Share Market in 2014 by Mr. G.CHOKKALINGAM

Recently Share market has gone up mainly due to improvement in perception &  confidence that the outcome from the forthcoming election will be positive.

However, the fact is that the ground reality of the economy is a cause of worry:

** Overall GDP (Gross Domestic Production) growth is still at  ten year low and industrial economy is stagnating.

** Collections from excise duty are down year on year in absolute term, which indicates serious concern for manufacturing sales.

** Fiscal deficit during the first 7 months of current fiscal is 84 % of total budgeted deficit for 2013-14 , tax collections are far below budge target;

 

CHOKKALINGAM G Market Analyst Mumbai

**  Inflation is set to tighten further to double digit

** Non Performing Assets (NPAs) of PSU banks is too high, no hope for any steep fall in next  two quarters;

** Despite CAD (Current Acconut Deficit falling steeply in Q2 FY2014,  the  central government was forced to withdraw about  $1100 Crore  from forex reserves to finance CAD;

** Export growth again slipped down to single digit in Nov 2013;

**  Despite Indian rupee crashing by about 35 % against USD over past two years, FDI (Forigen Direct Investment) inflows are down 38 % year on year in September 2013 and for first half of FY 2014, down by 11 %;

In this environment market has moved up mainly due to increase in confidence level on election outcome.

However,  formation of successful alliances with regional parties in 7 states is very crucial for the markets. States such as Tamilnadu, AP, UP, Bihar, WB, Orissa and Maharasra account for  60 per cent of total Lok Sabha seats - so formation of successful alliances with the regional parties in these states very crucial for the further recovery in the equity markets.

In case both BJP & Congress fail on this front & both of them put together get less than 300 seats, then the confidence level of investors USP the FIIs will be hit badly - in such scenario, the Sensex would range within 20000  to 21000 by end of 2014.

On the other hand, either BJP or / Congress gets about 220 seats, then the confidence in market will increase substantially - the PE for the market will increase to 15 x FY 2015E Sensex  EPS of  Rs.1670 - that is market will rise by close to 20 % in 2014.

Any National Party getting this number will also increase the scope for improving the economic conditions as the new government can focus solely on further positive measures and improved sentiments will also boost the economy in terms of accelerated investments.

In this background aI suggest following 3 stocks with conservative approach - that is choose stocks which are fundamentally strong & also not moved up substantially.

by Mr. G.CHOKKALINGAM

Market Analyst, MUMBAI

Photo Source: The Hindu

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