Indian equities have seen a spectacular run in the first month of 2013, thanks to the continued support from Foreign investors. Although the long term trend for our markets is definitely up, the market signals are pointing towards a 8-10% decline from the current levels in the short term. What are the factors that could induce the anticipated decline?
- RBI has obliged with a 25 bips Repo rate cut coupled with a 25 bips CRR cut as per market expectation. It has also indicated that there is little scope for further cuts in the immediate future.
- The major indices have been maintained at the current levels with the sector churning by large players. With the result season coming to an end there is little scope for the churning to continue.
- The advance-decline ratio has been under pressure, with mid caps showing vulnerability to hold on to the current levels. The fragile nature of mid cap momentum stocks is likely to give way to a decent decline once the front line stocks exhaust their momentum.
- The Indian economy continues to be plagued with severe supply side bottlenecks. The capex cycle is yet to pick up despite right noises by the Govt. Most of the recent policy initiatives have remained on paper only.
- The dis-investment cycle of Govt. in coming days will put pressure on the secondary market, as much of the liquidity will be sucked into the large dis-investment planned by the Govt.
- The market players will now await indications from the General Budget to be presented on 28th February. The markets would be on their tenterhooks before this major event, as the chances of a hike in tax rates is very much inevitable.
All the above factors indicate sluggishness in the markets. Investors are advised to book some profits and wait for the levels of 5600-5800 on Nifty (18800-19200 on Sensex) to re-enter again for long term.
