Report by OD bureau, New Delhi: With the return of the foreign institutional investors (FIIs) and increased liquidity in the global markets, the focus is back on the Indian stock market where the benchmark Sensex is expected to reach the crucial 20,000 mark in the near future, an ASSOCHAM study has said.
At present, the Sensex is trading at 18760 and the Nifty is at 5650-5670 FIIs have brought in net Rs 19,000 crore ($3.5 billion) in the Indian stock market in September, the highest monthly inflow in seven months, building on the confidence that was brought in by some of the decisive reforms measures taken by the UPA government in the past few weeks, it said.
The bold initiatives by the Government coincided with the quantitative easing of liquidity by the central banks in the US and Europe which are making desperate attempts to reinvigorate their economies.
“On the other hand, the reinfusion of confidence by the domestic and foreign investors in the Indian economy was needed desperately in India which was coming under pressure from sharp depreciation of rupee and increasing current account deficit,” ASSOCHAM President Rajkumar Dhoot said.
As compared to other classes of assets – gold and property, the stock market has been a bad performer in the last three years. “While we often do this mistake of treating the stock market gains or losses notional, the setback in the market in the past three years had made life difficult not only for the retail and institutional investors but also the India Inc, which had to heavily depend on debt rather than equity. The situation seems to be improving for this class of assets as well, if the Indian government continues with reforms, the chamber said.
The result of weak equity market in the past few years was that debt servicing along with the rising interest rates became major issues for scores of Indian companies,” the ASSOCHAM study said.
It expected the Sensex recouping some of the losses and the front-line stocks would be those in the banking, information technology and FMCGs. On the other hand, real estate, automobile and consumer durables which are sensitive to the interest rates would take some time to stage a comeback. The main driver for them would be the interest rates direction to be set by the RBI.
The big uncertainty would, however, remain around the infrastructure stocks since it would still take some time before the policy issues are thrashed out, say in power, road, ports and airports sector. Most of the infra stocks are trading at their dismal lows and several of the players in the sector are laden with big debts.
The USD 1 trillion infra story is yet to take off and the government needs to give a big push before any tangible results are seen, the study pointed out.
At the macro level, the picture is still hazy with the GDP projections ranging between 5.5 per cent and 6.5 per cent for the current fiscal.
“We in ASSOCHAM feel that India may end up the fiscal 2012-13 with around six per cent as the slide seems to have bottomed out,” Mr Dhoot said. However, it would take a few more weeks before the haze gets cleared, he said.
The chamber has already predicted that the dollar will soon breach the Rs 50 mark. “Our assessment was reinforced by the Economic Affairs Secretary Mr Arvind Mayaram”, the ASSOCHAM President said.
The chamber had last week said that the dollar was expected to fall below Rs 50 in the next three months and is expected to stabilise around this level due to a host of policy reforms.
"Rupee is expected to gain is based on several factors like reduction in merchandise imports, upbeat mood among those who want to bring in foreign direct investment, release of funds from the dollar assets in the global markets and the foreign institutional investors betting again on the Indian equity.
With the fall in the rupee crude oil and raw gold imports will become cheaper. These two items are the largest in the country’s import basket and big grains on the country’s current account deficit. Besides other imports such as pulses, edible oil would also see easing of pressure.