Outlook and Strategy of Indian Stock Exchange Market 2006-2007

Indian Stock Market occupied a top slot in 2006, together with an unexpected fluctuation with sudden rise and fall, but maintained the sensex mark. In 2006, the Bombay Stock Exchange crossed the 10,000 level mark. There were speculations amongst the bulls at the Dalal Street (Mumbai) that sensex might cross 14,000 marks, but unfortunately the year 2006 ended with the average 12,500 level. Fundamentally strong, the economy was the main key but raising inflation rate and high crude oil prices applied brakes on its acceleration.

The Indian stock market raised to dizzy heights in a span of 194 days, from October 28, 2005 to May 10, 2006, with the BSE sensex rising from 7686 points to 12612 points, a gain of 4962 points. It then fell very fast to a level of 8929 points on June 14, 2006, registering a loss of 3683 points in 35 days. It has again reached a level of 12010 on September15, 2006, again of 3086 points in a span of 93 days and presently the market is trading in the region of 13250.Like April 2006, some felt that when the market rose high, that time has come for a correction and the market was totally overheated. Investors were of the view that when the market started falling and a negative sign was taking up, it could reach up to 9000 level, but the sensex has bounced back and reached 12321 points on last September 27,2006.

There are concerns over tight global liquidity and deteriorating trade balance. These may not check India’s strong economic growth. As India is getting younger and younger, its productivity is bound to rise. Investment in Indian market must be seen in a marginally different context. As much as 60 percent of the GDP is led by domestic consumption whereas other emerging countries are dependent on foreign market. For the next few months ending the financial year 2007,sectors like FMCG,pharma,retail,media and textiles looks attractive in terms of valuation.Basically,India ,a service driven growth story, has enough to offer since we are in the middle of a capital expenditure boom and rapidly expanding outsourcing.

India’s growth will be sustained and may reach greater levels if the government act on reforms front.Infrastructure, ports, roads, SEZ etc requires more attention and investment. Investment in 2007 will be the brighter period for any investor. Going by the fundamentals, most experts believe that for the next 6 to 8 months there is very limited downside risk at the current level. As per the Morgan Stanley’s report, technically speaking, this quarterly period (June2007), the Sensex would reach the point 14700.Also in the near future, the Indian stock market will see foreign companies raising funds through Indian Depository Receipts (IDR).But at the same time we can see that the Indian capital Market is characterized by its high degree of volatility which has been instrumental in both creating and destroying the wealth of many investors.

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