Samvat 2067…New highs await Dalal Street

The main indices flirted close to their highs in Oct ’10 but sudden tapering of FII flows coupled with continuous selling by local funds put the brakes on the bulls. The earlier years have been more dramatic from the indices movement point of view. If you recall in Oct ’08 the BSE Sensex was hovering around 9,000 levels. This was the time the global markets were hit by the collapse of Lehman Brothers. The worldwide financial meltdown was followed by one of the worst recessions in several decades. A year later the Sensex staged a turnaround and rose to a 17-month high around 17,500. At present the Sensex is around the 20,800 levels, near a 33-month high. The rise from Samvat 2066 till this Diwali has seen some swings but in terms of gains the Sensex has added ~18%. From 17,000 levels last Diwali, the Sensex fell to a low of 15,330 in Nov ‘09 and hit a high of over 20,850 in Oct ’10.



Still, 'Samvat 2066' has been a very good year for the Indian economy as GDP growth surged and corporate earnings blossomed. The Indian market witnessed record inflows. Flush with a mountain of cash and wary of the tepid recovery in the developed world, the FIIs decided to pump a lot of money into emerging markets. With sound economic fundamentals India was clearly among the top favourites. FIIs have poured in a staggering US$26bn into Indian equities so far this year besides injecting close to US$9bn into local debt. A significant chunk of that money went into IPOs with Coal India garnering a record US$3.4bn.

The party is likely to continue on the Indian bourses but there will be a few hiccups every now and then, particularly on the external front. On the domestic side, the main headwinds are stubbornly high inflation, rising interest rates and a swelling current account deficit. The introduction of Goods and Services Tax (GST) and Direct Tax Code (DTC) in the next two years will make the long-term India story even more compelling. However, a few important policy reforms are still pending. FDI in multi-brand retail, financial sector reforms, relaxed labour laws and rationalisation of subsidies are a few key ones.

The spectacular debut of Coal India underlines the inherent strength of the Indian economy, which will be difficult to ignore in the years to come even as the advanced economies struggle for growth. Early in October this year, the key Indian stock indices came very close to the previous all-time highs only to retreat later. They seem to be heading back up again. The historic peaks are not too far away and could be breached easily. But rather than be obsessed by index levels and symbolic milestones, adopt medium to long-term strategies to reap rich dividends. The market will occasionally be generous in helping you reach your target soon.

On that note, Happy Diwali. Happy Samvat 2067. Happy Investing.