MARKETS ON A STRONG FOOTING

The markets have turned quite volatile over the past couple of weeks. Benchmark Indices have been trying to find their way on the up side. The general euphoria that had enveloped the markets over the past couple of months finally seems to be ebbing out in favour of fundamentals and geopolitical factors on the global front.

 The geopolitical situation is one of the gravest worries afflicting investor sentiment globally. Iraq, Ukraine and Israel continue to boil, and the rest of the world is debating on what is right or wrong. The situation has gone from bad to worse, where experts fear that a full scale escalation should not come in as a surprise. That could be a possible tipping point for this bull market which has just begun to find its foot on the ground. But the way the markets have been braving this storm, looks like there isn’t much that they are reading into. Ignoring such a global situation could be perilous for investors. The jitters that the markets have been facing of recent are signs of its nervousness amidst the courage that it gathers from fundamental factors.

Economic parameters have been steadily improving or at least so it seems, thanks to the base effect in most of the cases. The improvement in economic variables such as the IIP is purely on the lower base of the previous year. Foreign trade is certainly on a strong footing, but that alone will not guarantee improvement in the overall fundamental strength of the economy. On the more fundamental side or rather on the domestic front, corporate results have been as anticipated with ups and downs in equal measure. There haven’t been any big surprises so far.

But all said and done, inflation still remains the focal point of discussion when it comes to mapping the future of the economy and hence the markets. The rainfall deficit is more or less getting covered, but does that concretely assure us of adequate food supplies and hence moderate inflationary pressures? Looking at the situation on the ground, it definitely does not look like we are in any kind of a comfort zone as far as inflation is concerned.

 According to the RBIs own assessment, retail inflation measured by the consumer price index (CPI) has eased for the second consecutive month in June, with a broad-based moderation accompanied by deceleration in momentum. Higher prices of vegetables, fruits and protein-based food items were off set by the muted increase in the prices of non-food items, particularly those of household requisites and transport and communication. CPI inflation excluding food and fuel decelerated further, extending the decline that began in September 2013. However, with some continuing uncertainty about the path of the monsoon, it would be premature to conclude that future food inflation, and its spill-over to broader inflation, can be discounted.

 The above looks like placing a careful caveat on the more buoyant outlook on the inflationary front that the RBI would have wanted to put across. The markets have welcomed the move of the central banker of leaving interest rates unchanged. Liquidity boosting measures, which include leaving the CRR unchanged and reducing the Statutory Liquidity Ratio by half a percent definitely bode well for the markets. The RBI had brought down the SLR to 22.5 per cent in the month of June based on expectations of an economic recovery. It has further brought it down from there to 22 per cent in its current monetary review. The need to bring down the SLR stems from the opening up of the space for banks which would see further expansion of credit based on the budget provision which are likely to see further fiscal consolidation.

 The deluge of funds from the FIIs which was propelling the markets has paused a bit. This pause is probably the result of a wait and watch approach that they have adopted over the unfolding of the Government’s growth plan. Also, valuations of Indian equities were looking stretched in comparison to other emerging markets, which have forced them to draw the charts once again before commencing their buying.

However, the markets are definitely not looking back. Benchmark indices have scaled new highs and the long term prospects of the economy and hence the markets continue to look strong. Interestingly, FIIs are bound to resume their buying, especially now that the air has been cleared on the monetary policy front. But, what really needs attention while discussing this is the fact that, most of the large cap stocks are now near to their allowable limits of FII investments. This leaves us with the mid and small-cap space which could now be in focus.

[PAGE BREAK]

There is a long list stocks that can possibly form part of this space and look good bets to invest right now. We are however focusing on a very niche sector this time. IT has been in the news for all the right reasons of recent. TCS’s huge jump, clocking more than `5 Lakh crore in market cap has put companies in this sector right in the centre of market action today. Our cover story tells you where the sector is headed and how you could profit from being a part of it.

We are also carrying a special feature on the Banking sector in this issue which brings a comprehensive ranking of all the Banks (public as well as private) across a host of parameters. The intent of this feature is to cull out the best players from the sector which are well placed to play the oncoming growth opportunity to their advantage. It also contains interactions with banking leaders trying to read their minds on where the sector and their bank’s are headed.

We round up with our regular featured recommendations which include, Hosiery exporter, Bhandari Hosiery Exports as the Low Priced Scrip, which is expanding its capacity and has already introduced new products which are well accepted in the retail markets. The Choice Scrip this fortnight is Supreme Industries, the largest private plastic processing player in India. The company has been expanding its capacity to meet the growing demand for its products and its track record of consistent dividend payment adds to the comfort levels of investing in this stock