MARKET STRATEGY
In a traditionally weak month for the Indian markets, the Sensex staged a
comeback and rose 7% (till March 28) on the back of supportive global cues
and robust foreign fund flows. The sustained foreign fund flow enabled the
markets to take the recent rate hike by the RBI in its stride. Rupee
appreciated sharply against the dollar on strong FII flows. The budget did
not contain any negative surprise and this also helped sentiments.
Macroeconomic data continue to be healthy with the IIP rising by 16.7% in
January 2010. On the global front, Greece
correct its fiscal mess. The EU and IMF have agreed to work together to help
Post the recent rally, markets are close to 17,700 levels, the highest level in
past 52 weeks. In our previous updates, we had turned cautious at these
levels on risk of higher interest rates triggered by rise in inflation and global
uncertainties (Greece
downward at these levels. We maintain our cautious stance for the near
term.
While upside based on the near - term valuations is capped, positive returns
could be expected in the medium term, in line with higher comfort on FY11
estimates. Our optimism is based on continuing strength in the Indian
economy and the GDP growth returning back to its 8-9% trajectory in FY11.
With a bulk of its population in the working age group, India
compelling domestic consumption theme, which should keep the foreign
investors interested in the Indian markets. We recommend using declines to
accumulate stocks with a medium term perspective and continue to
recommend a bottoms-up approach towards the Indian equity markets. The
risk to our call comes from the global economy, which may impact fund
flows into India
