Has the Bull Returned to the Indian Stock Market?

The first 6 weeks of 2012 have been nothing short of AWESOME for the Indian Stock Markets. Since the Inception of the new year 2012, the Indian stock markets have grown by double digit %'s. A double digit growth in one year is considered great, but a double digit growth in less than two months? Thats great news isn't it?

This post is about, what caused this bull run and an outlook, as to whether the bull will continue to run amock or will it be Tamed by the All-Powerful Bear...

Shall we get down to business?

Note: All Numbers are as of Feb 15th 2012. The numbers may not match the live/current Market values.

How much have the Indices Gone up Exactly?

The Exact Numbers (In %) by which the various major Indices in India have gone up are as follows:

1. BSE Sensex - 18%
2. Nifty (NSE) - 20%
3. BSE Midcap - 26%
4. BSE Smallcap - 27%

What Caused this Sudden Bull Run?

Well, there are multiple reasons for this sudden (but, good) Bull Run. They are:

1. Foreign Institutional Investors (FIIs), who stayed away from the Indian Markets last year, made a triumphant return. Nearly 23,000 Crore Indian Rupees has been invested in the Indian Markets by the FII's in the first 6 weeks of 2012. This has been one of the key driving factors behind the bull run

2. Better Economic Data from the US and easing Euro-Zone debt worries have brought some relief to global investors. The Uncertainty towards the global economy has come down and the prospects of recovery/growth are looking bright

3. The Domestic Economic Scenario too has been very positive in this time period. The CRR Rate Cut in January, a possible rate cut in March, Stabilizing Inflation Rates, Good December Quarter End Results by Major company's etc have been contributing factors to the bull run

Will this Bull-Run continue?

Well, there is no clear-cut answer to this question. If my life depended on this question, my answer would be

"I think so. There is 70-30 kind of probability for the Bull to Continue Running and for the Bear to bring the Bull to a halt"

Nonetheless, the following factors may directly influence the continuation of the bull run or the return of the bear...

1. The Results of the Ongoing State Elections & the Union Budget that is expected in March will be key drivers to the Market Movement
2. The tensions between European countries & Iran over crude oil supplies may cause the crude oil prices to explode. If it happens, it may have a direct bearing on the Market
3. FII's have been net-buyers so far and their continued support or pull-back may have a significant effect on the Market

With the possible Greece Sovereign Default out of the way, the chances of any major global economic downturn are significantly low. The European Union seems to be on a road to recovery and the economic scenario in the US looks positive as well.

All said and done, the stock market can be expected to be volatile. There will be no clear-cut Bull Running Wild kind of scenario. Investors try to book profits whenever they see the markets move-up. So, such profit bookings may drag the market down in the short-term (A few days of downward movement). Even after such corrections, the market can be expected to get back on its feet and continue the upward movement.

So, all in all, the overall outlook for the Indian Stock Markets is positive over the next few months. The chances of any major/drastic market corrections (downfall) are low and the outlook & investor sentiment will continue to be positive.

How should we Invest in Such a Situation?

This again is an extremely tricky question. If you ask me, I would suggest the following:

Fixed Income Instruments: 60%
Equity Mutual Funds: Around 30%
Equity Shares (Direct Stock Holdings): 10% or less

Tracking the Market and identifying buy/sell timelines is very difficult in such volatile market scenario's. Unless you feel, you can enter or exit a stock at the right moment, I would suggest to take Equity Investments through the Mutual Fund Route. Afterall, experts are always better at this and most importantly, that is what they get paid for. Don't they?

Aren't you Curious to ask me, Why I suggested the above Investment Mix?

Well, any investment decision needs to have a Justification. The Justification for my decision (outlined above) are as follows:

1. The Interest Rates offered by Fixed Income instruments like Bank FD's, Bonds and Corporate FD's are in the double digit. On any given day, any returns of over 10% is very good and if the returns are guaranteed, then it is all the more better. That is why I have given a 60% weightage to debt instruments.
2. Equity Markets though will be positive, will also be choppy. Predicting the movement would be very tricky, even for experts. That is why I have given a less than 10% exposure to direct stock investments and a 30% to Mutual Funds. Picking a well performing Mutual Fund is half the battle won. The fund manager will fight the rest of the battle for you.

If you are wondering, what the best Mutual Funds would be, to Invest right now, just wait until the next post. The next article is going to be on the top performing Mutual Funds which you can invest in. To read that post Click Here


Happy Investing!!!

Company’s that Comprise the BSE Sensex

The BSE Sensex or Sensex as it is more commonly called is one of two premier Indices in India. It is the index that depicts the movement of the Bombay Stock Exchange or BSE. In one of our earlier posts, we had taken a look at what the BSE is. To view that post "click here".

In this post, we are going to take a look at the 30 company’s that comprise this Sensex Index.

To Recap:
BSE Sensex is the weighted average of the price movement of the 30 largest company’s that are listed in the Bombay Stock Exchange. This list of company’s may change from time to time and the Exchange will always release the news of replacement of any company in the Sensex to the public beforehand.
Below is the list of 30 company’s that comprise the BSE Sensex along with their Industry and Weightage.

Note: A company with 1% weightage will have to increase twice as much as one with a 2% weightage in order to move the index up or down by the same number.

