As Team India bowed out of ICC World Cup 2015, our equity markets retracted by around 700 points on the Sensex on the day of March expiry (Nifty closing at 8342), giving a strong indication that the honeymoon period of Modi Govt. is over. Finally, reality has been acknowledged by the market that nothing much has changed for the economy at the ground level despite all the good intentions of the Modi govt. This reaction of the markets heralds the beginning of a short to medium term downtrend, which can take the markets all the way down to 7800-7900 levels on the Nifty in the next few trading sessions. The front line indices are likely to stagnate in the 7800-8500 range for the short term, as most of these stocks are now quoting at unsustainable PE multiples, with no visibility in earnings upgrade in the near term. However, select mid-cap stocks would continue to out-perform the broader markets, based on their FY 2014-15 numbers which would start unfolding from the 2nd week of April 2015.
I can safely stick my neck out and state that we have scaled the highs for 2015, when the Sensex topped 30000 and the Nifty 9100 on 4th April 2015, as a follow-up to the announcement of surprise rate cut by RBI. The markets are likely to consolidate for at least 2-3 quarters before making the next decisive up move. Investors are advised to commit fresh funds with a minimum horizon of 1-2 years when the indices move towards the lower end of the range described above. Money is more likely to be made in select Mid-cap stocks based on their performance in FY 2014-15. Those looking for fixed returns are advised to lock in funds for long term, as the Bank Fixed deposit rates are likely to fall drastically over the next 1-2 years. Don't be surprised to see deposit rates falling to as low as 5-6% per annum during this period.
The focus would now shift on the policy implementation of key decisions at home, and International scenario governed by geo-political factors in the US, Euro Zone & Middle-East. Markets would also closely watch the inflation numbers and the consequent policy action by RBI on rate cuts. The probability of aggressive rate cuts is most likely to materialise in the 2nd half of Fiscal 2015-16, depending upon the satisfactory progress of monsoon across the country. The impact of lower interest rates would start to reflect in Corporate balance sheets from Dec.'15 quarter, which would be the time when markets would re-rate the various companies, and trigger the next uptrend. Till then, market participants should prepare to negotiate the middle overs patiently without getting too excited, which could be very boring at times. But as they say in market parlance: 'Patience is the Key' to reap profits in the markets.
