Dalal Street looking for reasons to go up: Motilal Oswal

Dalal Street looking for reasons to go up: Motilal Oswal

Dalal Street is still looking for reasons to go up rather than down. After losing some 800 points, the previous week and this week, the Sensex powered ahead 540 points on Wednesday and took everybody off guard. Bears scrambled for cover and calls written on the 5,000 and 5,100 strike prices on the Nifty got cut. Put call ratio also improved significantly.This means that investors should continue to give the benefit of the doubt to the upside.

The short term prospects for Indian equities still looks very good. The government announced that GDP growth in FY10 should be 7.75% –obviously the gove r n m e n t knows much more than what the markets know and hence this announcement has come as a major positive surprise causing it to make a fresh move upwards.

This also points to the fact that the third quarter and the fourth quarter are going to see pretty solid growth –maybe something like by 30-35 % or even more when compared on a year on year basis. There is the continuing important point that the base effect is going to be incredibly benign this quarter and the next, since the world economy collapsed in 3Q08.

Market generally reflects what’s happening in the real economy. After dramatic fall in 2008 and recovery in 2009; economies are stabilising across the globe and Global Financial Markets are reflecting this with positive movement. There are doubts over the strength and durability of the economic recovery but there are very few people who are ready to buy that Global economies can collapse once again.

And it is because of this reason, one can assume that 2010 will be dramatically different from 2008 and 2009 and more so from the positive side of things.It is very likely we may not see a sideways market in near to medium term. 2010 may well be year of transition...transition to stability and prosperity.

The short-term focus of world markets remains on Wall Street, the story for India continues to be much more straightforward . Investors do not have to worry about loose monetary policy gaining traction or liquidity traps, since there are no bad debt-related structural constraints in the Indian banking system.

The concerns will increasingly be about a return of inflation given the base effect of the last year.We could be reporting WPI inflation of 6.5-7 % by the end of March and this figure should taper downwards thereafter. In the interim period ,this would cause higher interest rates. If we look at history ,right from 2004 to 2007 our central bank continued to tighten monetary policy , yet the markets continued to clock newer highs.

The bottom-line is -stay invested

source-ET