As we approach the first anniversary of 'Modi Sarkar', the clock seems to have turned a full circle. Our markets gave a resounding welcome to the new Govt. after the declaration of 'Election 2014' results Our markets scaled the levels of 7500 on the Nifty on 16th May 2014, on the back of a clear majority for a single party in the Lok Sabha after a gap of many years, ending an era of coalition governments at the Centre. There has been a lot of noise by the Govt. but it has hardly translated into results, as measured by the quarterly results of Corporate India, the latest March quarter results are a poor reflection on the economic performance despite the hard talk by the Govt.
The good luck of the Govt. in the shape of drastic fall in crude oil prices has been offset by the unseasonal rains, putting pressure on the inflation numbers once again. After collecting a bounty through Coal auctions & Telecom spectrum sale, the Govt. is finding itself in a corner, unable to push the key measures of GST and Land acquisition bill. It is also seen dragging its feet in respect of key tax regulation in respect of FII's. In such a scenario there is no hope for the economy in terms of stimulation of rural demand, which has been the main driver of our GDP growth in the past. On the back of new series of GDP indices we may see growth of GDP in the region of 7.5% for FY 2015-16, it's impact on Corporate earnings is seen as muted.
The global scenario is also not favourable for India, as Euro zone worries are bound to surface again. The Rupee has started depreciating against the US Dollar, and it is likely to slip to the levels of Rs.67-68/ US Dollar in the next quarter. Although it augers well for the export sector, particularly Software exports, its impact would be severe in respect of controlling inflation. 'Make in India' campaign has been a non-starter so far as is evident from the IIP numbers and the lack-lustre credit off take from the banking sector. Erratic South-west monsoon predictions by IMD also pose a threat to the economic revival.
Equity markets have started giving credence to the ground reality, with the Nifty closing below the 8200 mark on expiry of April series. Nifty has already corrected by 10% from its peak level of 9119 attained on 4th March 2015. Our markets have been one of the worst performing markets in the first 4 months of 2015. Valuations may have started looking attractive to some analysts but the market sentiment has taken a severe beating. A deeper correction is looming large over the equity markets and they seem heading towards 7800 levels on Nifty. In a worst case scenario Nifty may drift towards the 7500-7600 range in the May series, these are the levels from where the markets started their ascent on 16th May 2014. The old saying 'Sell in May and go away' is likely to play out this year. Investors are advised to keep their cash intact in order to make a killing in the markets once they correct to the levels mentioned above. At these levels the risk-reward ratio would turn positive from the earnings perspective, that would enable you to make handsome profits from the market over the next 2-3 years.
