Such a prediction may not be good to your reputation, especially if you are a portfolio adviser. Stock price movements are used to fluctuate with all global and domestic events and the present economic environment is highly unpredictable. The BSE Sensex has just crossed seventeen thousand mark after touching the low of near fifteen thousand mark, weeks back. Now, the question is whether we will go back to the low levels or may witness an uptrend. All depends on what happens to the crucial pull and push factors in the global and domestic economic environment.
There are some positive signs domestically and globally which indicate that the market may not go back to the low levels in the medium term unless there occurs a severe shock.
The first critical factor is the monetary policy itself. If the latest monetary policy revision is an indication, India’s economy may go back to the soft interest rate cycle within couple of months. The RBI may reduce the repo rate as inflation level comes down to a comfortable level. The relation between interest rate and equity prices is that equity price goes up mostly when interest rates are low.
Second factor is the declining trend in inflation. Inflation when is within the manageable limit will augment lending, investment and employment and encourage real economic activities.
Thirdly, the position of the world economy also shows some relief to the domestic equity market. The positive US exports data shows the world’s largest economy was able to arrest the downside trend at least for the time being. Sovereign bonds in Europe also improved and yields declined after ECB supported bond purchase programme. The global economic position may worsen in the medium term only if any of the European government is unable to meet its debt situation.
Cumulatively, the environment for the domestic equity market is greenish. If you were waiting for the opportunity to buy shares at the lowest price, it seems that the chance has gone at least for the medium term. You should pray for the occurrence of crisis news from the Euro area or like that. I am praying for my reputation; indeed I should do.