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Markets to witness a mini-rally

| 1/13/2012 1:33 PM Friday

The past fifteen days have seen an increasing divergence of views on the stock market, with some people suggesting that the markets would surge, and others predicting more pain in the offing. This has been confusing investors.

My personal understanding says that the Indian stock market may not see substantial downward pressure in the short run. On the contrary, we can expect the market to undergo a mini rally. The reason I am slightly bullish on the short term is that there are no major negative news flows in the offing. All the bad news, such as the likely poor Q3 corporate earnings by India Inc., the Euro zone crisis and so on, has already been priced in.

On the positive side, the rupee that was depreciating at a faster clip, is now steady and has actually appreciated to some extent. On the other hand, the interest rate could start softening, as the RBI would most probably announce a cut either in the repo rate or in the CRR on 24th January, 2012. The inflation numbers are much under control, at least on the food front, and if the overall inflation figure does take some beating, the RBI would be all the more happy to cut rates. The US economy is showing some signs of recovery, bringing much relief to the sagging sentiments. The pause in the Anna Hazare-led movement would provide a breather to the government to focus on other issues. These positive news flows have been ignored by the markets so far, but my point is, how long will they continue to do so? I feel that the markets would soon start taking note of these developments and boosting investor sentiment.

If India Inc. gives better guidance for Q4, the Index could rally by about six to eight per cent in one month, giving much-needed respite to investors. Not many people would have realised that from Diwali till now, 80 per cent of the scrips are down, with many of them falling as high as 20+ per cent. This gives a clear sign of how severe the fall has been, and hence, a rally is rightly overdue. I would suggest that you close your short positions and go long, if possible.  

Anyway, the last quarter of the financial year is always thick in action for the stock market. First, due to the new allocation of funds by FIIs, and then, due to other factors like the economy survey as well as the much-awaited Finance Budget.

The Jan-Mar quarter also sees the highest amount of money being mobilised by tax savings instruments, as people make a desperate attempt to save as much tax as they can. Keeping this fact in mind, Dalal Street Investment Journal has been carrying an annual feature on ELSS that helps investors to choose from some of the best-managed ELSS schemes. This time too, we have handpicked five ELSS schemes that are expected to yield good appreciation over a three-year time horizon, just like our ELSS recommendations for 2009 (ELSS comes with a three-year lock-in period) have given. If an investor had put money into the schemes that we had recommended in 2009, the returns would have been as high as 153 per cent (adjusting for tax benefits). Read our cover story to know how you can save tax and benefit from capital appreciation. Another interesting story in this issue is on the SEBI investigation on the seven companies that have committed IPO-related malpractices either before the public issue or after. It is a must-read story to understand how IPOs are being manipulated by vested interests, making retail investors poorer.

 

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