An Appetite For Risk

<?xml version="1.0" encoding="UTF-8"?><root available-locales="en_US," default-locale="en_US"><static-content language-id="en_US"><![CDATA[<p>Of late, Gopal Agrawal, CIO at Mirae Asset Mutual Fund has been busy readjusting his portfolio — selling defensive and export-oriented stocks — and getting into high beta stocks in sector like metal, energy, capital good and engineering and construction. The reason: Risk appetite is back into equities.<br><br>The year has started on a bumper note for the Indian equity market with the Bombay Stock Exchange (BSE) 30-share Sensitive Index (Sensex) gaining nearly 12 per cent to close above 17,000 in January 2012. This was on back of the $2.2-billion record inflow of money from foreign institutional investors (FIIs) into Indian equities. In the last 10 years, this is the highest ever FII inflow for the month of January. <br><br>"It's a global rally and we (India) are a part of it. Risk appetite towards equities is returning and therefore markets across the globe have rallied," says Agrawal who manages equities worth Rs 400 crore.<br><br>Agrawal says, the recent long-term refinancing operation (LTRO) success in the Europe has brought back the confidence among investors and that is the reason why risk premium towards equity has gone up. Concerns over China going for a land landing fading away also helped improve sentiment in the global market. Though he says the reason why Indian markets have rallied more compared to its Asian peers is, "Signs of growth are coming back. The factors that pulled the equity market in 2011 have reversed with inflation coming down, easing in interest rates and importantly improvement in liquidity." The 50 basis points (bps) cut in cash reserve ratio (CRR) by the Reserve Bank of India (RBI) and its statement on peaking out of interest rates which in turn further appreciated the Indian rupee has helped propel the market.<br><br>FII flows have evidently pulled up the market, but the money has predominantly come into large-cap stocks. The BW Expert Index and the BW Dartboard Index which are more of a multi-cap index gained 9 per cent and 8 per cent, respectively, but underperformed the board-based National stock Exchange's CNX Nifty Fifty Index that gained 12 per cent. In our special <a href="http://www.businessworld.in/businessworld/businessworld/bw/Archives/issue_January%202012/?date=2012-01-14%200%3A00%3A00">‘The Where To Invest Issue' </a>dated 23 January 2012 we had constructed the BW Index for our readers and in this context this is the first update where we are analyzing the index that has been prepared and is maintained by Gurgaon-based Indxx Capital Management Services.<br><br>The low-hanging fruits have been plucked and Indian equities have normalized from an oversold market valuation position. So the question is what next? Where are we heading and will the rally continue? Despite fears regarding Europe continuing to persist, experts feel this market has legs to sustain the rally. Says Agrawal, "Though market rally may continue, for it to be sustainable, improvement in government balance sheets and reform are keys." He feels reduction in fiscal deficit and reforms in the power and mining sector will be crucial for the Indian equity market.<br><br>On the other hand, Nandan Chakraborty, managing director-institutional equity research at Enam Securities feels, "February is going to be a mine-field." He feels the market will be put to test starting from the second batch of results which may have nasty surprises. Secondly, the Iran gold-for-oil may test the Indian rupee.<br>&nbsp;<br>Indian market has been the biggest gainer among BRIC nations and among the top four gainers in the overall MSCI Index, gaining 21 per cent in the last month. Going ahead, Indian market will be put on litmus test. One thing is clear which goes up sharply, must come down and therefore some correction could be healthy for our market. Traders may tread cautiously.</p>