Friday, February 24, 2012

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!!!


  1. Dear Anand,
    I must confess that I am not convinced by this bull run. There has been little encouraging news on the fundamentals of the economy, and yet the stock market has gone up. It does not make sense - is the market overvalued at current levels? I still see the genuine value @ 16500 +/- 500 points. Would love to read your response...

  2. @ Vishal
    Neither am I convinced by this bull run. But, the stock market is a crazy animal. No one can predict with certainty what will happen.

    Anyways, when the market was going down, the fundamentals of all the company's that were getting beat up badly, were still the same. They were making the same kind of profit but still their stocks were going down.

    Global scenario has much more impact on the market overall than standalone performance of one company.

    And - No. The Market is not overvalued. The prices of some of the best stocks are still ripe for the picking. They are trading at around 20-30% or more down when compared to their 52 week high. There is still room for lot of upward movement.

    Hope that clarifies. Do let me know if you feel otherwise :)


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