Investor Sentiment is back

Likely cut in interest rate, aggressive buying by FIIs, a positive union budget keeps the markets afloat

The Indian stock markets ended the Vikram Samvat 2070 on Wednesday with yearly gains of approximately 26 per cent on the BSE Sensex, a jump of around 37 per cent in the market capitalisation with the market value of shares held by investors rising to 94 lakh crore.

However, more than the numbers in the form of percentage or absolute gains in stock prices and investors' wealth, it was the return of the investors' confidence that mattered the most and on the back of such elevated investors' confidence that the markets ushered into the new Samvat 2071 on a positive note during the one hour special Mahurat trading on Thursday that saw both the Sensex and the market capitalisation going up further.

In the last week of the Samvat 2070, the four-week-long downtrend halted especially after the government introduced its first major reform step in the form of freeing diesel distribution from price controls and also coal mines re-allocation move that would not only save the nation from shortage of coal and consequently power generation, but also revive many power generation projects which are on the verge of bankruptcy.

The likely revival and implementation of the stalled power generation and other projects would also reduce the NPAs for the banking industry. It was therefore due to this very reason that the oil marketing companies also slashed selling prices of diesel leading to a likely cut in transportation and other costs and thereby further ease the inflation.

This made investors to believe that the RBI would cut interest rates when its board meets to review monetary policy scheduled on December 2.

In view of such developments the shares of banking, oil marketing and other rate sensitive sectors took the leadership to take the markets up on the eve of the opening of the new Samvat.

The foreign institutional investors (FIIs) were net buyers on every successive day of the last week. The markets remained open for normal trading for the first three days of the week. On Thursday, they remained open only for one hour for auspicious Mahurat trading and then closed down for a long week-end holidays.

The oil and coal reforms thus introduced by the five-month-old Narendra Modi government and termed as "fuel reforms" by media, created positive impact on the stock markets in the last week and also revived hopes of many such reforms. The news from the global economies and especially the leading world stock markets was not all that positive during the last week and still the Indian stocks showed better trends due mainly to highly positive prospects seen in domestic front.

Most of the global market experts have predicted that the Indian stock markets would remain generally bullish in the next few years and projected higher levels for the benchmark for BSE Sensex.

The first budget presented in July by the finance minister was prepared in a short time and lack of scope for encouraging proposals, however, the markets’ turned bullish since February 2013. The next budget is scheduled in February 2015 will have many positive proposals some have already started.

Besides reduced subsidies burden, finance minister will ease to provide more funds for social welfare and infrastructure. The FIIs have earned hugely by investing in Indian stocks in the last one year and there is no other attractive place globally that could provide such huge profits to them. Therefore, they are expected to bring in more funds into Indian stock markets in the calendar year 2015, they could buy extensively in the second half of December so as to take up net asset values (NAVs) of their investment in India. It is generally believed that when the NAVs at the end of the calendar year are attractively higher, the FIIs are allocated more funds in January, to be invested in India.

Therefore, a likely cut in interest rate in early December, a likely aggressive buying by FIIs in later half of December and then a good and positive union budget in February are going to keep the markets afloat. And any more positive news in-between, might send them sharply up in the new Samvat 2071 and therefore, investors are advised to think and act bullish while taking buying-selling decisions.