MARKETS HANG IN BALANCE ….. STOCK PICKING WILL BE THE KEY
After seeing the worst ever yearly fall in the year 2008, Indian equity markets staged a great comeback in the CY2009. It was one of the best performing years in the history of the market, post 1993 and 1999. The Indian market was one of the top four performing markets in the world. While the Nifty registered the highest ever yearly gains since its inception by putting on 76%, gains in Sensex at 81% were the best post 1991. Though the beginning of CY 2009 was gloomy with the biggest corporate scam in India –Satyam- resulting in markets dipping to new 'Lows' in the 1st 3 months, we are starting the year 2010 on a much more optimistic note. Financial systems across the world which were in a mess in the beginning of 2009 seem to have stabilized. Stimulus measures taken in the aftermath of the subprime crisis have resulted in most of the economies coming back on track.
Year 2009 also witnessed Gold skyrocketing to a new high in international markets (crossed $1200/oz). This was primarily due to the weakening dollar against major currencies. U.S. Dollar Index slipped from a high of 89.71 in March 09 to a low of 74.27 in Nov.09
Going forward, most of the governments are looking at raising interest rates and withdrawing the stimulus at some point in CY2010. It is not clear when that will happen because the recovery till today is still muted particularly in the
Back home, Year 2009 also witnessed an exponential increase in food prices. The primary reason for this being supply side constraints and failure of the southwest monsoon in large parts of the country. This has resulted in food inflation touching a mind boggling 20% during the third week of December 09.
Although FIIs are expected to raise allocations to emerging markets, some Funds are waiting for meaningful 'corrections' for building up positions. Momentum is still strong towards emerging markets.
A stable, pro-reformist government, a strong central bank that has managed the country's monetary situation exceedingly well, strong domestic demand, burgeoning middle class, high savings rate, and a strong corporate India are big plus points for us going into 2010.
Concerns about valuations are also rising gradually. Valuations currently are not cheap. Therefore, those that have run ahead of fundamentals will probably underperform. Next two quarters' corporate earnings would be keenly watched and could be the drivers for markets in year 2010. Stocks that will have any earnings disappointments will get punished given that the valuations are quite vulnerable right now.
We believe last year's bumper returns are not expected to be replicated this year at the index level, though returns in the range of 15-20% in line with earnings growth are quite possible. It is a matter of time before policy rates, which were brought drastically lower in the aftermath of the subprime crisis, start moving up as inflation has moved up and is likely to go up further. Industrial growth has revived and credit growth is showing signs of revival. Some sort of withdrawal of stimulus measures is also not ruled out in Feb 2010 budget in a bid to control the fiscal deficit. Other things to watch out will be the following up of the big plans announced by the government, especially regarding Infrastructure and PSU divestment and how the monsoon spans out. If things work out well, Indian economy is all set to sustain an average growth of 8% over next 3-4 years. From the stock market point of view, unlike last year, when almost everything went up, this year will be a year of stock picking as easy money has been made. In the environments where inflation is running high and there is fear of interest rate hikes, inflation beneficiaries typically do better. Interest rate sensitive would possibly underperform at some point. Anything that is linked to rising prices could probably do better. We could see advertising spending pick up with inflation so that anything related to media could do well.
Among the sectors, Healthcare, Infrastructure and IT are our preferred bets. WISH YOU A PROSPEROUS 2010
Attachment(s) from ekam ber
1 of 1 File(s)
Happy Trading,
United we grow!!!
No comments:
Post a Comment