After weeks and months of dithering, last week gains in benchmarks gave enough confidence to bulls. Now the optimism is so high at Dalal Street, those who are going short will be punished severely. At least, this is the sense one gets talking to several market experts.
The market either ignores or discounts whatever bad news come on the way. Be it lower GDP number; the US fiscal cliff imbroglio; or Euro zone problem.
However, market participants will be curious to know about the outcome on fiscal cliff talk in the US. This is one of the potential news trigger that could derail the market buoyancy a bit.
Last week, US President Barack Obama warned of prolonged negotiations ahead as congressional Republicans dug in on their opposition to his plan to avert the fiscal cliff. House Speaker John Boehner, an Ohio Republican, told reporters in Washington “right now were almost nowhere on talks.”
A failure could trigger $600-billion automatic tax hikes and spending cuts in the US that will come into effect beginning next year.
Domestic equities
However, as long as foreign investors repose faith in India, domestic equities will remain buoyant. Foreign institutional investors’ secondary market investments have already crossed Rs 1 lakh crore so far this calendar year. They bought equities worth Rs 1,01,315.83 crore in the secondary market alone till November end. Together with primary market investments, FIIs have pumped in Rs 1.04 lakh crore so far in 2012.
According to Morgan Stanley: “We think that earnings growth is likely to improve over the next four-six quarters. Therefore, we believe, the earnings revisions breadth will also rise and that is good for share prices. However, the recovery in earnings is likely to be at a steady pace unless there is a major positive change in the investment rate or the current account. To that extent, share prices will also rise in line with earnings – we are not arguing for a big delta in the multiple. Thus, our Sensex forecast is for 26 per cent upside.” But not all are sharing the same optimism. Nomura cautioned: “Recent reform announcements are positive for market sentiment, but have yet to be implemented and a lot hinges on whether the Government corrects its fiscal finances for real and not just on paper. Due to the close proximity to elections, we fear only the latter, and so we expect a shallow recovery in 2013 (6.1 per cent), below consensus, as supply-side constraints, sticky inflation and weak exports combine to depreciate the rupee, which in turn feeds into inflation and limits the extent of rate cuts.”