MARKET STRATEGY
Benchmark indices fell by about 7% during October, on the back of weak
global markets and profit - booking at higher levels. Earnings declared so
far have also not given enough reasons to be more optimistic.
Consequently, near - term valuations are looking fair, as expected.
Globally, economic data is indicating stability but concerns persist on the
sustainability of the same post the withdrawal of stimulus. In India, RBI
initiated steps to withdraw the incremental liquidity by increasing SLR. The
provisioning requirements have also been tightened. On the funds flow
front, while FIIs pumped in about Rs.60bn during the month in cash
markets, they turned net sellers in the futures segment. Industrial output
(IIP) grew by 10.4% during August 09, but on the other hand, inflation rose
to 1.5% by mid - October. Growth in core sector industries for the month of
September stood at 4% as against 7.1% in August, raising concerns on
September IIP data.
Post the recent correction from recent highs, valuations have moderated.
But we continue to maintain that, for the rally to continue, optimism needs
to be backed by higher earnings visibility for FY11 and also earnings
upgrades. We have to watch out for the increase in commodity prices and
also the consequent impact on inflation and interest rates. We continue to
recommend a bottoms-up approach towards the Indian equity markets.
