-By Sunil Jain
VP-Equity Research
Nirmal Bang Securities

The move for the hike in the repo and reverse repo rates by 25 basis points is the beginning of the tightening of the interest rate regime. Previously, we have seen both the government and the RBI coming out with various stimulus packages to recover the economy. However, with the economy reviving and inflation levels nearing the double figure mark, the rollback of stimulus and the hikes in interest rates are only to be expected. It is now time for the economy to function on its own strength rather than work on any stimulus from the government. On the inflationary front, the increase in the food index is now easing off a bit but the industrial commodity sector is facing the heat on the back of the hike in excise duty and service tax. Also, the hike in fuel prices will have an impact on inflation and this is likely to keep the inflation levels above the normal mark. As far as the Indian markets are concerned, we have witnessed a vertical rise in the indices in the year 2009 and that is the year of the turnaround from where the recovery process took roots. It is from this year that the global markets have begun to be revived too. We feel we may not witness the same movement in the year 2010. The current year will be a year of consolidation for both the Indian economy and the markets. The markets are likely to remain range-bound and we may not witness the same rise that we have witnessed in 2009. As for corporate performance, we feel it may increase from the second or third quarter of the next fiscal and that is likely to keep on driving the markets in a medium-term perspective. The global markets may not see the same level of recovery as compared to the Indian markets. Though the US has emerged out of the woods, its industrial production level is still below 50 per cent of what it was prior to the economic crisis. About the Healthcare Bill that has recently been passed in the US, this is definitely going to benefit those Indian pharmaceutical companies that are selling their products in the US market. Meanwhile, in India there has been a flurry of IPOs from the beginning of 2010. For any market to grow, it is very important for IPOs to come out at regular intervals. These IPOs are likely to bring in fresh money from new retail investors and FIIs in the markets. It is this money that gets transferred from the share markets to the real economy. But one has to be careful because there are always some bad IPOs along with the good ones. Our suggestion is that investors must opt for the fundamentally sound companies.For a one year perspective we are positive about four sectors viz. banking, construction & engineering, consumer-related and IT. On the banking front we feel that there is going to be credit growth in the next fiscal with the bond yields being at the upper end of the curve. In our opinion, private banks are likely to see more upside from this level as compared to public sector banks and from this space we are bullish about ING Vysya Bank. In the construction & engineering space we are bullish about Sunil Hitech Engineers while Sasken Communication Technologies is a good choice in the IT sector. We suggest that investors should park their funds in fundamentally good stocks for a longer term perspective rather than going in for penny stocks.