The recent boom in strong markets appears to have convincingly won the confidence of retail investors. Capital inflows and diversion of savings from fixed deposits by retail investors would provide strong impetus to the share market. In any case, real estate has become too expensive for most investors to shift to.

 

 One worrying aspect of the recent boom is, while the growth in EPS has been 25-26%, the markets have surged by 40%; thereby adding 15% to the valuations. However, this premium of 15% may continue with the interest of retail investors.

 

Much would depend on the financial policies china employs this year, but given the markets shocks in Thailand last year, China may not be taking chances with its markets and hence India may continue to be favored destination of the foreign investors. In fact, even if foreign inflows don’t pour in substantially this year, technically sound picks wont let the investors down.

 

To add to the boom, tax cuts as promised by finance minister in the forthcoming budget too would play a major role. After all the tax compliances have gone up and not to forget, we are almost in election year.

 

I personally don’t agree with the general market sentiments that the markets would go up by 15-20%, but yes, certain stocks would definitely register gains that may exceed 30%. Reliance, Bharati, RCOM, DLF would be on my favorite list. FMCG sector may not witness new highs and IT sector appears to have discounted fall of dollar till Rs 38 levels.

 

The prospect of mid-term polls looms large, but markets appear to be neutral to BJP coming, though the rate in growth of sensex may slow down. In a democracy it will be a huge price to pay for the government in power for not moving towards industrialization and liberalization. In the past and markets have been fairly resilient. Politics and economics in India have been closely related, but now appear to be distancing. That should be acting in favor of bulls.