Well predicting is difficult, and in my case unnecessary. I have had no reason to predict ‘markets’ – I would rather be worried about Q on Q performance of my holdings. Even in such cases I may do nothing, but my portfolio is far more important for me than the psu heavy indices that we run..
I am not here to predict the markets, but just looking at some of the facts (some are opinion perhaps, but I leave it to you to decide what is what):
1. The index will have a lot of momentum as the size and reach of the NPS increases: If you track the amount of money (about Rs. 50,000 crore and growing at a super speed) that the NPS will put into the index, the index is bound to go up, dramatically.
2. It is easier to sell when the equity markets are doing well: So there is a huge rush of Closed Ended funds (Rs. 10,000 crores) and there is also an increase in the number of SIPs being sold. Life insurance sales is also booming – thus the amount of money coming into equities is increasing. Most of it is likely to have a large cap bias – so the index benefits either by direct buying or by closet indexing by the big funds.
3. Inflation is benign: This means more surplus for the people – and they either invest this in equities (actually they do not), or buy property (aka steel, cement, and money), or leave it in bank deposits. All these options improve margins for the BFSI. Think hard on this.
Having said why the market will go up, let me put in the caveats:
1. There is NOT enough proof that the Indian Middle Class is entering the market in a big way.
2. Huge amount of money coming in is FII money – we have no clue about whether this money is HOT.
3. Huge amounts of money is sitting in the Gilts and Indian corporate debt – which will exit as soon as the capital gains are taken (one year from now when the gilt yields will be about 150 points down?) .
4. US will tweak interest rates, and people will take their profits.
5. Commodity prices have been down too long – when it hardens countries like India will be hard hit.
6. There is a lot of talk by Na Mo, but nothing concrete – so we are still waiting for the FDI. Not complaining, just stating…
7. Our PSU banks are sitting on tons and tons of NPA, creating more and worsening the situation…If Raghu Ram Rajan is serious, one will see blood in that area.
8. Our Infra is poor – the only (repeat only) advantage a knowledge outsourcing company gets is lower salaries. This is not enough – even simple call centers cannot afford to be in urban India. Indonesia, China, Eastern Europe – are all brilliant locations which could take away our MAIN forex earner.
9. Coupled with 2, 4, 6 and 8 – we could see the Rupee-Dollar at a very unfavorable ratio..
I hope I have scared you even more than ….what Shankar Sharma could…
So here you now know why there are only 3 pros and 9 cons…
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