The global weakness and slow-down left no stone unturned to tarnish the market sentiment in every sphere. The volume in stock exchanges has got badly affected by the economic instability and investors are not willing to burn their fingers in the heat of burning beacons. After a long period of storm in the Indian stock market, now the dust seems to be settling down. The pride of the stock market is coming back to its place, and bulls are working hard to raze away the bears. The Euro zone crisis has cooled down slightly and given a chance to all the emerging economies to carry the whole world out of this slow-down for a safer horizon. Crude prices have also subdued in last few weeks to provide relief from the outflow of valuable foreign exchange from India.
Market to pick up pace
The current market has opened a debate on factors in favor and against of India’s growth story. Certainly, the slump period has given a vital chance to think about the weaknesses of our economy, which was totally missing earlier. India has lots of things in favor now to pick the pace and accelerate back to double-digit growth. The falling crude price has already shown the impact by easing INR against the dollar. The industrial growth rate has picked up quickly with the improving sentiment and already touched the 4 months high as a sign of recovery. The clear stand taken by the government on various issues has also helped in confidence-building measures. The doubts on General Anti-Avoidance Rule (GAAR) have been cleared by the government, and it has been unanimously applauded by the foreign investors. Though the market has seen sharp pull back after the GAAR relief, but a stable trend will initiate only after a considerable correction in the inflation rate. It is expected that a good to normal monsoon would ease the food prices, and inflation would bring inflation under a much-needed control. The weaken inflation would help RBI to relax the monetary policy and provide liquidity in the market. It would also help industry to increase the growth pace. Real estate sector could also get some relief after a drop in policy rates in coming months if things go as expected. The fiscal deficit is also expected to come down with high productivity and reduced subsidy pressure on petrol after the drop in crude price. In the budget session, the Brent crude price was projected at the rate of $115, which is trading around $95 from last few days, so it would keep the deficit calm till it trades at this level.
How various Sectors are expected to perform?
The badly beaten Capital goods sector is expected to do better with an elevating INR against USD whereas it would put IT sector under pressure, or it may fall if the forex position has been not hedged in right time. The RBI’s future stance would decide on the prospect of the banking sector. If the Interest rate is reduced in near future, then the real estate sector would revive and liquidity in the market would help banking sector to reduce the NPA level. Auto sector should also perform better with cut in import bill and lowering petrol price. Interest rate cut would assist for easy car loans to the customer, and hence it would help the industry to grow. A good monsoon, better liquidity and recovering the fiscal deficit are the major drivers that would fuel the growth in coming days.
Risk that can spoil the recovery delight
The Euro fear has subsided for now, but it has not been resolved thoroughly so it is one of the major risks that can arise anytime in the future. India is sitting on the huge amount of foreign debt many of which is about to mature in series after six months. The Forex reserve situation and INR’s value against the dollar would be important for a comfortable repayment. Another fear is arising from monsoons delayed entry and its effect on agricultural productivity. Industries and power sector is also running out of sufficient water that’s needed for uninterrupted operation.
Conclusion
Investors should come out of fear and start investment in fundamentally strong stocks. The recent willingness shown by Dr. Manmohan Singh to intensify economic reform would help market to attain attractive stature in coming days. It is a good time to invest in the undervalued shares and reap good return in future. The risk to return ratio is about to play a good role in favor of investors so every dip in market would be a good time for investors to grab good stocks.