Sensex at new high; investors ready for Samvat 2070 warily
The bellwether index broke past its previous high of 21206 after 70 months this morning amid a raging debate if the market can sustain its gains.
November 01, 2013 / 13:16 IST
Moneycontrol Bureau
The Sensex may have hit a new high a day before Diwali, but the excitement is missing. At least among local investors, most of who seem content to watch from the sidelines, even as their overseas counterparts have been buying shares hand over fist.The bellwether index broke past its previous high of 21206 after 70 months this morning amid a raging debate if the market can sustain its gains.Will liquidity triumph fundamentals or will fundamentals catch up with the market? That is the question troubling buyers who have missed the 3500-odd point surge in the Sensex since late August, and are still hesitant to take the plunge because of worrying economic data. Also Read: Sell FMCG, buy steel; see next upmove in cyclicals, says MowatContrast this with the enthusiasm among FIIs, who have net bought around Rs 28,000 crore of shares in the last two months. Driving much of this liquidity is the US Federal Reserve’s decision to postpone the phased reduction in its bond purchases, also termed quantitative easing.But that is also making a section of investors a bit wary as the market heads into Samvat 2070, the Hindu New Year.“The play now is on liquidity, and market will get pushed towards newer and newer highs,” said KR Bharat of Advent Advisors in an interview to CNBC-TV18 recently. “The higher it goes the more dramatic is the correction that I see happening in Q1 of the new calendar year,” feels Bharat who cautions macro-economic fundamentals—local and global—are yet to improve.Bulls are seeking comfort in past trends which suggest there could be money to be made in the short term, despite the gloom in the economy.“Historically, November and especially December have been very good for the market,” says market expert Sandip Sabharwal, citing an average 4-5 percent rise in Sensex in December. He says there is still steam left in the market.“Year-to-date the market is up just 7-7.5 percent; I think 12 percent upmove for this year is possible,” said in an interview to CNBC-TV18.And liquidity may not necessarily be the only factor driving stock prices considering that the indices are at the same levels at what they were in January 2008.“Undoubtedly current level is justified on fundamental basis rather than being treated as a gift of the liquidity. Between January 2008 and today, the (corporate earnings) earnings have risen by about 55 percent,” said Nilesh Shah of Axis Capital in an interview to CNBC-TV18.Investors have plenty of reasons to worry though. Second quarter corporate earnings have been better than expected, but analysts are not convinced that a broad-based recovery in earnings is underway yet.Earlier this week, RBI raised the repo rate by 25 basis points and warned that inflation would remain high for the rest of this financial year, and hinted at more hikes ahead.Business confidence is weak, and industry captains are worried at the prospect of legal action because of the Supreme Court’s recent initiatives.The market may still overlook these concerns if the BJP does well in the upcoming state elections.Liquidity apart, hopes of a BJP victory in next year’s general elections has also been a key driver of the recent rally.The widely held view among market participants is that the return of the BJP-led NDA coalition, with Narendra Modi at the helm, will help get the economy back on track with some much needed reforms. With most opinion polls predicting a wave in favour of the BJP in the general elections, stock prices may be already reflect. But one also has to bear in mind that opinion polls, though a good indicator of mood among the electorate, have been wide off the mark compared to the actual results.The main events/developments that the market will have to keep an eye for as it heads into Samvat 2070 arePossible nasty surprises from the EU where the sovereign debt crisis has not been fully resolved.
Domestic inflation, which will decide the RBI’s stance on interest rates
Likely Fed tapering in March, which the market will start discounting ahead of the event
Outcome of the state polls, which could give some idea of what lies in store in the general elections.So what would be the sectors to bet on?The majority view is that the rally in defensives may have run its course, though IT, FMCG, and pharma still offer a better degree of safety since the economy is yet to look up. Also, experts are not advising a full-fledged shift into cyclicals yet.In other words, be careful of what you buy.“Your stock market is not your economy; a lot of Indian equity earnings come from abroad,” said Adrian Mowat in an interview to CNBC-TV18. “We do think it is going to be more of a cyclical move but part of that cyclical move is not demand in India, its export demand,” he said. Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
