Daily Call - Jan 4 2010

After seeing the worst ever yearly fall in the year 2008, Indian equity markets staged a great comeback in the year 2009. While Nifty registered the highest ever yearly gains since its inception by putting on 76%, gains in Sensex at 81% were the best after 1991. While the beginning of 2009 was gloomy, we are starting the year 2010 on a much more optimistic note. Financial systems across the world which were in the mess at the start of 2009 seem to have stabilised. Stimulus measures pumped in the aftermath of the subprime crisis have resulted in most of the economies coming back on track.

A stable, pre-reformist government, a strong central bank that has managed the country’s monetary situation exceedingly well, a strong domestic demand, a burgeoning middle class, and high savings rate are big plus points for India going into 2010. India remains in a sweet spot and a preferred FII destination. Having said that, last year’s bumper returns are not expected to be replicated this year at the index level, though returns in the range of 15-20% in line with earnings growth are quite possible. It is a matter of time before Policy rates, which were brought drastically down in the after math of the subprime crisis, start moving up as inflation has moved up and is likely to move up further, Industrial growth has revived and credit growth is showing signs of revival. Some sort of withdrawal of stimulus measures is also not ruled out in the Feb 2010 budget in a bid to control the fiscal deficit. Other things to watch out will be following up of the big plans announced by the government, especially regarding Infrastructure and PSU divestment and how the monsoon pans out. If things work out well, Indian economy is all set to sustain an average growth of 8% over next 3-4 years. From the stock market point of view, unlike last year, when almost everything went up, this year will be a year of stock picking as easy money has been made. Among the sector, Healthcare, Infrastructure and IT are our preferred bets. WISH YOU A PROSPEROUS 2010.