Mumbai: Bulls seem to be back in action on the bourses as the BSE Sensex shot up to a six-month high at 11,329.05 last week.
The 50-share NSE Nifty also settled at 3,480.75.
“The bulls seem to be in command once again on the bourses. Nothing has changed though as the earnings and economic reports, both local as well as global, remain mixed,” an equity analyst with India Infoline said in a report.
A significant inflow from foreign institutional investors (FIIs) in recent weeks has improved confidence among market participants. “However, the outcome of general elections could spell the next trigger for the market,” an equity analyst, Jigar Shah, said.
Though several market pundits predict that the worst is over, there could be some more pain going ahead. A lot more needs to be done to ensure a smooth and quick recovery for the sluggish global economy, Shah said.
“One thing is sure that the climb from here will not be all that smooth as there will be bumps ahead. However, one may gradually start picking up quality stocks for long-term prosperity,” the India Infoline analyst said.
In the near term, concerns over asset quality and slowing credit growth will remain an overhang over both private and PSU bank stocks so long as the macro-economic outlook remains bleak, Angeltrade analyst, Vaibhav Agrawal said.
“We believe that the proactive monetary softening over the past few months and the quantitative easing expected in H1 FY10 as well as systemic strengths such as strong domestic savings and consequently falling interest rates will help revive domestic demand late FY’10,” Agrawal said.
Therefore, keeping in mind attractive valuations, a longer-term investment perspective needs to be adopted to take advantage of the eventual upturn in GDP growth and several factors are falling into place to make this imminent over the next 12-18 months.
“From this perspective, we prefer private banks, in light of their stronger core competitiveness,” he said.
The RBI in its FY10 annual policy cut the repo and reverse repo rate by 0.25% each, but kept the CRR and SLR unchanged. These measures are a continuation of the RBIs concerted efforts to maintain a downward trend in interest rates to revive domestic demand.
“More importantly, we believe is the strong emphasis by the RBI to ensure sufficient liquidity for funding the large combined fiscal deficit of the Central and State Governments projected for FY10,” he said.
“This is in line with our view that domestic financial savings, together with quantitative easing, will be adequate to fund both the Government and private sector and that consequently, interest rates will further decline in the ensuing months,” he said.
This is also positive for banks from the point of view of fall in government bond yields, and treasury will be an important profit centre during the year for the banking sector, Agrawal said.
The inflation numbers too have been surprising for two weeks in a row, as they were expected to turn negative.
Increase in the prices of primary articles and manufactured products have contributed to the rise in inflation rate during this week.
“Going forward, as per earlier expectations, inflation may turn negative in the next couple of weeks, as the impact of the high statistical base starts to show up; the economy is expected to experience sub-zero level of inflation for a few months after that,” Dun & Bradstreet India Head, Economic Analysis, Yashika Singh, said.