zone

Straight from the Specialists

India Markets Weekahead: Time to size up portfolio

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

After a scare earlier in the week, the markets showed resilience at lower levels and bounced back, showing the confidence of participants. Though Nifty closed 26 points lower for the week at 6063, sentiment was much better than the previous week.

The initial weakness was due to the overbearing effect of global data points on emerging markets including India. China’s slowdown, the weakening emerging markets currencies, rate hikes and tapering fears were an ideal concoction for doomsday theories to float around. Fears ranged from a repeat of the 1997 Asian crisis to the beginning of a great depression. Notably, the rupee showed strength compared to its peers.

Euro zone data was positive with the composite PMI touching 52.1, its highest since June 2011, while falling inflation led to worries of deflation. In the United States, poor jobs data raised hopes that the Federal Reserve would go slow on the tapering of bond purchases.

India Markets Weekahead: It’s time again for an election year ‘rally of hope’

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Despite a volatile Friday, it was a good week for the markets and saw the Nifty close about 90 points higher at 6,261, with sentiment supported by better-than-expected quarterly results and benign inflation data.

The few earnings that disappointed investors seemed to affect specific stocks without having a bearing on either the sector or the markets.

Will 2014 be any better for investors?

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High inflation, low GDP growth and a sharp depreciation in the rupee led to subdued returns of 6.8 percent for the Nifty in 2013.

The core sectors — steel, cement, industrials, energy, infrastructure and capital goods — continued their poor performance and hence valuations shrunk, while consumer staples, IT, pharma and private sector financials bucked the trend. But the polarisation towards a few sectors underscores growing risk aversion.

Unclear messages from the electoral tea leaves

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The past 12 months have been characterized by the narrowest market in two decades although sectoral performance varied significantly. While the markets are likely to be range-bound, valuations are expected to rise in 2014, especially in the first half.

Based on a one-year forward PE range of between 12.5 and 15 times and our top-down FY15 earnings growth forecast for the Nifty of between 10 percent and 15 percent, we expect the index to trade between 5,500 and 6,900 in 2014, with a target of 6,900 — an implied increase of around 10 percent relative to current levels.

Time to ride the rally in the run-up to 2014 elections

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Election fever in the world’s biggest democracy is gripping India in the run-up to general elections due in 2014. In the coming months, politics will be in focus especially among investors.

Assembly elections in Chhattisgarh, Delhi, Madhya Pradesh and Rajasthan were a prelude to next year’s election. The four states make up 72 seats in the Lok Sabha. Historical data suggests the electorate votes on the same lines for the Lok Sabha in case state polls are held within 12 months of the general elections.

How the U.S. Fed’s tapering can affect Indian markets

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It was never expected to be permanent. Quantitative Easing (QE), designed to pep up the U.S. economy after the financial crisis of 2008-09, has survived for five years. The United States is now on a rebound and unemployment is receding. That has tempted the U.S. Federal Reserve to reconsider tapering its economic stimulus.

This was first announced on May 17 and sent tremors through global markets. Asian markets were the most affected; India was worst-hit, having come to depend on FII investment. The knee-jerk reaction of FIIs was to reduce exposure to emerging market economies in the expectation that liquidity would dry up and interest rates would harden.

If change does come in 2014

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The market is pregnant with expectations of a change after the general elections which must be held by next May. You would have to travel far and wide before you come across anyone in India’s financial market who is not hoping – even praying – for change.

The mood on the current policy direction is so gloomy that any alternative is looking like manna from heaven.

India Markets Weekahead: Results of state elections a key driver

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Markets had been on a roller-coaster ride but closed weak for the third week in the row with the Nifty in the 5950-6000 range providing support.

A hint from the U.S. Federal Reserve on tapering its bond-buying programme was enough to spook the markets. Though this is expected in the first quarter of the new year, it remains to be seen whether chairman-elect Janet Yellen’s dovish stance would postpone it further.

India Markets Weekahead: Investors should wait for a correction to buy

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Markets continued a strong rally to close the week around 3 percent higher. After the partial U.S. shutdown was confirmed and triggered speculation over the postponement of QE tapering, a weakening dollar and the rupee’s subsequent appreciation also helped lift the mood.

Though the current account deficit for the first quarter was a better-than-expected 4.9 percent, IIP data that came in after market hours on Friday showed India’s industrial production had slowed to a dismal 0.6 percent in August. This suggests that buoyancy in the stock markets was driven by liquidity and sentiment, while things are different on the ground.

India Markets Weekahead: Lack of positive triggers in the near term

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Indian markets are in a corrective phase after RBI Governor Raghuram Rajan’s monetary policy review on Sept. 20 put a damper on investor expectations. If Rajan had played to the galleries, we would have seen a stock market bubble. The move from pessimism to euphoria — a rally of nearly 20 percent in less than three weeks — without any perceptible change in ground realities, would have led to a bull trap. Though participation levels were not high, FIIs had turned buyers and it would have been a matter of time before dormant market participants jumped into the fray.

Barclays is the latest to cut India’s GDP forecast to 4.7 percent. Most of the others have cut their forecast to below 5 percent although the government is still hoping for an early recovery. The banking sector was under pressure after Fitch cut its rating for a number of public sector banks such as Punjab National Bank, Bank of Baroda and Indian Bank.

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