The Hindu Business Line : Short-term outlook appears quite buoyant

The of late behaviour of the Indian stock market has been somewhat nonchalant despite fears to the contrary. It has managed to spurn, as it were, epithets like “over-valued” or “overheated” and has forged ahead sans any serious correction since March this year.

Liquidity magic

Liquidity and momentum played the magic. It is now increasingly clear that the global capital flow dynamics has been turned on its head in the past decade. At least Dalal Street experience suggests so. If the “mini crisis” in-the-making a la US sub-prime lending blows out, the capitalist heartland may stare at a real one in the 10th anniversary of the Asian crisis.

A measured dose of capital flight from the US market to Asian destinations, particularly, India and China, is steadily emerging as a compulsion rather than a high-risk esoteric bet.

In the medium to long-term perspective, the declining dollar has only been hastening the process.

Attempts at an effective containment of inflation and a doctored interest regime, attuned to expanding credit needs, have worked well so far for India.

Market participants feel there is no reason to apprehend that RBI would disturb the delicate balance, already set by it, in the next policy review this month-end. The monetary and fiscal authorities have not wavered in the last three months in maintaining that there was a coordinated effort at achieving an average GDP growth rate of around 9 per cent.

The stock market appears to be ready to progressively factor in the dollar blues – downside of fall in exports realisations.

Even if crude oil hardens further and agriculture flounders, the overall valuations of the equities may not come crashing down as a strong liquidity is likely to provide cushion against the odds and ensure continuation of the momentum in the medium to long term.

The short-term outlook also appears quite buoyant on rising profit graph as well as marked improvement in performance by a host of medium and small companies.

Out of the box

In a changing scenario, the overseas funds have not only been re-visiting their strategies, but pulling out all stops in choosing innovative investment game plans.

A number of FIIs admit that their investment practices have been undergoing a quiet transformation in India in the last few months.

Many of the old timers are no longer hesitant about small caps. The research reach has been extended beyond the second tier stocks in a sector.

A host of relatively obscure niche players have come on the analytical scanner. Making a long-term commitment and eagerness to cling onto a growth stock has evidently increased.

DSP Merrill Lynch, for example, has opened a few boutique investment cells. One such is called “corporate principal investment desk” – a team with flexible mandate, open to new ideas, proprietary investment, placements, tailor-made investment and even management handholding.

The newcomers among the pack seem more inhibition less and more prone to experiment.

An emerging trend suggests that a large number of the overseas investors are insisting on certain corporate governance practices are in place before they commit themselves.

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