What Changed Materially In Indian Stock Mkt-vrk100-08062009

What has changed materially of late in stock markets? Rama Krishna Vadlamudi MUMBAI June 8th, 2009

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The factors that have positively impacted stock markets of late are: 1. 2. 3.

4. 5. 6.

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8. 9. 10. 11. 12. 13. 14. 15.

Stable Government: The perception of a stable government at the Centre post-elections has boosted the positive sentiment among investors. The talk of economic reforms push by new ministers has instilled a sense of enthusiasm and dynamism in the minds of public. FII inflows: Foreign Institutional Investors have invested a net amount of Rs 22,000 crore or USD 4.5 billion in India since May 1st against a net outflow of Rs 53,000 crore (USD 11 billion) in 2008 AS-11 amendments: Relaxations in AS-11, the Accounting Standard that deals with the effects of changes in foreign exchange rates has helped quite a few large companies (like, Reliance Communications, Tata Motors, JSW Steel, Sterlite Industries, M&M, Bharat Forge and Ashik Leyland) report a better profit picture for March 2009. With these amendments, the perception of higher balance sheet-related risks has moderated. Huge liquidity: The continuing liquidity in the system is also aiding the stock indices to some extent. Banks continue to park their surplus funds with the RBI under its Reverse Repo (LAF) window, with the daily average being Rs 1.27 lakh crore during last 30 days. Tax Collections: Government of India’s net direct tax collections grew 17 per cent during May 2009 at Rs 11,919 crore. However, the net collections grew by a modest 6 per cent in the first two months of the current fiscal at Rs 24,158 crore. New IPOs: The prospect of new IPOs from public sector undertakings, like, NHPC, Oil India, BSNL, etc., and limited disinvestment (which may incidentally reduce fiscal deficit) in PFC, REC, NTPC and Power Grid Corporation has revived the capital market and brought cheers to investing public. Media reports indicate that more demat accounts are being opened now. QIP money: Real estate companies, Unitech, DLF and India Bulls Real Estate, have raised more than Rs 8,000 crore through qualified institutional placement in order to clean up their balance sheets and reduce their debt burden. More companies like, HDIL, Parsvnath and Puravankara Projects are approaching this QIP route for raising money. Free fuel pricing: Government has expressed its intention to deregulate pricing of diesel, petrol and LPG and give freedom to oil marketing companies to sell them at market rates Infra cos: With higher government spending, the earnings of infrastructure companies may go up Low Inflation: Inflation is under control with the Wholesale Price Index hovering below one per cent though inflation based on consumer prices is still around nine per cent Rate cuts: Several banks, like, ICICI Bank and HDFC and some public sector banks, SBI and PNB, are reducing their lending as well as deposit rates signaling a low-interest rate regime GDP growth: India’s GDP during has grown by 6.7% during 2008-09 with the March 2009 quarter growth at 5.8%, according to advance estimates of CSO – better than expected Stability in world markets: Despite concerns about the economies in the developed world, the global markets are consolidating at this point time giving a sentiment boost to the emerging markets like, India, China, Asian and other countries. MF’s AUM rising: The average assets under management (AUM) of mutual funds has gone up by 15% in May 2009 to Rs 6.38 lakh crore from Rs 5.51 lakh crore in April 2009 CMIE forecast: The economic think-tank has forecast that the economy’s prospects are good and FDI will flow into India strongly

What has not changed? 1. 2. 3. 4.

Exports down: Exports continue to show poor performance with April 2009 exports registering a fall of 33% over April 2008. Even imports fell by 37% during Aril 2009 indicating poor performance from importers as well. Job Losses: Unemployment is said to be increasing particularly in the manufacturing and export-oriented sectors, like, textiles, leather, gems & jewellery, etc. Crude oil soaring: Crude oil on Nymex is quoting at more than USD 68 a barrel, a rise of more than 25 per cent in the last one month putting pressure on India’s oil bill and the attendant fiscal deficit Sluggish Bank Credit: Bank credit growth continues to be sluggish at around 17 per cent which means bankers are still reluctant to lend, especially, private sector banks

OUTLOOK: It is better that investors have realistic expectations about the stock markets and the corporate results. The momentum in stock markets continues to be robust even now with the Sensex scaling 15,000.