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Is Indian Equity Market poised for Bull-Run…

After the 2008 great Indian Equity Market Depression, the Dalal Street showed smart recovery on the Sensex and Nifty level.

From FY09-12, the industrial growth showed smart upside and rewarded investors who are willing to take risk. The 2008 Indian equity market crash left many retail investors into a situation where they lost most of their investment money. The shock wave of 2008 impacted so badly on the retail investors that even after 4 years, the retail participation in Indian equity market is very low. The government regulator SEBI is trying to safeguard retail and small investor interest to attract billions of $ into equity market. The start of European Union Financial crisis, which inflicted recession in EU countries as well as passed the cascaded impact on the companies carrying huge business interest in EU. India was not the exception and it started to show on Indian Economic data from early part of 2012 and seems to be peaked out in early 2013. The growing CAD and fiscal deficit impacted currency valuation and impacted the interest cost for those countries whose debts are on Non INR denominations. The high social centric expenditure by the government also impacted the overall sentiments of ecosystem when it comes to managing fiscal deficit and subsequent potential downgrades by the rating agencies.  The above triggered massive selloff’s by  domestic MF to square off their position post recent rally whereas FII continue to invest Billions of $ into Indian equity market.

I strongly believe that recent government initiatives on the multiple areas is going to be reflected in few months and that would trigger more streamlined CAD, Fiscal deficit, subsidy and welcome regime. Few of the initiatives are as follows

Partial De-regulation of Oil and Gas prices to reduce heavy subsidy burden on government. The recent monthly price rise of Oil products and parallel reduced global oil and gas prices would impact the overall CAD towards the lower end.

Allocation of Oil and Gas exploration block clearance would attract multibillion $ investment and also enable India to reduce the Oil & Gas price impact on its economy.

The CCI (Cabinet Committee on Investment) formation and quick decision process would create friendly investment opportunities.

The thrust of government to kick-start power sector through co-ordinated agreement and timely availability would impact positively on Power companies, Distributors and its ecosystem sectors

The Recast of state electricity board would reduce the potential large NPA's and Provisions of Banks

Public Bank recapitalization is going to improve bank's assets quality and tier 1 fund moving forward

Coal block allocation process re-initiation post cancellation of many blocks would reignite investment cycles by Heavy engineering and steel organizations

Duty on Gold is going to reduce the negative impact on CAD. It is also expected that International gold prices are expected to go lower given the rise in business environment confidence in US.

The calibrated moves by RBI on the CRR and Repo rates in order to manage growth without negatively impacting inflation and subsequent currency weakness started to yield results.

Finance ministry initiatives to increase the FII limits would enable government to meet out the requirement to fulfill CAD

In the recent past, based on the number, IPI bottomed out whereas CPI & WPI peaked out. It already got reflected in recent GDP number release by government and worst is going to be reflected last quarter of FY13.

The disinvestment of Public sector unit stakes by government clearly shows the true intention to keep fiscal deficit within the promised level

At last but not the least; the major political disturbance at the centre post alliance partner moving out of government and raising a concern about the potential government success rate in implementing reform policies are hurting the sentiments of equity market.

The above good moves are coupled with few controversial moves and those are

Vodafone, Shell, IBM, Nokia, Sistema, Telenor, Pasco Taxation & other issues impacted India investment environment image

Telecom License cancellation involving companies invested through FDI mode.

Concern of international companies about their investment protection guarantee

Coal block Scam and potentially delayed Billions of $ investment

Spectrum auction impacted many companies who invested in Indian companies

Delayed decision making processes are escalating the overall investment and potential returns

Given the above pros and cons the equity market is moving in a volatile manner post the release of Budget, on March2013.

Nifty came down from 6100 and currently struggles to hold on 5700.Many of the blue chip and midcaps are available single digit P/E ratio. The recent carnage of Midcap companies offers unique opportunity to build strong portfolio with good dividend yield.

These drastic moves in Sensex and Nifty volatilities are handiwork of pig pocketed player betting on the either side of the index

Post the cooling down of CPI and WPI, the RBI is expected to reduce the Repo and CRR to fuel growth in coming months. The higher availability of liquidity with controlled inflation index would stabilize currency and at the same time ignite investment driven growth. The current downturn in equity market is well poised for next level post consolidation. The smart medium and short term investor should choose quality equity to build their portfolio. The higher dividend yield oriented equity portfolio is going to offer better result than high beta equity.

Disclaimer: The article is my views and advises all to take their financial advisor service before investing 
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About Devendra Prasad

20 years plus industry veteran of domestic and international ICT domain with the expertise in Business, Technology, Strategy and Analysis. Specializes in forecasting impact analysis, trends and recommendations for Investments, Technology and Regulations.
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