by Vivek Karwa, CPFA., CFPCM
140813 – After almost a one sided move since long, the market has finally come to terms with reality. The FII flows have slowed down, slowing the market as always, considering our dependence on foreign flows for keeping the sentiments positive. The index is consolidating, as many put it: index management is happening in the market, but once we look outside the index, particularly on the mid cap and the small cap segment, the story is different.
Many mid cap and small cap stocks had run much beyond their fundamentals warranted and has seen considerable amount of selling. In the process better mid cap and small cap stocks also corrected and many have started looking cheap now. We have been mentioning a reasonable target on Sensex, but the real returns will be delivered outside the index as and when the economy starts showing signs of recovery.
There was lot of dust and negative sentiment around past 12-18 months which seems to be settling down now. The expectations from the new government are really high and we all know that, no person can do wonders within three months of assuming office, considering the size and diversity of our country. The initial moves of the government seem to be in the right direction. The budget showed that this government will not lure people by doles and is serious about curbing the fiscal deficit.
IIP, Inflation and other economic indicators may remain unfavourable for some more time. But as the measures of the new government starts reaping benefits, we may see them moving for good and bringing back the focus on serious economic development. The increase in FDI limit in certain sectors will go down well in long term and will attract money from foreign players.
We import crude oil for our energy requirements. It is the biggest portion of our import bill. We also import mobile phones, laptops and tablets. With the kind of penetration taking place, forget ordinary phones, we may start seeing every individual shifting to smart phones! Estimates suggest that this bill may start competing with crude oil bill if things continue in same pace. Hence the government has announced measure which will encourage manufacturing of electronic communication devises in the country itself.
The next big thing which we import is in the defence sector. With such hostile neighbours, we need to keep our war chests always ready and hence it was always warranted that we increase the FDI limits in this sector, and the government did the right thing.
Such measures are generally not fancied by the public. They find nothing amusing in such decisions since they do not excite like how free food or farm loan waivers may! But these measures should prove to be good in the long term. We should hope that the government should continue with reforms and don’t fall prey to same mistakes which the previous government did.
Expect markets to do well over a period of time. If the administration works the way it is working today, we may see lot of money flowing in to the economy, including the stock markets.
Disclosure:- It is safe to assume that the author may have interest in the sectors recommended in this news letter. Seeking personal advice from your Financial Advisor is recommended before acting on any of the substance given herein. The numbers, figures, etc., presented may have been taken from various sources.
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