Over the last many months we have discounted high inflation, currency risk, high oil prices, political apathy, scams, downgrade threat as well as tepid corporate performance. But in the next few weeks, any disappointment would be overlooked as skeletons of the past. The government has been announcing market boosting policies. A crucial Supreme Court judgment brought relief, as it clarified the roles of the executive and judiciary in framing of policies.
I don’t see any road blocks for the next few months unless fresh scams surface. There could be some bottlenecks in the reform process during the winter session of parliament in November.
The next set of worries for the stock market would emerge in the run up to the budget in February 2013 which would be a penultimate one for the incumbent government. There would be speculation on various populist measures to woo the electorate which could be detrimental for the long term health of the economy.
Post-2014 political scenario could be another contentious issue which may worry the markets.
A lame duck government with too many power centers, like the one we saw in 1996, could be disastrous for the economy. It’s late in the day for the Congress to politically resurrect itself and seems to have lost connect with the masses. The Bharatiya Janata Party (BJP) too is fighting its own internal battles. In short, it would be nothing short of miracle if we have a strong government with a progressive outlook post 2014.
Thus, those investing now may look to exit by February 2013.
The rupee gained ground to close at 52.88, a sub-53 level after nearly five months, as it was becoming clearer that the reforms are here to stay. The big booster for the rupee was the cut in the withholding tax to 5 pct which was an irritant for the overseas lenders. The next boost came when the government confirmed sticking to H2 FY13 borrowing plan and ruled out additional borrowing, though analysts differ on this.
Oil prices bounced back after a correction but are expected to soften in the coming weeks due to slow down concerns. With rupee expected to touch 50-51 levels in the next few weeks, the pressure on subsidy will soften, thus boosting the recovery cycle.
On the flip side, S&P cut India’s GDP growth forecast to 5.5 pct where as Fitch slashed it to 6 pct. Core industries grew slower at 2.1 pct in August, thus the cummulative April-August growth slowed to 2.8 pct against 5.5 pct last year.
The economic slowdown witnessed in the recent past has resulted in 100 pct increase in corporate debt restructuring applications, a spike of 70 pct in the current financial year compared to 36 for the same period last year.
UB Group stocks were on fire touching 52-week high with expectation of the Diageo deal being consummated soon. Although there was speculation of Emirates being keen on Kingfisher, denial of an additional Rs.2 billion lifeline by the bankers led to a correction on Friday. Secondly, it is not expected that Vijay Mallya will announce any deal during the inauspicious fortnight as per the Hindu calendar which starts on Sept 30th.
As I have been suggesting since the past three weeks, the “nation builder” sectors such as capital goods, infrastructure and banks continued performing with a few of them like Larsen & Toubro touching a 52-week high though the outperformers were consumer goods, FMCG and real estate sectors. The pharma sector too witnessed gains after it emerged that the new drug pricing policy for essential medicines will not have a significant effect on the bottom line. Mid-cap shares were firing on all cylinders with stocks like Gujarat Gas, Hikal Chemicals, Bilcare, NDTV scoring double digit gains.
The markets are in strong bull grip and I don’t expect significant corrections till the winter session of parliament. The corrections would be bought into thus will seem more of a consolidation than a correction. Any adverse international cues could result in knee jerk reaction which should be utilized as an opportunity to buy the resurrected “India Story” as the world liquidity chases it. Watch out for Nifty levels of 5,850-5,900, but mid-cap shares will be the star performers in the next few weeks.
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