If you take the overall picture, the year 2014 can be expected to be good for Indian stock markets; the markets are likely to touch new highs post general elections, attracting offshore funds despite Fed shifts the monetary policy. Fed in its recent meeting, has announced that it would reduce its monthly $85-billion bond-buying programme by $10 billion a month starting January, keeping the low-interest-rate regime for longer time.

This reduction of bond buying programme may have impact on Indian bond yields and can result in some weakness in the Indian rupee. However, such impact on bond yields and rupee will be gradual. One cannot, however, deny that there will be volatility in the markets with a bullish bias due to political developments.

The volatility will continue till the election results are out. If the election result is as expected by the market, the bulls will charge bears and rule the bourses. The global economy is likely to perform better as the world's largest economy is showing healthy growth, investment is picking up and consumer spending is rising. .

Moreover, the various efforts taken by the Government and the RBI to bring down current account deficit (CAD), to cushion the free fall of rupee, boost manufacturing and curb rising inflation have indeed sent out positive vibes, and are likely to transform into growth numbers in the year 2014.

Moreover, the factors such as improvement in economic activity, better policy decision-making by the newly elected stable government and an improvement in the investment climate are likely to boost the confidence of the market participants. Indian infrastructure spending is sure to bounce back whoever wins in the general election. The general elections could bring the reforms engine back to life in many long-pending areas of economic importance.

India will continue to be an attractive destination for FIIs, despite all the headwinds because the fundamentals as well as the valuations of the Indian companies look attractive.

The increased confidence in India recently has allowed the Reserve Bank of India (RBI) to roll back the most of its emergency measures imposed earlier this year by former RBI Governor D. Subbarao. The rupee will remain under pressure because of tapering as well as large fiscal deficit.

With the improving macroeconomic scenario, the year 2014 is likely to see several mergers and acquisitions. The banking sector, which was under pressure in the year 2013, is now an area to be closely watched, as the new banking licences could lead to mergers and acquisitions; and the investors who track such moves closely would be able to benefit from it. Hence, both the domestic and the international factors point toward the good investment year 2014 for market participants.

(The author is Chief Strategist, SMC Global Securities Ltd.)

Also read: >Will 2014 be a bumper year for markets? - NO

Related Topics