The short answer, as usual is I do not know.
Even worse, I do not know anybody who knows anybody who knows anybody who has the answer….so here is an attempt at guessing.
At the end of a 25% ride for a year…the market could pause for breath, right?
The market is already ahead of itself in terms of PE. The earnings will have to grow..and I do not see that happening before September at best and December at worst.
So what will the market do?
Well that is very difficult to say. Depends on the strength of its legs. The Sensex itself has Tcs, Infosys, etc. which is likely to benefit from the US recovery. The performance of these shares has nothing to do with the Indian economy. As one sees the salary increase in Infosys, it is clear that they are not worried about staff attrition. Nice.
Oil which has a role – so Ongc, Reliance, and the OMCs are not likely to give some outstanding ‘pull effect’ to the index. ITC has been and will continue to struggle with the government’s onlsaught.
There are not enough FMCG companies (current market favorite), which means the lead has to be taken by the finance companies. Axis, Icici, Hdfc, Hdfc bank, Sbi, Kotak, Power finance, etc. – are all likely to be a little tired after their long run of FY 2014-5. The NPA in the PSU BANKS is well documented, I am worried about the NPA in the private sector banks. I can assure you that is HUGE.
That leaves you with very little visibility of the Sensex PE. Anyway I am not a big sensex fan in terms of seeing where the market will go. The non sensex companies could give good returns and I am not talking about them.
Now turn to bonds. All over the world the interest rates are down..and India is the Island of 8% Gilt yields. Even if you discount it for inflation at 6% it leaves you with a real yield of about 2%. THIS IS NOT BAD AT ALL.
So you will see more money coming into the bond market – as shown by Rbi figures over the past 18 months (what do you think held the Rupee at 61 to the US $? Why is the FII investing in India ?
For long term good yield (our brilliant bankers ‘protect’ the currency ratio), stable rates, and the immediate capital gains when RBI reduces the interest rates.
At least to the couple of FIIs that I spoke to the short term bond returns (one year) looks better than the sensex returns. This is not to say that they will be right, because the following could happen:
– interest rates in the US cold go up – so some of the short term money could run away.
– some infra projects could attract a disproportionately large equity and debt inflows.
– money running away could hit the rupee vulnerable (making currency losses to offset the capital gains)
– the second rung (BBB+) could raise money abroad (bringing interest rates down too fast),
It is difficult to predict, especially if it is about the future.
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