After a 21 per cent rise in the BSE Sensex in the past four months, the equity market is currently in a consolidating phase. It has not had the kind of start in 2014 that would have been expected, given the way it was going towards the end of 2013. So far in eight trading sessions till January 10, the BSE Sensex has lost nearly two per cent. This small correction has made some doomsday prophets predict that the good times are over.
It is time investors realised that the equity market cannot always move in one direction. What goes up too quickly and without any clear cut reason for doing so, has to come down. The equity market is not a casino where investors can win all the time. No one expects a bank deposit to multiply rapidly - so too stock market investments must be given time to mature. There is no reason to panic if the market enters a consolidating phase and corrects itself. This is in fact good for the market's long-term health.
Today, the biggest concern for equity markets worldwide and in India as well is interest rates in the US. Will they be raised? If they are, it will hurt everyone. The only way India can attract global investment is by showing good growth. The way Raghuram Rajan has managed the currency - arresting its sharp fall - has already given investors confidence, especially foreign investors.
'Tapering' of quantitative easing by the US has begun but Indian market analysts do not expect it to have much impact, since the reduction is a relatively small amount. And the US has not yet increased interest rates. So analysts and investors are relatively confident.
Whether India is able to attract the same FII inflows this year as it did in 2013 will largely depend on the outcome of the Parliamentary elections in May. Until a new government is formed at the Centre market movement be depend on corporate earnings and foreign inflows.
Macroeconomic concerns have eased with the current account deficit having been brought under control, with exports strong and the rural economy in good shape after a good monsoon. Thus some risk appetite is coming back to Indian equities. Fund managers are now more comfortable increasing their exposure to mid-caps and small-caps stocks. In the recent
Business Today Morningstar Asset Allocation Survey, more fund managers favoured mid-and small-cap stocks than large-cap shares - indeed, 27 per cent were willing to invest half their portfolios in such shares. (The majority, 64 per cent, were ready to invest 30 to 50 per cent in such stocks.) In the previous survey in October, no fund manager wanted to take more than 50 per cent exposure in mid-and small-caps. Says Gopal Agrawal, CIO of Mirae Mutual Fund: "Indian equities are likely see a broad-based rally in 2014 as against a narrow movement last year."
Theme 2014: MNCs, Asset Sales, Open Offers and Buy-Backs
Unlike 2013, which saw defensive play and investors focusing on stocks of companies which had a strong balance sheet, the theme for 2014 will be MNCs, asset sales, open offers and buy-backs. Till March, PSU companies are expected to be the flavour of the season given the high dividend payouts expected from them. During the year, promoters buying back their own shares will gather steam. Already promoters from the MNCs and IT companies have shown interest in doing so through buybacks, open offers or directly from the market. There will also be renewed interest in companies which sell-off their assets to reduce debt. These will be mostly land sales or asset sales or selling of stakes in the parent company or subsidiaries.
In the coming week,
corporate earnings and inflation data will dictate the trend. On Monday, the government will announce the latest consumer price index (CPI) numbers (though after market hours), and on Tuesday, it will also declare the
wholesale price index (WPI) rise. Meanwhile corporate result announcements later in the week on Thursday and Friday from heavyweights such as TCS, Axis Bank, Bajaj Auto, Reliance Industries, ITC, HDFC Bank and Wipro will be closely watched. In short, the market will continue to remain volatile for the next two to three weeks depending on corporate performance.
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