Thursday, January 14, 2010

Markets in 2010

A fortnight away from the dawn of the calender year 2010 and in trying to address queries from some of the readers as to how will the markets fare in this new year, let us do some crystal gazing about the market levels and it's gyration in the year 2010. Doing so could be as tough as gambling with lowest probability of our prediction coming true. The only base that we have to predict the future course of market for here is- the performance of the equity markets in the preceding year 2009 and development and diagnosis of Corporate fundamentals post economic slowdown mostly inherited from global recession.

First, let me jot-down a few determinants which could go down farther in influencing the equity market levels in the calender year 2010:

1) Steep rise in Global financial markets:'V'- shaped Recovery in 2009.
2) Health of Global economy especially US and European Nations.

3) Pace of development of Emerging economies.
4) Sustainability of Corporate Earnings in line with market valuations.
5) Management of Stimulus measures by global Central banks.
6) Control over Inflation: Crude, Metals & Food Article Prices.
7) Fundamental shift in key Policies & Currency Rates.

Coming back to Equity markets in India, which has seen the most extreme of pessimism and optimism in a matter of last couple of years, the benchmark index Nifty has swayed like more than a see-saw from the highs of 6000 levels to the trough of 2500 in the year 2008, only to bounce back from the jaws of slowdown to reach 5250 levels just as I am writing this. The jump has been a spectacular 100% plus from the extreme lows, mostly aided by global recovery led by stimulus measures from various central banks.

The optimism sensed since last one month reminds one of the peak of any bull run where almost all mid-caps and small-caps have participated in the rally with vigour. But, the point to ponder over here is that we have already doubled from the lows in a span of short time of 1 year. Is it possible to keep posting such spectacular gains time and again? Is it possible to register another 20-30% rally in next 1 year?

The answer lies in the fact that if the corporate earnings over next 1 year shows signs of as much of robust growth as equity market returns, it could well be a dream come true. But, if the above condition is not fulfilled and market goes on to notch yet another 20-30% returns in 2010, it could be termed as a 'bubble', which is not backed by appropriate earnings growth from corporate world. The bubble could be due to excess liquidity around the globe or any other reason leading to favouritism and growth of market levels in particular area, with little support from corporate growth.

This draws us to conclusion that most probably the first-half of calender year 2010 could be a year of consolidation or a mild correction. Also, if one takes note of the market rally in last one year, it was in line with most of the global markets and in sync with other emerging market rally. If, for any reason, the global rally is to stop over medium term horizon, it is quite likely that Indian markets will also catch the flue and may need some rest time.

However, based on the highlights and performance of the upcoming March and June 2010 Quarters, markets may bounce back around last quarter of 2010 and possibly first half of calender year 2011. This could be the time, if all is well with the globe, when Sensex and Nifty might try inching to a higher horizon, say, cross previous highs and much higher targets. However, above is simply a guess-work and prediction into the future with no guarantee of what will markets do in times to come.

Disclaimer: All data, content and/or reports posted by Viral Rajnikant Dholakia on this site are only for information and educational purpose of visitor/readers of this blog. It does not constitute to be a recommendation/offer/advice to buy or sell assets/securities in any form. Individuals/organizations are requested to take an informed call by consulting their Financial Advisor before acting on any matter/data published on this blog. This blog does not warrant of any kind of accuracy, adequacy and completeness of data, ideas or thoughts published in it. This site and Viral Rajnikant Dholakia assumes no responsibility or liability or loss or damage of any kind/nature for your trading and investment decisions and its consequent results.


Dr. Dhaval Vasani said...

Excellent artical Viral Ji.

Which will be best portfolio For 2010?
I heard that in every new bull cycle, new scripts and new sector outperforms.
So, now in next bull cycle which sectors and which stocks will outperform? Which stocks should buy in small quantity in larg dips for better & best return in next bull cycle? Please suggest portfolio for next bull cycle...

Waiting for your valuable advice.

Shabu's said...

Dear Viral,

Great work based on logical measures. I too hope a purification process in the 1st half.

Thanks and keep good work..

Viral Rajnikant Dholakia said...

Dear Shabu,

Thanks for your continued encouragement and kind words. I may have lowered the frequency of my postings on this blog, but u certainly seem to be tracking the blog everytime its updated. Thanks for that.

Viral Rajnikant Dholakia said...

Dear Dhaval Vasani,

You've rightly heard that new bull cycles have new leaders.

You can have a keen eye on emerging sectors like Healthcare, Packaging, Education & Alternative Energy space. Grab stocks from these sectors when there is sharp correction.

However, it is not advsiable to jam the whole portfolio with stocks from sun shine sectors, the emergence of whose future would have to go through a rocky ride. You also need some old horses to develop a hold on returns from your portfolio.

Among Old Horses, concentrate on Capital Goods, Banking & Financials and Power sector.

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