Stock Markets Where Next...???

Though officially Diwali was last week, the celebrations have been underway in the stock markets for quite some time now. In the week ended November 4, the Sensex crossed the 20k mark and the Nifty breached 6,000. The markets have traveled a great distance upwards in the last three months. There were many roadblocks in this journey. Concerns keep bursting like loud crackers time and again. Initially, we had the sub-prime issue that brought down the markets sharply. Markets recovered from this problem with a smart pullback only to encounter the Pnote issue. Last week, the policy announcements from the Reserve Bank of India (RBI) and the US Fed too contributed to the choppiness. The markets survived the bumpy ride of the past three months thanks to the nonstop foreign capital inflows. Post sub-prime, the developed markets turned unattractive as investment destinations due to structural problems. Developed markets operate with highly leveraged capital whereby a problem in one segment of the economy, say sub-prime defaults, has severe ramifications on all other sectors too. It will take time for these countries to come out of the self-inflicted problems. The returns generated during this period will be very low or negative. By contrast, countries like India with pretty straightforward capital structures have come out unscathed from the subprime issue. The India Inc story continued due to its strong fundamentals. India's proactive markets regulators too contributed by nipping leverage problems in its bud. There has been a very heavy inflow of FII funds post subprime issue. This has contributed to the Sensex reaching new highs at 20,000. However, post 20,000, the FII flows appears to have tapered off a little. At this level, it's possible that the stock market has factored into account all positive factors like nine percent GDP growth and good corporate earnings. It will need further good news to push it past the 20,000 levels. Without news flows the markets could consolidate at 20,000 levels. With the end of earning season there are not many catalysts for the markets to react to. The market will be reacting to trends in global markets and FII investments. These cues having been confusing at best. This has led to the markets remaining choppy and range-bound through last week. So, if the trend continues for a while, the market may have a long overdue but a healthy consolidation/correction. Such a consolidation/correction, if any, will be welcome to markets participants. It removes uncertainty from the markets. Currently, all action of marketmen are indecisive due to the fear of correction. It will also bring in the long-term FIIs who want to buy into Indian stocks at lower valuations. Many retail investors too are keen to participate in the India Inc story and are waiting for a marginal correction so that they can buy good stocks. In this scenario, it's difficult to foresee any major corrections in the stock markets. Because of the sub-prime issue, the attractiveness of India and other emerging markets as investment destinations will only increase. This indicates that in the long term, the bull market is still intact in India. Investors who are interested in the longer, and more fruitful journey, should stay invested in quality stocks. Further, they can capitalise on any downsides to buy into more quality stocks or average out the cost of their holdings.

Hi pammor,

Thanks for sharing...