If you are enamoured of the equity market, you would have realised by now that you are chasing a very fickle lover. It is hard to gauge the market's mood swings, and its erratic behaviour is quite disturbing at times. This kind of sudden turn took place again earlier this year.
Just when the distances were growing and the pain of neglect was hitting you, came those seductive and meaningful glances that rekindled hopes of better times ahead. After a quarter of the Sensex was shaved off during 2011 when it dipped over 5,000 points to close the year at 15,455, came the sudden surge that took it 20 per cent higher in 36 trading sessions to 18,428 on 21 February. Hearts were pumping once again.
However, since then, amid ups and downs the index has moved lower. As I write, on 21 March, the bellwether index is hovering around 17,469 in intra-day trade. What should you expect next?
There are indicators that the market rally during the first two months of 2012 could be the precursor to a more sustained upward movement. The RBI's moves to cut banks' cash reserve ratio (CRR) twice in quick succession, releasing huge amounts of cash, clearly shows its intent on shifting focus from containing inflation to growth.
Domestic inflation has been on a downward spiral, moderating below 7 per cent in January. The European debt crisis seems to be easing. The European Central Bank infused huge liquidity into the system resulting in renewed foreign institutional investor (FII) flows into India, which was one of the principal reasons for the rally earlier this year.
However, it will not be a smooth ride all the way. One needs to keep a watch on the impact of the Union Budget on inflation, the stance that the RBI takes on monetary policy easing and the rising global crude oil prices.
Higher excise duties and increase in service tax can fuel inflationary pressures by making products and services dearer. This, in turn, can force the RBI to defer the easing of its money policy. On the global front, escalation of the West's tension with Iran could push oil prices to levels that could be damaging.
In our cover story package, we look at all this and try to bring to you the larger picture as well as some investment options in the current market with a reminder that the equity market should be viewed as a long-term play and not for speculative gains. We also bring you a detailed package on Budget proposals that impact you as an investor and a consumer. There is lots more.
SARBAJEET K SEN