INDIAN STOCK MARKET IN 2010

6th January 2010

The prevailing economic conditions, both domestic and global, suggest the Indian stock market is poised to continue to rally in 2010 even though US and European Markets have yet to recover from recession effect. Key factor remains the impact of Q4 results and strong GDP growth of around 8%. However point of caution needs to be the phase wise withdrawal of financial support given by Indian government to the market.

So far, the recovery in India has been driven by domestic consumption and government expenditure. However, corporate investment is expected to surge in 2010 due to the strong GDP growth which will increase capacity utilisation. Stocks in the infrastructure and power sectors may be the front runners in 2010 as they receive strong policy support from the Indian government. But one must be cautious that the interest rate cycle might start moving up with the strong GDP performance and relatively high inflation. If it does, banking stocks will be affected severely as was seen in the past.

We have witnessed a global financial crisis in 2008-09 which is still very much an unforgettable incident and taught us good lessons. During the bull rally (2003-2007) there was considerable exuberance. This was the time when interest rates were low. Credit was available and that too cheaply. Not just that, corporate profits were growing at a healthy rate. Stock markets were notching strong gains. But the global credit crisis changed all that. The abundant liquidity, not surprisingly, led to asset bubbles that finally burst. So if one learned a good lesson should go for companies with less debt, enough cash and strong return ratios. These are the ones who will be able to tide over the crisis and generate strong returns to shareholders in the long term beyond 2010.

Happy Investing!

Stock to watch out for in 2010: Larsen & Toubro, BHEL, CESC, Dena Bank, Karnataka Bank, Indian Overseas Bank.

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