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Will The Markets Slip Further?

Monday, November 25, 2013

While the short term and current view of most experts on the markets remain subdued after the sharp drop witnessed last week, in a surprising revelation most experts hold a strongly bullish view for the long term with most projecting a bright outlook for Indian equity markets amid heightened prospects of significant gains in the run-up to the general elections early next year. Mayura Shanbaug Reports...

Historically, markets remain volatile before elections. The recent correction in the Indian stock markets are termed as a result of fears of the US Fed tapering, coupled with speculation of the outcome of the state as well as general elections. According to most experts, the Indian markets are poised for bigger rally post election if the results are in accordance with market sentiments. Two leading foreign brokerages have projected a bright outlook for Indian equities amid heightened prospects of significant gains in the run-up to the general elections early next year.

Credit Suisse says India, MSCI China and South Korea are its biggest ‘overweights’, while CLSA Asia-Pacific Markets has said it is adding 1 % to India’s rating in its Asia Pacific excluding-Japan Relative Return portfolio.

This remaining a medium term view for the markets, the short term and current view of the most experts on the markets remain subdued and volatile. The “International markets have been flat in the last one week after moving up on Yellen’s statement of a delay in Tapering. The Indian markets had also moved up sharply a week ago hence they have witnessed a mild correction,” says Rajesh Iyer, Head- Investments and Family Office, Kotak Wealth Management.

“Equity markets will react to international new flows and the results of the forthcoming state elections. The Earnings downgrade cycles seems to be bottoming out and sentiment is turning positive, but macros are still supportive. Except for the Current Account Deficit, all other macro parameters are still challenging and would take time to recover. High interest rates and Fiscal Deficit would restrict any up tick in GDP growth rate,” he says.

“From the recent low, the Nifty has gone up 14%. Hence, buying in corrections could be ideal for HNIs who are underweight on equities,” adds Iyer.
According to Vikram Dhawan, Director, Equentis Capital, a UK-based investment analytic and advisory company, whilst it is tough to predict outcomes of elections and actions of Central Bankers, we feel that we may be closer to the Bottom of the Economic Cycle that reverts every 3-4 years.

“However, due to weak Job Creation and stalled Investment Cycle we don’t expect Economic Growth to accelerate significantly anytime soon, even though it is expected to bottom out early next year.  The Reserve Bank of India may not have too big a window for persisting with its Tight Monetary Policy and may have to reverse it once the US Federal Reserve begins Tapering its Bond Purchase Program popularly known as Quantitative Easing by next year,” he says.

According to Dhawan, the markets are likely to remain very volatile until the Lok Sabha election or unless some sort of trend emerges in state elections by December. “However, the just concluded earning season was better than expected and that should underpin the markets and prevent a crash even If the news on the political front is negative,.” he says.

“It’s a good time and opportunity to accumulate Blue Chips and Cyclicals.  However, we would caution against aggressive buying and instead advise investors to diversify their Portfolio with Fixed Income Securities like Corporate Bonds and Tax Free Bonds,” he suggest.

Alok C. Churiwala, MD, Churiwala Securities is of the opinion that booking profits from time to time, is always advisable for traders. “There will be enough opportunities on both sides of the trade to enter and re-enter markets,” he says. “In the short term the Nifty should be in the range of 5900- 6200 and Sensex should be in the range of 20000- 21000,” he adds.

“The short term trend in the markets remains negative, but the medium term trend is positive. We expect this correction to find supports close to the 5880 - 5850 levels,” says Amar Koradia, CMT, Sr. Technical Analyst, The Market Financial Intelligence.  “Any sign of a reversal from the said levels would represent a very lucrative buying opportunity for the next couple of months,” he suggests.

“Going in line with our view on the markets, investors must wait for some time to make any fresh investments. Investors holding stocks with a longer term horizon must continue to hold since the larger structure still remains strong and fresh momentum will be seen once the Nifty manages to surpass 6355 levels and head towards fresh highs,” adds Koradia.

According to Anand James, Assistant General Manager, Geojit BNP Paribas Financial Services, having declined all through this month, attempts to swing higher may be seen, but volatility is likely to be the main theme at least in the early part of next month. “A hurried exit is not warranted at this point,” says James.

“The timing of the withdrawal of the US monetary stimulus has also been driver for market volatility recently, but there will be a lesser shock now, when the announcement actually comes,” he says. James further adds that judging from previous responses, the impact of the announcement in its isolation may be limited to 200 points in the worst case, in the Nifty.  “Further, FIIs having pumped a record amount of money into the stock markets this year, the risk to market volatility is also higher, going forward,” he says.

“To this end, in case of investors, they would do well to be alert on events that could influence a mass exodus by FIIs from Indian markets, by way of the election outcome, weak prospects for rupee, etc,” he adds. “We will see 5600-6200 bands in the short term and 6700 in the medium term for Nifty,” says James. 

Mayuresh Joshi,VP – Institution, Angel Broking feels that markets might gyrate in the range of 5800-6300 from a short term perspective. “The Key State election results on December 8th would provide leads on whether any single political party is able to make headwinds and provide some amount of respite on the political front. Also the way the inflation numbers have come though, our own expectations are that a 25bps hike in the repo rate is plausible in the December policy. So in nutshell the markets shall look for multiple directions in the short to medium term.”

“Seemingly a broader range for the markets seems to be between 5800 - 6300 on the Nifty,” Joshi says, adding “We expect Sensex EPS to post a growth of 9.6% for FY2014. Attributing a 14.5x multiple to our Sensex EPS, we arrive at a target of 21,800 for the Sensex over the next few months implying an upside of 12.5% from the present levels. In terms of valuations, the Sensex is presently trading at 13.8x its one-year forward P/E ratio, lower than the long-term averages

… But on account of the near-term pressure on earnings for interest rate sensitive sectors, we recommend an investment horizon of about 18-24 month,” concludes Joshi.

Clifton Desilva, Director, Altina Securities, feels that in the light of current situation it is imperative that investors should avoid sectors that are stressed and instead concentrate on sectors that are performing well and within sectors restrict exposure to the leaders. “Till clarity emerges, the markets would continue to be range bound and will provide traders an excellent opportunity to earn decent profits if the selection is restricted to established large caps,” he says.
“There is not much scope to book profits as most stocks in the mid cap and small cap are quoting at prices which are anywhere between 50% to 100% lower than their peaks. Select large caps have risen, but still have potential to further appreciate,” he adds.

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