OPPORTUNITY TO CREATE A LONG TERM PORTFOLIO

It was an eventful fortnight for the Indian equities as few macroeconomic data pointers were announced. Starting form Index of industrial production (IIP) numbers to CPI as well as WPI Inflation data, investors reacted to every announcement. With most of the data points arriving below the street estimates, it was no wonder that the leading benchmark indices reacted negatively. After touching an all time high mark in the first week of September on the back of strong GDP numbers for the June quarter, some profit booking was anyway expected in markets. However factors like poor IIP numbers, sticky inflation figures and most importantly fear of US Fed increasing interest rates ahead of schedule, only added to the momentum downwards. One noticeable factor however was, while the benchmark indices declined the mid-cap and small-cap indices continued to outperform. Just to quantify, for continuous eleven trading sessions, small-cap and mid-cap indices witnessed an up-move till September 15, 2014. It was only on September 16, that these broader Indices also witnessed some amount of profit booking.

If we take a look at the decline in Sensex, it was mainly triggered on account of poor IIP numbers for the month of July. Here the IIP increased marginally by 0.50 per cent as against 3.40 per cent in June 2014 and 4.7 per cent in May 2014. The poor performance was mainly on account of dismal performance from capital goods segment. What added to the negativity was sticky inflation for the month of August. The CPI stood at 7.80 per cent against the 7.96 per cent posted in July 2014. Though the WPI numbers arrived at 3.74 per cent against the street estimates of more than 4 per cent, there is hardly any respite on the pricing front. With CPI remaining above the tolerance levels of RBI, we feel there is remote possibility of rate cuts when the central bank meets for credit policy on September 30.

Another factor which impacted the market was a global factor wherein the US Fed is likely to increase interest rates soon. There is a fear that, this would suck out liquidity form the riskier markets which also includes India. With FII inflow being a prime reason behind the consistent rally, the investors taking a flight back to safety would naturally rattle the markets. However, we are of the opinion that FIIs are here to stay on the back of relative fundamental advantages over the peers. We have also discussed the same in our cover story. Further as for receipt of funds, a large chunk would be coming from Japan and even China in terms of investments. However, a lot depends on what stance Fed takes at FOMC meet. While the pages were sent to print, Fed announcement was not done. Hence we could not cover it in our journal.

While we discussed few of the negatives, there are few positive pointers also. Government is going ahead with huge divestment plan of companies like ONGC, NHPC and Coal India. This is likely to add more than Rs 47000 crore to the government’s kitty. We feel this would help reviving primary market space. We have already seen some traction in the primary market space and with Alibaba IPO plans in US markets; the revival seems to be in place. As for markets, we feel some profit booking is likely to continue. However one should take it as an opportunity to buy with a long term perspective. While some amount of profit booking is likely to happen in large cap companies, there are select mid-cap and small-cap companies investors can opt for.