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Sensex closes at new all-time high on FII inflows, hopes of stable govt

Mahesh Nayak     March 26, 2014

Mahesh Nayak
Lalit Thakkar, Managing Director-Institutions at Angel Broking has become aggressive in expanding his business. "If you are talking about equity investment, my money goes into expansion of my business," he says. Broking business is a proxy to the equity market and Thakkar like most others has turned bullish on the expectation that the National Democratic Alliance (NDA) will come to power. The market which was earlier expecting a fractured mandate or a hung Parliament now believes a stable government will be formed at the Centre. This has seen the BSE Sensex in the past two months rise from a low of 19963.12 on February 4 to 22172.20 on March 26 gaining over 11 per cent.

However, this is not the only reason. The Indian market is gaining from the sustained flow of foreign institutional investor (FIIs) funds. The reason why FIIs are pumping money into the Indian market is that they have no better place to invest. From Latin America to South-East Asia there aren't many markets that give confidence to investors. The ones that are showing signs of stability have come under the FII radar - India, Indonesia and Thailand are having a good time compared to the other emerging market peers. Thakkar adds: "It's a liquidity rally. Risk appetite has increased and there has been fresh allocation and rebalancing of funds from FIIs in markets like India."

Improved macro-economic data is also benefiting the market. The worst may well be behind us. Be it GDP growth or inflation, things aren't expected to get any worse going ahead. The drivers for the market are three: low interest rates, rising investment and increasing exports. Not many expect the Reserve Bank of India (RBI) to increase interest rates in its coming monetary policy on April 1. Given falling inflation, a rate cut during the year and a conducive government at the Centre will automatically push investments. In fact, some of the senior industry officials on the condition of anonymity say, "Policies are in place, it's not about reforms and policies, but the need of the hour is to implement the policies that will then automatically achieve higher growth."

The market is rising every day. The momentum is positive but investors should tread cautiously and look at valuation before entering the market. Today, there is still some fear but with the momentum catching on, sentiment may well turn euphoric and that's the time when most investors are caught on the wrong foot and t lose money. Investors should be guarded in their optimism. Sticking to large-caps would be best option or simply being a passive investor by buying the index.

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