Indian Equity Market and Election 2014

By Mr. Imtiaz Merchant
MD, Pragmatic Wealth Management Pvt Ltd

The recent rise in the Indian equity markets to an extent has discounted the fact that a new government perhaps the NDA is coming to power and a stable government is perceived to be on cards. The markets have also taken some cues from the fact that the economy is showing signs of improvement as reflected partially in inflation easing out, improvement in corporate profitability and rupee strengthening on account of FII inflows and stable Oil prices resulting in lesser dollar outflow. With the CAD (current account deficit) getting under control and the RBI keeping the interest rates unchanged though gives a cautionary signal, but at the same time raising some hope that things may improve in times to come.

It is often said that the Markets are directionally efficient, meaning that today’s price reflects what is currently known about the future direction of the markets. So the Indian markets vividly perceive that everything is fine and rosy and complacency sets in, that’s the way markets have behaved from the time immoral and would continue doing so till eternity. The market oscillates between perception and misperception, anticipation and apprehensions, hope and fear, euphoria and despondency, nonetheless wealth is created only by right INVESTMENTS. And as famously described by Benjamin Graham ‘an investment operation is one which, upon thorough analysis promises safety of principal (capital) and an adequate return, operation not meeting these requirements are not investments but speculation’.

Talking about Indian Equity Markets they are well poised to see higher levels, as the national elections draws closer, high volatility will certainly set in, however with improved fundamentals, the better performing and good governing company will still do well, I suggest that declines should be used for buying selected stocks across the sectors only from the large and mid-size universe and one should refrain from investing in small size companies. Technically speaking, Indian equity market has broken out from a seven years range with improved volumes and breadth justifying a new bull market, the character of a bull markets is that it always thrive on skepticism hence volatility in times to come is quite justified. In terms of levels in the better case scenario the Nifty should see 8000 coming and in the best case it can test 9000 plus levels. The intermediate (medium) terms support exist at 6350 from where the Nifty broke out, in the bad case scenario the Nifty can test 6000 and in the worst case scenario that is if everything goes haywire and untoward  happens than in that case the Nifty can make a panic bottom at 5700 and nevertheless the bull market will remain intact.