Wednesday, January 1, 2014

Indian Stock Market Outlook - 2014

In general 2014 appears quite optimistic as far as performance of Indian equities are concerned. 2013 witnessed some major shocks in terms of currency, inflation and deficits which resulted in whipsaw movements in stocks and indices. Gross Corporate earnings in India has also not been encouraging so far. But in-spite of all bad macro and micro news flow in 2013, most of markets globally including Indian markets made new highs. Mutual funds sold more than Rs.75,000 crores worth of stocks in the year gone by while FIIs continued to pump in money and bought more than Rs.1 lakh crores worth of stocks.

During second half of 2013, QE tapering risk kept emerging markets on edge as none of us were able to estimate the impact it would have on capital markets. Finally after lot of suspense the QE tapering did happened and fed reduced the bond buying program by $10 billion. The market reacted positively as the quantum of tapering was low and it also signalled improvement in U.S economy.

So what to expect from Indian equites in 2014?

In a straight answer to this question, 2014 is expected to be optimistic and scale new high. But there will be no straight line movement and we will witness occasional correction on account profit bookings and unknown fears.

1. Technically the market is taking support at 100 week simple moving average line which suggest that on correction Nifty should take significant support around 5700 levels unless there is a major unknown shock that rattles the market globally.

2. Valuation wise the benchmark indices (SENSEX and Nifty) are trading at average historical valuations and hence appreciation in these indices will be mainly driven by corporate earnings. With general election in the first half of 2014 getting over, markets could advance swiftly in second half as investors will start discounting FY-16 numbers. 

3. Levels to watch:

On Upside: SENSEX -> 24000 and Nifty -> 7100
On Downside: SENSEX -> 19000 and Nifty -> 5700

4. Though the upside in benchmark indices might not appear very encouraging and gung-ho, there will be major movement in some select mid-cap and small cap stocks which delivers on numbers and governance. 

5. While selcting stocks, one should select companies with no debt or manageable debt and driven by clean and focused managment. Also while constructing portfolio ample diversification should be maintained where in no one stock occupies more than 10% of your portfolio.

Just for illustration even though we made new high in 2013, educomp solutions went down more than 95% while HCL tech delivered more than 100% return. So if you avoid chasing fancy and stick to your stock selection methodology & portfolio allocation you will be able to outperform most of the analysts and fund managers on street.

On this optimistic note, wishing you a very happy and prosperous new year 2014. Best of Luck!

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