Back in the Reckoning
Despite global risk appetite coming off and the subprime concerns unnerving the world’s stock markets, the Indian market has shown a sturdy resilience and has been steadily gaining ground.
After markets tumbled in July-August, the Sensex scaled back much of its loss—it’s merely 265 points away from its all time July 24 high of 15,868.85 points. What’s more, the smalland mid-sized indices are at their all-time highs.
Just before the correction, domestic mutual funds increased cash levels, which was re-deployed in the correction.
Retail investors also bought in the market reckoning that the correction is a good time to buy. Says N. Prasad, CIO, Sundaram BNP Paribas Mutual Fund: “Retail investors reposed their faith in the market and bought shares, and mutual funds also had buyers.”
But the big question is: what next? A lot depends on the global liquidity and economic situation. With UK-based mortgage lender Northern Rock wanting to tap the Bank of England for emergency funds after the credit crunch, the sub-prime concerns have again begun to dog the market again.
Says Nilesh Shah, Managing Director and CEO, Envision Capital, “Subprime concerns will linger for some months. So, it’s going to be a major challenge for the market.”
Among the cues that markets are looking forward to is how interest rates will pan out. With industrial production slowing down this month, the focus is back on whether rates will be cut.
If that happens, then the infrastructure segment will improve and the housing and car sales numbers will begin to look better. Says Prasad: “But if there’s a rate tightening, then it will hit infrastructure spends and projects will become unviable. If the US cuts its rates, then global rates will come off.”
But Prasad reckons that a structural change will take place in the economy after 2010, which is good for the markets. Says Prasad: “Software exports will touch about $60 billion (Rs 2,46,000 crore), and decent gas finds will come into production.
Many Indian companies are buying overseas assets and de-risking businesses by acquiring a wider geographical reach.”
All this means that long-term investors can continue to stay invested in this market and buy on dips. Says Shah: “It might be wise to do so. There are sweet spots in infrastructure engineering and services companies.
They have strong order books and their bottom line growth can be faster.” This market will provide lots of buying opportunities.
