Can Indian markets retain the ‘bull run’

The stock markets are on a high with the Sensex and Nifty breaking records. But it would be a brave soul that would predict this to be the beginning of what market analysts call a “bull run” and think that this would last for quite a while with a few ups and downs. Predicting the markets are a huge occupational hazard, as many foreign and Indian brokerage houses have realised. Last year, for instance, a well-known foreign brokerage analyst predicted the market would be at 30,000 by December 2015, but till a few days ago it was struggling to touch 26,000 and has only now managed to cross this. There is, of course, no accountability from those whose predictions have gone awry and no one asks any questions.

The Indian markets invariably follow global cues as foreign institutional investors, with their deep pockets, play a major role in the markets here. In the last two trading sessions — Wednesday and Thursday — they had pumped in `1,100 crore and are continuing to buy. In all this euphoria it is good to sound a note of caution. Many of the issues that move the markets are ephemeral, hence markets are hostage to these issues. Domestic fundamentals also play an important role and the biggest mover at the moment is the monsoon. After two years of drought most weathermen have predicted an above-normal monsoon and this is one of the factors that has been cheering the markets. Crude oil prices, for instance, is one of the major movers of the market; at the moment they have been going up, which is a positive for the countries that trade in commodities, but certainly not for India. Because of low crude prices hitherto, the Narendra Modi government has been able to reduce its fiscal deficit and maintain a healthy current account deficit. Corporate India, too, has benefited from cheap raw materials and, most of all, low fuel prices have enabled the downtrend in inflation. This, in turn, had provided space for rate cuts by RBI governor Raghuram Rajan. Since India is one of the largest importers of oil, rising oil prices is sure to affect the economy adversely, though with Iran now in the oil market crude prices could be more stable. These are some of the uncertainties that Dr Rajan mentioned this week. On Thursday, for instance, one of the issues that cheered global markets, and therefore the Indian markets, was the receding fear that Britain would exit from the European Union. Bank of England governor Mark Carney had said Britain’s exit from the EU would cause a recession and this is said to have calmed the markets. The other fear, that the US Fed will hike interest rates in June, is also said to have receded.

The markets are whimsical and move on sentiment that cannot be predicted.