After seeing the worst ever yearly fall in 2008, Indian markets made a dramatic comeback in the year gone by posting over 80% plus returns coming in third behind Russia and Indonesia as the best performing markets in 2009. 2010 started on an upbeat note extending these gains and notching up the highest close on the Nifty since February 2008.
The year started on bit of a somber note as trading hours got extended to align global markets amidst heavy protests by the members. Competing with Singapore listed Nifty Futures was a key argument put forth by the ?for? camp. Without entering into a debate, a couple of points that?s needs consideration are a) Securities & Transaction Tax isn?t applicable in Singapore vis-?-vis India b) Allocation of funds to be invested in India by an outside entity is generally fixed and doesn?t really change just because markets are open for a longer duration.
Probably echoing the same, volumes recorded in the three trading sessions so far have been pretty much below average. It might be unfair to judge based on a handful of session but early indicators suggests low key activity almost throughout the trading day as indicated by the low VIX and tepid IV?s. Also given that valuations of most heavy weights and the larger mid caps are not exactly cheap anymore, contributes to the skittish behavior by participants.
Next two quarters corporate earnings would be keenly watched and could be the driver for the market in 2010. Any earning disappointment would get beaten. This would also separate the men from the boys. Moreover there are more than two key events in the near future that would shape things a) Union Budget b) Government spending in core sectors like infrastructure and the promised disinvestment c) Food inflation d) Interest rate hike. As most of these events get lined in the first quarter of 2010, it?d be wise to tame the exuberance of growth to more manageable levels.
The road map to 8%plus GDP growth is chartered but not without pitfalls. From the stock market point of view, unlike last year this year will be a year for stock pickers as most of the easy money has been made. It?s time to put on the thinking caps in order to generate alpha in excess of the benchmarks. Happy Investing!!!!!
?The writer is a derivatives analyst