Clifton Desilva is an investment expert and a Director at Altina Securities.
The stock markets have been operating within a range for a prolonged period of time. During the last five years the markets have not generated returns to investors and in fact most of the stocks in the small cap and mid cap segments have witnessed huge depreciation in values and investors have incurred substantial losses. The Sensex which recorded a life time high of 21207 on 8th January 2008 was unable to surpass the high over the last five years, though twice in the five year period it came very close the life time high.
In fact during this period the Sensex has been witnessing high volatility mainly with a downward bias, which has hurt investor sentiment especially at the retail level and just a few days back when the Sensex broke the life time high and closed at 21374 there was no jubilation as investor sentiment still remains at a low ebb.
Over the past years, low growth and high inflation had weakened demand and had stalled investment activity. At the same time there was little political intent to revive the economy except in recent times and this had negative repercussions on investment and business confidence
However the outlook for 2014 appears positive and it is likely to be a year of many inflection points. Most key variables influencing equity markets are at an inflection point – after a long gap and may result in 2014 heralding the beginning of a market with an upward bias. Economic growth appears to have bottomed; the corporate earning cycle is seeing a second successive quarter of recovery, investment starts are seeing a glimmer of hope, driven by public sector projects and domestic disenchantment with equities appear to be ebbing.
Although the domestic economy appears to have bottomed out, its recovery is likely to be gradual, showing a perceptible improvement once the private sector investment cycle starts to revive. At the same time, expectations of a strong synchronized global economic recovery are now becoming consensus with actual data supporting the thesis.
For foreign institutional investors currency stability remains a core determinant of faith and RBI has now emerged as a key enabler of investor confidence following its management of currency volatility last year and addressing external vulnerabilities
With most of the negatives being addressed except inflation the focus has now shifted to the outcome of the general elections slated in the month of May.
Two opinions released on last week has predicted that the NDA will get at least 210 seats and the BJP itself would cross the 180 mark and perhaps even 210 in the coming Lok Sabha elections
The view is that so long as the new government is not led by the socialist third front, the government should be stable. The number of aspiring leaders among the third front is also at an all time high and it is unlikely that these outlying parties will group together to form a government, instead these parties may choose to support a larger national party, reducing the likelihood of a regional party led government formation at the center.
As far as investors are concerned it is an opportune time to accumulate select large cap stocks at current prices and at further declines. Axis Bank, ICICI Bank, HDFC Bank, Reliance Ind, Maruti, L&T, Tata Motors, and HDFC continue to remain favorites and could generate handsome return with limited risk once the tide turns.