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India Equity Research Reports, IPO and Stock News
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The domestic stock markets have had a good rally in the last one and half months. From being a rank under-performer last year, they moved to become one of the top performers in this liquidity-driven rally. India has emerged, once again, as the most sought-after destination for investments as the foreign institutional investor (FII) inflows came seeking the most under-valued stocks.
The strategy for buying stocks in this rally seems to be 'buy the most shunned stocks' . They performed brilliantly whereas good quality stocks had a very sedate run. After a good 850-point rally on the Nifty, the question on everybody's mind is how long will this last?
Answering this question is not very easy for those closely involved with the markets. Many remain as clueless as they were at the beginning of the rally. This is due to the fact that this rally is liquidity-driven , and liquidity here is vast FII inflows that can continue to flow unabated till valuations become unsustainable .
The stock market valuations are still in the range of 'buy zone' rather than 'sell zone' here. Being a highly under-valued market last year due to mass exits by FIIs, the valuations have just moved up a few notches from an under-valued zone to a reasonablyvalued zone. FII funds are seeking domestic companies due to the TINA factor. Globally, there are few other places that offer returns that stocks here can offer, despite the macroeconomic headwinds.
With this rally, the macroeconomic concerns have been put aside by investors as they merrily jump into the stock markets to generate short-term returns. But the headwinds in the form of the fiscal deficit and inability to start the reforms process will resurface soon. For this rally to sustain beyond the current levels, it will need positive strokes from the Reserve Bank of India (RBI) and the central government in the next few weeks.
Investment strategy
Liquidity-driven rallies are like ocean waves. Like waves, liquidity comes and goes, and that has been the feature of the stock market movements in the last four years. Stock markets get these liquidity rushes, and then they dissipate leaving investors high and dry.
Investors should be cautious at this stage of the stock markets. This trend can happen again this year. So, for an individual investor, it is time to be cautious. There are too many other negatives in the fundamentals, and any one of them can trigger a wave of corrections.
Over the course of the last year, a downturn in growth and rising interest rates kept many out of the markets. This year, although the interest rates are going to come down, growth and government deficit worries can surface periodically. Corporate earnings are in a downtrend and the markets cannot ignore that reality forever.
Inflation has started to trend downwards slightly and that means interest rates will come down. However, the speed of the decline will be governed a lot by what happens on the fiscal front. If the government's fiscal position improves significantly or they commit to a major improvement, the interest rates can come down faster.
Hence, the key for the stock market rally to sustain further will be the Budget and its components. In 2012, the stock markets have benefited from lower inflation, a relaxing of foreign investor restrictions and the RBI's policy moves. All these factors could change very quickly and will impact the markets substantially. All in all, it indicates investing with caution and with a strict stop-loss trigger.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
The domestic stock markets have had a good rally in the last one and half months. From being a rank under-performer last year, they moved to become one of the top performers in this liquidity-driven rally. India has emerged, once again, as the most sought-after destination for investments as the foreign institutional investor (FII) inflows came seeking the most under-valued stocks.
The strategy for buying stocks in this rally seems to be 'buy the most shunned stocks' . They performed brilliantly whereas good quality stocks had a very sedate run. After a good 850-point rally on the Nifty, the question on everybody's mind is how long will this last?
Answering this question is not very easy for those closely involved with the markets. Many remain as clueless as they were at the beginning of the rally. This is due to the fact that this rally is liquidity-driven , and liquidity here is vast FII inflows that can continue to flow unabated till valuations become unsustainable .
The stock market valuations are still in the range of 'buy zone' rather than 'sell zone' here. Being a highly under-valued market last year due to mass exits by FIIs, the valuations have just moved up a few notches from an under-valued zone to a reasonablyvalued zone. FII funds are seeking domestic companies due to the TINA factor. Globally, there are few other places that offer returns that stocks here can offer, despite the macroeconomic headwinds.
With this rally, the macroeconomic concerns have been put aside by investors as they merrily jump into the stock markets to generate short-term returns. But the headwinds in the form of the fiscal deficit and inability to start the reforms process will resurface soon. For this rally to sustain beyond the current levels, it will need positive strokes from the Reserve Bank of India (RBI) and the central government in the next few weeks.
Investment strategy
Liquidity-driven rallies are like ocean waves. Like waves, liquidity comes and goes, and that has been the feature of the stock market movements in the last four years. Stock markets get these liquidity rushes, and then they dissipate leaving investors high and dry.
Investors should be cautious at this stage of the stock markets. This trend can happen again this year. So, for an individual investor, it is time to be cautious. There are too many other negatives in the fundamentals, and any one of them can trigger a wave of corrections.
Over the course of the last year, a downturn in growth and rising interest rates kept many out of the markets. This year, although the interest rates are going to come down, growth and government deficit worries can surface periodically. Corporate earnings are in a downtrend and the markets cannot ignore that reality forever.
Inflation has started to trend downwards slightly and that means interest rates will come down. However, the speed of the decline will be governed a lot by what happens on the fiscal front. If the government's fiscal position improves significantly or they commit to a major improvement, the interest rates can come down faster.
Hence, the key for the stock market rally to sustain further will be the Budget and its components. In 2012, the stock markets have benefited from lower inflation, a relaxing of foreign investor restrictions and the RBI's policy moves. All these factors could change very quickly and will impact the markets substantially. All in all, it indicates investing with caution and with a strict stop-loss trigger.
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