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So, where will be the Sensex on April 1, 2016?

By P V Subramanyam
Last updated on: April 09, 2015 15:11 IST
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The short answer, as usual, is I don't know.

Even worse, I do not know anybody who knows anybody who has the answer. So here is an attempt at guessing.

At the end of a 25 per cent ride for a year the market could pause for breath, right? The market is already ahead of itself in terms of PE (price earnings multiple). The earnings will have to grow and I do not see that happening before September at best and December at worst.

So what will the market do?

Well that is very difficult to say.

Depends on the strength of its legs. The Sensex has stocks such as TCS, Infosys, etc. which is likely to benefit from the US recovery. The performance of these shares has nothing to do with the Indian economy. As one sees the salary increase in Infosys, it is clear that they are not worried about staff attrition. Nice.

Oil too has a role. So ONGC, Reliance, and the oil markeing companies like BPCL, Indian Oil, HPCL, etc, are not likely to give some outstanding 'pull effect' to the index.

ITC has been and will continue to struggle with the government's onlsaught. There are not enough FMCG companies (current market favourites), which means the lead has to be taken by the finance companies.

Axis Bank, ICICI Bank, HDFC, HDFC Bank, SBI, Kotak Mahindra Bank, Power Finance Corporation, etc, are all likely to be a little tired after their long run in the previous financial year.

The NPAs (non-performing assets) of PSU banks are well documented; I am worried about the NPAs in the private sector banks. I can assure you that is HUGE. That leaves you with very little visibility of the Sensex PE. Anyway I am not a big Sensex fan in terms of seeing where the market will go. The non-Sensex companies could give good returns and I am not talking about them.

Now turn to bonds.

All over the world the interest rates are down and India is the island of 8 per cent Gilt yields (tax-free returns on government bonds). Even if you discount it for inflation at 6 per cent it leaves you with a real yield of about 2 per cent. THIS IS NOT BAD AT ALL.

So you will see more money coming into the bond market as shown by RBI figures over the past 18 months. What do you think held the Indian rupee at 61 to the US $? Why are the FIIs investing in India?

The answer is: For long-term good yield (our brilliant bankers 'protect' the currency ratio), stable rates, and the immediate capital gains when RBI reduces the interest rates (prices of bonds are inversely proportional to interest rates).

At least to the couple of FIIs that I spoke to the short-term bond returns (one-year) look better than the Sensex returns. This is not to say that they will be right, because the following could happen:

Interest rates in the US cold go up' so some of the short term money could run away.

Some infrastructure projects could attract a disproportionately large equity and debt inflows.

Money running away could make the rupee vulnerable...

It is difficult to predict, especially if it is about the future.

Photographs: Arko Datta/Reuters

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P V Subramanyam