Company Name	Industry	Weightage
Bajaj Auto	Auto - 2 & 3 Wheelers	1.51
Bharti Airtel	Telecommunications - Service	4.63
BHEL	Engineering - Heavy	2.38
Cipla	Pharmaceuticals	0.99
Coal India	Mining/Minerals	7.91
DLF	Construction & Contracting - Real Estate	1.22
GAIL	Oil Drilling And Exploration	1.73
HDFC	Finance - Housing	3.66
HDFC Bank	Banks - Private Sector	4
Hero Motocorp	Auto - 2 & 3 Wheelers	1.3
Hindalco	Aluminium	0.93
HUL	Personal Care	3.09
ICICI Bank	Banks - Private Sector	3.32
Infosys	Computers - Software	5.41
ITC	Cigarettes	5.87
Jindal Steel	Steel - Sponge Iron	1.71
Larsen	Engineering - Heavy	2.61
Mah and Mah	Auto - Cars & Jeeps	1.55
Maruti Suzuki	Auto - Cars & Jeeps	1.03
NTPC	Power - Generation/Distribution	4.99
ONGC	Oil Drilling And Exploration	8.1
Reliance	Refineries	8.73
SBI	Banks - Public Sector	4.11
Sterlite Ind	Metals - Non Ferrous	1.27
Sun Pharma	Pharmaceuticals	1.94
Tata Motors	Auto - LCVs/HCVs	2.41
Tata Power	Power - Generation/Distribution	0.83
Tata Steel	Steel - Large	1.45
TCS	Computers - Software	7.75
Wipro	Computers - Software	3.59

The list above is ordered Alphabetically based on the company name :-). Also, the list above is correct as of 15th January 2012. If there are any updates to the Index, I will try to update this post accordingly...

Sensex is no longer a Trillion Dollar Market

At the outset, I am really sad to write this article, but unfortunately the reality is that the Indian Stock Market (BSE-Sensex) is no longer a Trillion Dollar Market.

Before we proceed any further, some of you may ask, "Was India a Trillion Dollar Market?"

Oh YES. India was a member of the elite group of country's whose market share is over a Trillion US Dollars. The Indian market had first achieved a trillion-dollar size about four and half years ago on May 28, 2007. It was a historic landmark, but about a year later on July 1, 2008 it lost its tag of "A Trillion dollar market". However, India again joined this elite club of markets with trillion-dollar valuation about a year later on June 3, 2009. The Indian market was, in fact, seen inching towards the two-trillion dollar mark at least twice in the past; first in early 2008 and then at the beginning of 2011 when our Market Size was as high as USD 1.9 trillion.

What is a Trillion Dollar Market?

A Trillion Dollar Market is one, where the total value of the shares listed in the exchange (Market Capitalization of the Exchange) is worth over 1 Trillion US Dollars. This is calculated by taking the Market Capitalization of every single share that is listed in the exchange and summing them all up. The value in terms of Indian Rupees is then converted into US Dollars at the prevailing exchange rate and the Market Value in US dollars is calculated.

1 Trillion USD at todays exchange rate = Rs. 52800000000000. Dont try to convert this into words, this is over 52 lakh Crores Indian Rupees

Note: 1 USD as of End of Trading Day 20th December 2011 is 52.801

Why did this happen?

The causes are many fold

1. Global Economic Scenario - The Economic Scenario world over is very volatile and as a result stock markets world wide have lost significant ground. The Indian market is no exception. The Indian Stock Market (BSE Sensex) closed at around 15175 which is nearly 2000 points down from what the Sensex was last year in December. (Sensex was around 17000 points in December 2010)

2. Foreign Investors (FII's) Pulling Out Funds - Again, this is a direct result of the previous point "The Global Economic Scenario". Due to turbulence in the markets world wide, foreign investors have pulled out lakhs of crores worth money from the Indian Stock Markets, which has not helped the Indian Markets.

3. Local Investor Sentiment - Again, this is also due to the "Global Economic Scenario". Due to the turbulents in the markets world wide, Indian Investors have panicked and begun selling off their investments and moving over to more secure investments like Bank Deposits, Gold and Real Estate. This coupled with the FII's pulling out funds, has made the BSE Sensex tank over 2000 points when compared to the same time last year (December 2010)

4. Indian Currency Depereciation - As you may have read in my previous post Is the Indian Currency Rupee Depreciation against the US Dollar Good or Bad? the Indian Rupee has depreciated significantly against the US dollar over the past few weeks. Just 6 months ago, One USD was worth around 45 Indian Rupees and now it is worth more than 52 rupees. Though the Indian market capitalization in terms of rupees has fallen, the fall in value of the Indian Rupee has further aggravated the situation because, the market capitalization has to go up by a further 7 rupees to catch up every dollar to meet the 1 Trillion Mark.

What is the Current Market Capitalization?

As of 20th December 2011, the Market Capitalization of BSE Sensex was Rs 5260441 crores. As you can see from just a few paragraphs away, the total market cap must be atleast 5280000 crores in order to touch the 1 Trillion Mark.

Will the Indian Market Regain the Prestigious 1 Trillion Dollar Tag?

Yes. This is not the end of the road. The Indian Stock Market has lost over 20 lakh crores (2000000 crores) over the past year. If you add this to the current market capitalization of 5260441 crores we get over 72 lakh crores and that is more than sufficient to regain the Trillion Dollar Tag.

Due to the year end bull run (Yes, this happens almost every year. During christmas & new year, markets worldwide go through a rally that see's a hike in market value due to the holiday sentiment) which may happen this year too, if the stock market regains around 500 odd points, I am sure the Indian Market will regain its tag of "A 1 Trillion Dollar Market".

Lets keep our fingers crossed and hope for the best.

Happy Holidays Everyone!!! Lets hope that the New Year will bring in good news for the markets worldwide and bring a smile in the face of every investor!!!