Markets in long-term bull trend

RAKESH GOEL
Senior Vice President
Bonanza Portfolio

Looking at the current valuations and prospective opportunities, investors should start accumulating interest rate-sensitive sector stocks with the hope of a cut in the interest rate in the coming policies. Banking, IT and stocks in the beaten down Capital Goods sector will yield good returns in the near future. Additionally, since the Indian markets are in a medium to long-term bull trend, any correction should be used to accumulate fundamentally strong shares.

Currently, the markets have turned highly volatile due to both domestic and global factors, and any downtrend will be an opportunity to accumulate fundamentally strong companies at reasonable levels.

The aggregate Q3 sales have showed a decent growth of 24.3 per cent YoY, but were tepid at just 6.5 per cent if accounted for on a QoQ basis. The YoY growth was at the lower band of 20-30 per cent that sales were witnessing on a yearly basis for the last couple of quarters.

Considering the global economic crisis, the findings didn’t come as unexpected. The sales figure analysis clearly reflects the turbulent economic conditions that corporates are facing this fiscal. Nevertheless, the FY12 results are expected to be encouraging, with the earnings growth in the industries picking up in Q4. The Q3 FY12 results have come better than expected, with positive surprises. With the recent dovish stance of the RBI, credit growth is expected to pick up with general economic growth.

Going forward, the RBI is likely to continue with its dovish stance and to abstain from hiking the interest rates further. The central bank may go in for a cut in interest rates if international crude prices remain within a comfortable range and domestic fuel prices are not raised significantly. In any case, the RBI has hit the pause button as of now, and its future stance will be clear only in its mid-quarter policy meeting to be held on 15th March, 2012.

The INR may appreciate further. The downside support is at 48.60 and if it breaks this, then it may test 46.50 in days to come. Overall, the impact on the economy will be positive. Going ahead, the trend is likely to be influenced by both global events and domestic developments. The short-term trend will be influenced by the Assembly election results, while the RBI’s stance in the forthcoming monetary policy meeting in March and April will also act as triggers for the markets going forward. If the RBI goes ahead with the rate cuts, as it is widely expected to do, the markets will rally up, as lower interest rates will be favourable for corporates.

The developments in the global markets will depend on the solution to the Euro debt crisis, a revival in US economy and political stability in the Middle Eastern countries.

The sectors to watch out for are Banking, Pharma, FMCG and IT. Broadly speaking, the markets are likely to remain highly volatile in the short run. As per anticipations, the outcome of these developments will act as positive triggers going forward, which would take the Nifty near its previous highs again in the second half of 2012.

Our advice will be to start accumulating fundamentally strong stocks, since the markets are in a long-term bull trend. The current levels are attractive for accumulating fundamentally good stocks, which are likely to yield decent returns.