Markets bottoming out for now, start buying: Experts

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Just after what has been an outright six-month run up in past six months, the stock markets are seeing signs of consolidation. The National Stock Exchange's (NSE) benchmark index Nifty 50, which recently went above 5,100, is now ranging near the 5,000 mark. Many veterans are of the view that while the markets continue to remain buoyant because of cheap money flowing globally finding its way into promising emerging markets like India, one may see a correction in the medium term just as central banks across the world tighten liquidity (that was eased to boost growth) as inflation spikes up.

Since March, Indian equity markets have rallied more than 100% and many individual stocks are up as much as between 200-300%.

While the much-needed 'healthy' correction - as many experts term it - may be sometime away, Sanjay Dutt of Quantum Securities thinks that in the short term, the round of consolidation may be over and that one could start buying now.

'I'd start buying'

"We are at the bottom end of the range now. I would start to buy today - between today and end of [futures and options] expiry," Dutt told CNBC-TV18 in an interview.

Pointing out what was weakening the Indian market, Dutt said, "The plot for the Indian markets is written overseas with what happens with the dollar and commodities worldwide." He added that the continuing slide of weakening dollar may stop for now. A weaker dollar is perceived to be beneficial for emerging market equities as capital is diverted from dollars abroad to markets. The dollar has, over the past few months, weakened against a global basket of currencies including the Indian rupee.

"The short dollar trade is now getting crowded," Dutt said, adding, "We are now seeing the Chinese yuan turning weak because the Chinese authorities want it that way because of worries that the country's economy may be overheating. You had 8.9% GDP (gross domestic product) growth in China last quarter."

"That is what is playing out in Indian equities too. We have been working off of an overbought position worldwide, which is obviously magnified in the Indian situation as we outperformed the rest of the emerging markets in the last three-six months," he said.

No major correction on cards

However, the fundamentals of the Indian market are fundamentally sound and good earnings may prevent equities from going down more than 5-6%, Dutt said.

Speaking on the quarterly earnings season, Dutt said some companies had disappointed on topline (sales) because they were compared to last year's September quarter figures, which were the best in four-five years. "It was the high base effect and top-line growth is weaker when you're recovering from a financial crisis." Dutt said he expected the December quarter to post robust numbers.

Top-line growth the key

For the markets to go up further from these levels though, top-line remains the key, believes Portfolio Manager PN Vijay. "The story in this earning season is that it is playing according to textbook, the toplines are flat, the bottomlines are very strong which means that compared to the last year, companies are enjoying lower input costs and lower interest costs," he said. "This can happen only in first eight to 10 months of a bull market because we are already seeing commodity prices going up."

A visibly more cautious Vijay added that bottom-line (profits) may start shrinking ahead as input costs start rising and that for earnings to sustain, top-line will need to grow. "If this growth-less profit is not supplemented by growing profits soon, we will go to profitless growth, which is the last stage of a bull market."