However, after a brief calm the Sensex has recovered and touched a high of 19770 last week, a gain of 13% from the low seen on February 10, 2011. Mid-cap and small-cap indices have moved even faster, the BSE Small Cap index was up 19%, the BSE Mid Cap index gained 18% between February 10, 2011 and April 7, 2011. Several individual small- and mid-cap stocks have also moved up almost 30-40% from the lowest levels that they witnessed in early February. Surprisingly, the Bull has been up and on even when the problems still persist. Inflation remains high and so do the crude prices and above that there are talks of another interest rate hikes in May. This has left many of us confounded as to what is leading to this upsurge.
Some reasons for the market to rally are :
1.The external environment has improved. With growth holding up well in the EU and the US economic outlook looking promising, exports from India could provide the much needed support.
2.The rally was also aided by the fact that, in the short term, the Indian market had underperformed as compared to global peers, hence it is playing catch up now.
3. Last but not the least, liquidity is one of the prime drivers of the recent rally.
Much importantly the FII's which were pumping money out of the Indian Market since the beginning of this year are on a re-buying spree as they are finding the Indian market valuations considerably cheaper than before. Definitely no one doubts the ability of this huge market thanks to a constant growth of at least 8% despite of a series of setbacks witnessed in the last quarter.
But clearly the market has not yet recovered completely. The factors like the persistent crisis in Middle East and the problems in Eurozone and many others are holding the economy from being on a promising rally. The investors are advised to be very cautious with their investments and not be too optimistic to take much of the chances. They are still advised to have a long term gain perspective owing to the volatilty attached to a short term outlook.
Going forward, the market is likely to take cues from corporate results, which are likely to be declared this month. Investors will closely watch corporate earnings and guidance from corporates on what they expect in FY12. In addition, the markets are expecting some reform announcements, which are held up due to the current assembly elections. Thank you!
