DSIJ Mindshare

Waiting For Global Cues


The Indian markets, we believe at this juncture, are fairly placed and make for one of the most attractive destinations compared to all the other emerging markets. The Indian markets are set to outpace the other emerging markets mainly owing to the demographic profile of the country. The domestic consumption that we are witnessing at this point of time is main-ly led by its demographic profile and we are definitely not highly dependent on other economies to retain our strengths. India being a highly domestic con-sumption-driven economy, it undoubt-edly becomes one of the better places to invest in comparison to the rest. 
The recently concluded Q1FY11 results have been in line even though there also have seen some disappoint-ments. The financial services, FMCG, auto, and engineering sectors have posted better results. The metals seg-ment has, however, not been up to the mark. The telecom sector did pretty well in terms of operational levels but the PAT levels were nothing to cheer about. Going ahead, the triggers for the Indian markets are likely to be more global than domestic.  
All the domestic triggers like good corporate results and a normal mon-soon have been factored in. Therefore we are now looking at foreign shores to provide us with some triggers. Global data like the US’ GDP and that of home sales are likely to show us the way. If the global market stabilises, we are likely to witness more FII inflows into our markets and this will provide a fresh round of momentum. A few reforms on the domestic front such as those related to the oil & gas sector and the direct tax code could impact the market for a while but the effect may not last for too long. 
Considering that India is a growing economy, a higher inflationary scenario will be prevalent. We feel that this is likely to soften going forward and may come down to around 5–6 per cent by March 2011. The Reserve Bank of India is doing its best to tame the monster of inflation that is currently hovering in the 10 per cent range. We believe that India is likely to witness another hike of 50 basis points in the interest rates. With a good monsoon this year, food inflation is likely to come down and the target of the central bank to keep the inflation in the 5-6 per cent range may actually become achievable. Let’s keep our fingers crossed.  
On the global front, the recovery now taking place is not as good as had been hoped for. The US consumer is still far off from the high spending days witnessed earlier. Europe has been a bit stable after the initial bad news that trickled in, but we need to keep a close watch on the results of the steps taken by the European nations. In our opinion, globally the upside has been capped for the medium term until stronger consumer and housing data starts emanating from the US. We are presently bullish on sectors like media, capital goods, and power. 
On the banking front, we are not as bullish as we have seen a run-up in the stocks and going forward we may wit-ness margin pressure and some slippag-es in the restructured assets. We have been advising our investors to wait for a correction so as to enter at more reason-able valuations. The outperformance of the Indian markets in the recent past has been quite significant. Most of the positives have already been discounted at these levels and the markets should consolidate even as the fundamentals catch up before any further upward movement. To sum up, we remain bull-ish on the Indian economy and see it as one of the best venues for the parking of funds.


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