Nifty rebound: Bears may still have upper hand in near term

The near 400-point rebound in the Nifty over the last week seems to indicate that the market may have bottomed out for the time being. Experts are no longer talking about the possibility of the index hitting 7400 in the near future. Most bets now are on the rally continuing for a while as global worries seem to have abated for the time being.While rising stock prices have brought cheer, there are enough indicators for bulls to temper their exuberance.India may be better placed compared to other emerging markets, but growth still is the missing link, feels Sanjeev Prasad of Kotak Institutional Equities."Consumption at the moment is weak, private sector investments are nearly dead and net exports is suffering as a consequence of whatever is happening globally," he told CNBC-TV18 last week. And Prasad is not alone in his cautious outlook.While retaining his Sensex fair value target of 28000 by March, Saurabh Mukherjea, CEO of institutional equities at Ambit Capital, cautioned that the index slipping to 22000 is a distinct possibility.  "The challenges are reasonably serious over the next 6-12 months and on the domestic front we have a slowing economy, crumbling real estate sector, weak business confidence, a banking system which is still I think is in serious trouble and on the global front the, the problems in China, I do not think are going to go away soon," he told CNBC-TV18.

Acknowledging global weakness, the International Monetary Fund (IMF) lowered the global gross domestic product (GDP) growth forecast for 2015 by 0.2 percent to 3.1 percent from 3.3 percent. It also cut India's growth forecast to 7.3 percent from 7.5 percent for 2015 and flagged concerns regarding the slowing Chinese economy. IMF Chief Economist Maurice Obstfeld warned against risks emerging from a Chinese slowdown, sparked by its transition to a consumer economy, and said emerging countries exports could suffer in the face of a strong US dollar and weak Chinese imports. IMF has also warned of a "spillover" effect of slowdown in the world's second-biggest economy on its neighbourhood and other Asian countries.

Meanwhile, brokerage houses Goldman Sachs, Morgan Stanley and Citi are all warning of lower commodity prices. Citigroup is bearish on crude oil, aluminum, platinum, iron ore, cocoa and wheat in the next three to six months. Echoing the same thoughts, Ruchir Sharma, head of emerging markets at Morgan Stanley Investment Management in New York, says investors need to brace for a 'long winter', with the commodities bear market predicted to last for many years and oil dropping to as low as USD 35 a barrel. Goldman Sachs goes a step forward and says that the odds of oil slumping to about USD 20 per barrel is increasing because the oversupply situation is much more serious than previously forecast.

While a slump in oil prices is good news for India as it will lower raw material prices or input costs, it will only have a major impact on oil marketing companies (OMCs). But one must not forget that the government may once again raise excise duty and other taxes on petrol and diesel in a bid to mop up gains accruing on account of the lower prices and recoup its losses over the years, which arose due to subsidies given to these OMCs. Also, recent merchandise export numbers pointed to a continued fall for the ninth consecutive month in September, with the government on Wednesday having to assure exporters that it will soon announce incentives, including restoration of interest subsidy scheme to boost the outbound shipments.