Where Will The BJP Win Take The Markets?

Stock markets have bulldozed through the barrier of 9000 levels as BJP formed the government in four states out of five in state elections. For a long time now, the 9000 levels were acting as a crucial defiance level even as bulls tried to break through multiple times in the past. But this time the resistance gave way in what the classical technical analysts would call a classical breakthrough with a gap-up near the resistance zone.

Now this places the bellwether indices clearly in uncharted territory. If all goes well, the markets should be gradually moving forward in over the course of time. Of course, there will be minor corrections. But given that the market broke through with force at the 9000 levels, this will now become what chartists call a classically strong support for the markets.

Experts point out that over the long run, there is no denying that the markets are clearly headed up. Domestic investors pouring in the moolah in the Indian markets, and the appetite for stocks is only increasing. The recent D-Mart IPO saw bidding of over Rs 2 lakh crore, with local investors, too, bidding record sums.

Domestic Indian investors are pouring over Rs 4000 crore into the market every month through regular investments in mutual funds. On the other hand, there is substantial purchase taking place through secondary market buying by retail and high-networth investors. Foreign investors have once again resumed buying in the Indian markets.

At one point, the global markets were being seen as a major spoilsport. Issues in Europe and across the globe had held the markets back. But now, even the rate high and the normalization of the interest rates in the US market has been discounted.

One factor that is a boon for the Indian markets, but which perhaps spoil the party in the global leveraged market is falling oil prices. For India, the golden level of oil is around the $45-50 levels, where it does not impact the balance of payments, and yet keeps the economic wheels sustained. Any lower, and the global markets starts to wobble, increasing the volatility in the Indian markets.

So where will this take the markets? It shouldn’t be a surprise that the broader markets crosses the 10000 mark on the Nifty by this calendar year-end of December 2017, if all goes well and oil remains well-behaved. Consumption-led earnings growth continues, while the infrastructure sector space has only just begun to gather momentum.

Valuations are near their high points with the Nifty well over the 23.78 PE mark, which is considerably higher than the historical averages. The BSE Mid- and Small-Cap Indices are stretched at price-earnings of 30.7 and 66.41 levels. That might be a deterrent for classical value investors in buying in the current market. In fact, valuation levels will act as speed breakers to the market’s upward trajectory providing valuable corrections along the way to make sizeable accumulations.

For now, the broader indices may correct, but buying at the micro-level in select stocks is continuing. Discerning investors are building positions in good stocks that can make the most of the economic recovery over the next few years.

A major correction can be ruled out because foreign investors have again initiated purchases. Hence, there’s a big chance that markets might not go back to levels of 8500 on the Nifty in the near term. And, on the positive end, there’s a bigger chance that the markets can cross the 10,000 mark. Take your side.