NEW DELHI: After a strong rally in 2012, Indian markets witnessed a roller-coaster ride so far in the year 2013, up a little over 7 per cent so far in the year.
Fears of QE tapering from the US Federal Reserve, earning downgrades, hawkish stance by the Reserve Bank of India (RBI) and sharp depreciation seen in Indian currency have all weighed on investor sentiment.
However, there was some good news for investors in the current results season. After five quarters of earnings misses, weaker currency helped Sensex profit grow marginally ahead of estimates at 14.5 per cent while sales grew by 15 per cent.
Number of things happened globally such as recent reforms announced by China and dovish stance by US Federal Reserve is likely to boost the liquidity-led rally in emerging markets including India.
"A number of things, which took place recently, have boosted the market sentiment, both globally and more importantly, for China, within the emerging markets context. It is now apparent to the financial markets that a Janet Yellen-led Fed will, in all likelihood, be dovish for longer," said Stefan Hofer, Emerging Markets Economist, Bank Julius Baer.
"Now finally, with some positive catalysts coming out of major markets like China and a renewed optimism regarding India, things have started to look a little bit brighter for 2014," he added.
On the domestic front, anticipation of a BJP-led government or a stable government in 2014 is building some bit of optimism among market participants, which can lead to restarting of investment cycle, experts feel.
Improving the investment environment will not only attract FDI to help offset current account deficit but will also bring back domestic private sector capital expenditure.
According to a report published by CLSA, FIIs have funded nearly 34 per cent of India's current account deficit over FY10-13.
Hofer is of the view that the twin deficits are well known facts by the markets and are certainly not new developments and financial international investors are very excited and motivated by the new policies that have been unveiled by the new central bank governor, Raghuram Rajan.
Mahesh Nandurkar of CLSA is of the view that Rajan's rupee-boosting measures have also given confidence to FIIs. Along with that, hopes of growth bottoming in India and improving chance of the BJP coming to power have triggered improved equity flows in India since September.
FII portfolio flows (debt+equity) accounts for almost 34 per cent of India's capital flows every year. India has been a big beneficiary of robust FII flows during FY08-FY13, netting $120 billion, said a CLSA report.
A K Prabhakar, independent market expert, is of the view that once elections are over, investment cycle is likely to kick off as it will bring more clarity towards policy and reforms. Adding to that, reforms process which was initiated in the last one year would bear fruit in the next 1-2 quarters.
On the monetary policy front, Prabhakar expects the hardening of interest rates is likely to end soon with another 25 basis point hike.
What should investors do?
Benchmark indices have been nothing but volatile so far in the year 2013 without any clear direction. But it's prudent to accumulate stocks on every dips, experts say.
Courtesy : Economic Times