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Market Outlook

Friday 1 June 2012

By Dipen Shah
The month of May saw Indian and global markets under selling pressure led by negative global cues, mainly related to political uncertainty in Greece. Major political setbacks in Europe led to sharp fall in equities and commodities after concerns were raised whether struggling euro zone economies will continue to pursue austerity measures or not. Worries about Greece increased after the two parties which had backed the austerity measures, crucial to resolving the bloc's debt crisis, failed to win the majority or form a coalition Government. 
Consequently, fresh elections have been scheduled for June 17. It is very important to pursue austerity measures, failing which the possibility of Greece exiting the Euro becomes real. 
On the domestic front, there was economic pressure with weak IIP numbers, high inflation rate. With elevated current account deficit and lack of suitable policy response coupled with FII outflows, the rupee remained under pressure and lost 5.95% in the month.

In the near term, we believe that major market moving event is the elections in Greece and policy action from the government side. However with a medium-to-long term view, policy actions from government as well as stability in global markets would be the key drivers for the market. On reforms, we have seen initiatives on petrol pricing but further initiatives are still awaited and will hopefully be taken. Fiscal reforms, while providing more confidence to the corporate sector, will also make the RBI review its interest rate decisions and may also attract more capital flows in times of global uncertainty.

In the current scenario, it will be good to go for a bottoms-up approach. Investors can use dips to accumulate stocks of companies having ethical managements and strong balance sheets across sectors like IT, Banking, Media, Logistics, Capital Goods and Infrastructure. Initiation of reforms will help us take a more constructive long-term view of the markets

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