Indian equity investors have had a roller coaster ride in the past one year. The so called long term investors, who have been holding on to their long term bets, have borne the brunt of the damage. Our markets, with heightened volatility, have turned into a traders delight. In range bound markets it is the nimble footed traders who make money. The current logjam in the Indian economy is likely to extend a little while longer. Despite the much awaited rate cut bonanza announced by RBI last week, the markets continue their lack lustre performance. The reasons for this gloomy scenario are for everyone to witness, and now international rating agency S&P has also put its stamp on the gloomy outlook for Indian economy in the short term.
While traders make merry in a volatile environment, investors seem to be a worried lot. Where are our markets headed from hereon? The current scenario has turned extremely negative for growth, as highlighted by S&P:
- The reforms process has taken a back seat as the governance deficit continues, due to pressures by Govt. allies like TMC.
- The current account deficit is putting pressure on the system: Leading to build up of inflationary pressures on the economy once again.
- The Indian currency continues its downward spiral. If we believe analysts, the Rupee may slip to 57-58 levels to a dollar fairly soon.
- Crude Oil prices continue to firm up, which is putting pressure on our BOP situation.
- FIIs have started pulling out money due to the current unresolved legal issues.
- Major global markets, other than US, including China are pointing towards a global slowdown, leading to drying up of liquidity.
Indian equity markets are in the midst of the annual earning season. Most company results have shown that profits of India Inc. are under pressure despite growth in sales. The outlook for major sectors: Financials, Oil & gas, Power, Infrastructure & real estate & IT have turned negative in the short term, leading to pressure on the markets. Defensive sectors like Pharma & FMCG may lend some support to the markets. The major components of our major indices: Reliance, BHEL, L&T, Infosys and the Banking lot are likely to put pressure on the front line indices. The markets are likely to dip around 8-10% from the current levels, but the decline will be a good opportunity to build a decent portfolio with a one year time horizon. Investors would need to watch out for levels of 4800 on the Nifty/ 16000 on the Sensex in the next 1-2 months. It would be a good opportunity to bet on precious metals- Gold & Silver at the current levels for decent gains in the short to medium term. Rupee depreciation will help keep prices of gold/ silver high in India.
