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'Markets expect stable govt, improved CAD and sustained FII inflows'

A stable government at the Centre, improved current account deficit, sustained foreign fund inflows, positive global cues and better policy decisions are some of the wishes that stock markets hope will come true in 2014.

twitter-logo PTI   New Delhi     Last Updated: January 1, 2014  | 16:29 IST
'Markets expect stable govt, improved CAD and sustained FII inflows'

A stable government at the Centre, improved current account deficit, sustained foreign fund inflows, positive global cues and better policy decisions are some of the wishes that stock markets hope will come true in 2014.

Driven by robust overseas investment and election euphoria, stock markets scaled new peaks in 2013, with the benchmark Sensex reaping a gain of nearly 9 per cent.

Marketmen say that robust FII inflows and hopes of wider reforms after upcoming Lok Sabha elections helped overcome concerns over slowing economic growth and high inflation, and even better days are expected in 2014.

"Stable government, improved CAD, and better policy decisions are the wish-list of the stock market for the year 2014," said Rahul Shah, Vice President, Group Leader-Equity Advisory Group, Motilal Oswal Securities.

Analysts said the biggest event of the new year will undoubtedly be the general elections.

"There is an expectation of a change of government at the Centre and if it does transpire that a Narendra Modi-led BJP government comes to power, markets would surely move up.

"Even if a BJP-led coalition does not come to power and a Congress-led coalition comes to power, markets are unlikely to fall, due to expectations of pending reforms to be taken up by the new government," Shah said.

According to Raghu Kumar, Co-founder of brokerage firm RKSV, "Stock market wants to see a big rebound due to it being an election year. Sector wise, retail sector would want to see a big jump, hopefully with more foreign retail investments with liberated FDI laws. Over the last two years, we have witnessed low consumption and economic growth. GDP can be jump-started with a push in the retail sector."

On expectations from general elections, Kumar said: "It is too early to predict and there will be a lot of uncertainty leading up to the elections. At the same time, investor participation will pick up prior to and post elections. This would be good for the equity markets, since 2013 saw a drop in retail equity participation."

Experts say markets in the first half of 2014 will see high volatility owing to political events and the second half will be driven by the outcome of elections.

Apart from general elections, other major trigger for the domestic equities includes tapering of the liquidity policy by the US Federal Reserve.

The Federal Reserve, which had hinted at trimming its monthly USD 85 billion stimulus back in May, finally announced a USD 10 billion cut, giving time for the Indian market to stabilise.

On expectations from the RBI, Kumar said the central bank surprised everyone by not hiking rates last month.

"If inflation is not brought down, we can definitely expect repo rate hikes in the near future. A drop in interest rates seems unlikely at the moment," he said.

According to Shah, "Interest cycle will reverse from the second half of the year. We feel that we have peaked the interest rate cycle."

Marketmen still remain optimistic on the outlook for the Indian stock market in 2014.

"With the upcoming elections, we can definitely expect the Sensex to hit an all-time high. 22,000 should be breached within a couple months, at the very latest. The driving force will be, during the first quarter, the upcoming elections; the driving force afterwards will be more liberalised reforms by the RBI to encourage FIIs to invest in India and the liberalisation of the banking sector," Kumar said.

Echoing similar views, Shah said, "Sensex will definitely hit a new high and the driving force would be better corporate earnings; Indian economy should be on a path of revival, current account and fiscal deficits would have improved further and we will see increased FII flows."

According to Jayant Manglik, President - Retail Distribution, Religare Securities Limited, markets like stability and general elections will play a major role in deciding market trajectory.

He further said, "A clear majority by any political party will set the stage for a long-term boom as it will boost sentiment and allow for long-term decisions. This will also lead to more FII inflows and the return of retail investors to the markets."

External factors affecting Indian stocks seem to be negative for the first half of 2014 due to continued strength of the US dollar and benign in the second half, Manglik said.

"By that time, the general elections too would have taken place. A combination of domestic and international factors point to a bumper closing of Indian markets in 2014 with double-digit percentage growth," he added.

Even with low economic growth, high inflation, higher interest rates, a widening current account deficit and a weak rupee for most of the year, a slew of positive factors led to change in sentiment towards end of 2013.

Foreign investors have made net inflows of a whopping Rs 1.13 lakh crore (over $20 billion) in stocks during 2013, while taking their cumulative investments in the country's equity market to a record level of close to $150 billion.

Weakness in the rupee that slumped from 55 to nearly 69-level in August against the US dollar also hit investor sentiments this year.

"The rupee has stood its ground over the past two months, and although the elections are bound to bring about a lot of volatility in the equity markets, the RBI will do its best to keep the rupee under control. We can expect the rupee to hover between 60 and 65 for the short term," Kumar said.

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