Posted in Finance Articles, Total Reads: 1762
, Published on 05 May 2014
The year 2014 after much of the hassles last year are supposed to garner good returns in the stock market. Over the past two quarters it seems that stagnancy has creeped in almost all the sectors. Hence a thrust is must awaited from many sides in the economy as a whole. Returns are showcasing a downside and investor’s confidence is on fairly lower levels. Slowdown in the economy is a major phenomena owing to the huge stagnancy that the Indian Financial Markets are facing these days.
Both growth figures which aren’t pretty promising and on the contrary inflation numbers which have started picking up since the last quarter are posing questions. None of the stocks are stable and it reflects on the indices too. A must needed impetus is thus strongly required by the markets. We suppose some positive signs would provide momentum to stock prices and return the excitement back to the prevailing investor’s confidence.
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1. 2014, Year of Political Stability : The biggest event this year would undoubtedly be the general elections. Stock markets sentiments have been influenced to a great extent by political happenings , elections being a strong contender in that list. This year at a time when markets are expecting a positive and realistic stronghold being formed, I guess the onus won’t be about one single party coming to power. Even if the non-expectants come to power their won’t be steep decline in indices or stock price , rather the stagnancy would be lost as a positive signal.
2. Strengthening of Inflation Numbers : Monetary policies have so far helped ease inflation numbers to an extent , the WPI has moved to a five month low of 6.16% and the percentage expects further improvement. Since we know that monetary policies work with a lag hence a fair amount of time and more data for the next revision in rates would provide a much clear picture for the market to react. Hence, RBI in its efforts to lower inflation would target interest rates in order to bring down CPI to a much stable position. An overall negativity is instilled when sectors such as manufacturing perform well below expectations ,but with a fall in inflation the required thrust would be imparted in all major sectors and certain stocks may outperform.
3. Lower Current Account Deficit : With some contraction in trade deficit both the RBI and the government are pinning their hopes on CAD maintaining itself a tad lower than current figures. The economy has been facing data as high as USD 88.2 billion, or 4.8 per cent of the GDP last fiscal, with fiscal policies in place one can expect the statistics to come down and remain at USD 56 billion. The money would not only insure lower debt levels but also enhance the liquidity in the market.
4. Encouraging FII Flows : More liberalized reforms by the RBI to encourage foreign institutional investors to invest in India will help propel growth a infuse positive levels to be attained by market players. A strong position in most of the stocks can be seen to be evident once the inflows are stable and consistent. Foreign investors have made net inflows of a whopping Rs 1.13 lakh crore (over $20 billion) in stocks during 2013, while taking their cumulative investments in the country's equity market to a record level of close to $150 billion. The figures are believed to maintain an upward trend.
5. Better Growth: Old numbers reflect figures close to 4.5% of the GDP, thanks to a slight intrusion by global credit rating agencies that this year the predictions stats are near to 5- 5.2%, these forecast would actually take shape under some strong reforms and policy revisions both from the government and RBI in coalition. Things looks pretty favourable with some trial and errors if gone right would deal with rising stock market trends. The shares have been detroited of the old charm and investors seek some levels of revisions on most fronts. Hope better growth prospects is one of the major criteria to hold upto to investors belief and realize optimistic fundamentals.
6. Tapering of Liquidity Policy by Fed : The Federal Reserve, which had hinted at trimming its monthly USD 85 billion stimulus announced a USD 10 billion cut finally giving time for the Indian market to stabilise. On expectations from the RBI the central bank surprised everyone by not hiking rates in December 2013. There are numerous and varied thoughts surrounding the decision and the most prominent of all is that the governor need quantified data before altering interest rates and also wanted to provide a fair amount of time for the current monetary policy rates to take its course and work accordingly. It is believed that for a policy to show the required change a period of 6-9 months has to be provided and with quarter revisions of the monetary policies the criteria is not appropriately fulfilled. RBI Governor realizing the fact has made it clear with a strong decision and that has been largely reflected in present levels.
7. Strengthening of the Rupee : Weakness in the rupee that slumped from 55 to nearly 69-level in August against the US dollar last year has completely eroded the economy and it declined to lower levels. With revisions and steps in direction of enhancing foreign reserves through schemes like FCNR and others, the RBI and Government has stabilized the rupee to an extent. Current rupee to dollar holdings portray that the rupee connection would pick up it’s course soon thus building up strong fundamentals which would not be easily influenced by global indications.
2014 seems to be an encouraging and great year of recourse for the Indian Stock Market, far from the chaos that has been felt over the past two years and both the indices and stock prices with domestic and foreign investors demand strong technical fundamentals to return.
This article has been authored by Tanya Sehgal from School of Petroleum Management, PDPU, Gandhinagar