Pankaaj MaaldeApnaPaisa.com
The BJP’s 4-0 win over congress in the recent assembly election has kept stock market at fire. The northward journey continues and Nifty has hit all time high mark. There is strong belief in the market that Mr. Narendra Modi will become next Prime Minister of India after general elections in 2014 and after that GDP growth again will touch 8% mark. But, we should know that still there are six months to go before next general election and anything can happen in this period. We also know that how the elections are fought in India.
The rise in stock market without fundamental support puts a big question mark on the current rally. Stock market is believed to be the mirror of the economy of the country and any up or down in the economy should reflect in the stock market. GDP grew by 4.8% for the 2nd quarter of 2013-14 compared to 4.4% in 1st quarter which is well below 8% mark when market first time touched it’s all time high. Its hard fact that India’s GDP is likely to be around 5% in the current fiscal which is not at all a good number for the economy. When Sensex touched 21000 first time before 2008 global crisis, our GDP growth was around 8%. Today it is 3% down at 5% and still we are at the higher level on both Sensex and Nifty as compared to 2008.
How one should view these developments when GDP number is not encouraging and the market is still at all-time high level. It’s putting a big question mark against a well known saying “Market is reflection of the economy of the country”. I strongly feel that GDP numbers do not support the current rally. It is true that market discounts future. It is believed that worst is over and we will soon see economic revival post elections. But, the true story is 2014 election results are not easy to predict and depend on many possibilities. Assuming NDA will get the majority is too early to believe. On economic front, it is true that rupee has stabilised against the dollar and crude oil is also under pressure which is good for the Indian economy as it will reduce current account deficit. Iran deal if all goes well, will also be advantageous for us. But, the real problem is inflation. In the scenario where WPI is at 7% and CPI is at 10%, interest rates are unlikely to come down. It is well-known fact that higher interest rate is not good for the corporate world as their earning is largely affected by further hike in the repo rate. We have to wait till next RBI review meet and see what RBI will do next. Most of the experts feel that RBI won’t increase repo rate as the crude price is under pressure and also rupee has stabilised.
The future course of the market will be decided by the three major things and any disappointment on any of the issue will reverse the scenario. The first is the U.S. tapering. We all know that our market is mostly FII driven and the short-term money which comes for investment is not good for overall long-term stability of the market. At present rupee has stabilised against the dollar but major movement can’t be ruled out once the tapering starts in the U.S.
Secondly, the inflation numbers are also a major concern and may force RBI to increase the repo-rate further if rupee weakens further.
Third and major is general election next year i.e. mostly within six months. Looking at the present political scenario, definitely BJP has an edge at this point, but will BJP will get clear majority. The answer to this question is not certain and also if BJP comes to power, economic recovery will not happen overnight. The answer to this is also depends on many factors which are difficult to predict at this juncture. The real test of BJP is in U.P., Bihar, four states of southern India and seven states of North East where it has to work very hard to get the numbers. The performance of AAP is also commendable and their future course of action is also important to watch. In the event of hung parliament, which also a possibility, our economy will further deteriorate, as the new government will not be in a position to take bold steps in the interest of economy.
There is no doubt that high inflation numbers, the US tapering and expectation on new government will drive the market for next six months. So it’s good time to take a cautious stand while investing in stock market particularly when it is at all-time high level. Investing in equity through mutual fund via monthly SIP makes a lot of sense but it is also advisable to review and rebalance the portfolio as per asset allocation periodically. Next six months are going to be crucial for the stock market.
Apnapaisa is online marketplace for Home loans & Mutual Funds. Author can be reached at pankaajmaalde@apnapaisa.com
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