Market will touch 25k in 5 yrs

A A Sarma
Executive Vice President, IDBI Capital

"Inflation concerns will hang over the market in the near term. Government policies to control inflation will affect margins and continue to drive investor sentiments. In the past year, inflation was high not because of primary articles but on account of energy and non-primary articles. The figure will remain moderate to low in the first half of 2007 due to the base effect but it is bound to escalate in the second half. It is a demand -pull inflation and increase in demand in the commodity space will fuel the rise. The challenge for the Government will be to regulate this.

Market, however, will remain bullish in the long term. In the next 5 years, Sensex will touch the 25,000 -mark. As demand will be greater than the supply, companies will make higher profits, and so the market will touch new levels. But volatility will be high. Global cues will be a major factor in determining market movement.

According to a RBI report, Rupee is overvalued. We, at IDBI Capital feel rupee will depreciate in the near future. However, in the long term, it will again appreciate.

Most infotech stocks posted positive results in the quarter ending March 2007, despite the appreciation in Rupee. The Re factor will impact the margins of IT firms in the next quarter but the leading software giants will overcome the tide. IT big boys, Infosys, Wipro and Satyam, which run business on the international platform, will be able to mitigate their risks by working in several markets. Countries like Vietnam and Kazakhstan are profitable markets for our tech companies.

A sound option for any investor is to make systematic monthly investment in nifty index funds. One ought to stay invested atleast for a period of three years. Then, one could partly harvest the funds and keep reinvesting the rest.

Investing in a basket of signature stocks like Reliance, ONGC, State Bank of India, Infosys and TCS would also give good returns. Energy and baking stocks will perform well in the medium term. When inflation figures are high, bank spreads usually go up. Many of the banking scrips are undervalued in terms of their book value. Investment in combination of PSU bank stocks is another sound option. One could keep a tab on performance of SBI, Punjab National Bank, Bank of Baroda, Canara Bank, etc.

Commodity prices move in a cyclical fashion. There has been a correction in prices of commodities like metal and copper. These stocks will bounce back in the medium term. We would also be bullish about cement, IT and infrastructure stocks. Companies like Bhel and ABB have been performing well. However, there will be a slowdown in growth rates in the housing sector. In the Mid cap segment, healthcare equipment stocks will be on a roll."