What will Indian stock market offer us!~~~!!!

India has been attracting record FII inflows…….Last year saw ~$24.5 billion inflows in Equities and this year since January ’13, we’ve already seen $ 8 billion flowing into India. This is on the back of attractive valuations, government led reforms and expectation of a fall in interest rates. While, FII’s are pouring money into India , we’ve seen some amount of selling by domestic institutions due to redemptions from retail Indian investors, who are taking a very short term view on the markets. These investors have been holding Mutual Funds for the last 4-5 years and now wanting to sell above their cost at the first opportunity. They have already sold substantial amount over the last six months and now have very little left with them in their portfolios……...which means that they are grossly under invested in the Equities

With correction, more and more large FII’s are getting bullish on India as it is amongst the most attractive markets(size wise) given the interest rate cycle and the new thrust provided by the Government to improve business and investor sentiments. Good amount of money is waiting on the sidelines to enter markets on corrections, which gives us confidence that every fall is an opportunity and should be bought into.

Budget is round the corner and we have already seen positive statements from the FM. He will not disappoint given the urgency to perform and also he understands the importance of capital markets and FII money for the growth of the country. Also, any change in the current monetary policy in US (which the market is fearing) will imply speculative money out of commodities leading to a fall in Gold, oil, copper, etc…and this would eventually benefit India in the medium term.

We believe the next week’s announcement in Union Budget will be positive for India in the medium to long term. FM is likely to:

1. Incorprorate further tightening of unplanned expenditure to control the fiscal deficit…an imperative to pacify the rating agencies. FM has clearly spelt out his intent of achieving a 5.3% FD in the current year and proposes to improve it by 50 bps in FY14. Notwithstanding the fact that this union budget is the last before the next general election, there is little doubt that about Chidambaram’s willingness and ability to achieve the targets.

2. In order to kick start the growth it is important that FM focus on pick up in the investment cycle which he will through a host of measures.

3. He is expected to broadly refrain from tax increase, balancing the deficit by spending restraint.

4. Govt effort of credible tightening measures will encourage RBI to cut interest rates further. During the remaining part of the year a 75 bp cut is a possibility

5. Thus we believe that the GDP may have bottomed around 5.3-5.5% growth that we are likely to see in FY13. The reforms initiated, cut in the interest rates will help in pickup in the growth to ~ 6.5% next year.

The markets therefore would get stronger with time. We continue to maintain that quality companies should be bought on decline. We have recently recommended the following stocks in our budget recommendation:-

 CAIRN INDIA

 M&M

ICICI BANK

IDFC

GODREJ CONSUMER

LT

We maintain +ve stance for all the above stocks which are +ve from medium term perspective. Other than these, we are also +ve on the following stocks which have corrected over last few days

ITC ~Rs.290, NTPC ~ Rs. 251, ING Vysya ~ Rs.545 and Tata Global ~ Rs.138

Market is throwing up big opportunity to make money for Investors from 1 – 6 months perspective.

Share this with every client n investor of yours. Invite him/her to participate in the Indian growth story and create wealth by investing in high quality stocks!

Happy investing !