Stocks To Remain Firm As Foreign Investors Return To Indian Markets

Backed by a globally steadying oil and equity markets, domestic large-caps may continue to clock gains as foreign investors are back to their buying ways.

Foreign portfolio investors purchased stocks worth Rs 16,146.03 crore in March against continuous outflows the previous few months absorbing all the selling by domestic institutions who sold stocks worth Rs 10,553.30 crore. Back in March 2014 was the last time markets foreign investor showed such frenzied buying when they purchased stocks worth Rs 25,000 crore.

This month, the BSE Sensex has seen an uptick of 10.28 per cent. There are still a few days left before the month ends and all signs show that the bulls may have an upper hand over the bears.

One of the many factors driving equities is a stabilising oil market. The price of crude is now trading at $40 levels having hit a low of $27 just in the middle of February. If oil manages to stay up over the next few weeks, it will signal that the global economy is on its way to recovery as demand for oil is rising.

Another sign that has goes on to indicate that the global economy is recovering is the factory and services output in the Eurozone, which has increased to 57.3 in February from 53.0 in January.

Domestically, the markets are buoyed by the cut in savings rate of 70-110 basis points last week. This reduction paves the way for a rate cut in the broader economy. Now, market men are optimistic that the RBI will oblige with a 25 basis points cut. If that happens, stocks will get further propelled into next levels of closer to 7900 plus zone, and might even nudge the 8000 mark.

A rate cut may be the right thing to improve corporate profitability and prop up the investment cycle. For some time now, the investment cycle has been slow to take off as companies are said to be sitting on unutilized capacities. A lower rate is likely to see more companies come to the drawing board as it lowers interest costs and projects turn viable.

In the next few weeks, the market will be looking at the fourth quarter numbers to see if they have been in-line with projections or have been better. But a more profound number for the markets is when the analysts pull out their calculators to project FY17 numbers. If these prognostications paint an optimistic picture, then the Indian markets may even surprise investors on the upside the next few months.

Both long- and short-term investors should find the going good. If there is any adverse news coming from international markets, there could be a short-term blip. But chances of a reversal now seem remote. The US and European central banks have kept the monetary policy taps open.

For now, the spotlight continues to remain on the large-caps purely because the foreign investors will first look at these stocks, and they may want to make their under-ownership of this segment over the last year.

Besides, earnings downgrades will be done with the next quarter like in the PSU banking space. Private banks, auto, oil and gas are some sectors that are pulling up the markets. One has to watch the results coming from large-cap pharma, FMCG and commodity counters, but they may not be as bad as made out to be.

So, here is one of the keys to making big returns in stocks - get in early whenever the markets show signs of bottoming out. This phase seems like one of those opportune moments, if in the next few weeks things remain smooth.