Bulls Eye New Market Highs in Year 2015

Bulls Eye New Market Highs in Year 2015

In the year 2014, Indian stock markets have rallied by nearly 34 percent with Nifty and Sensex setting up one benchmark after another and breaching past ones with a rarely observed regularity. A stable government at the Centre, strong macroeconomic fundamentals and lower levels of inflation due to fall in global crude oil prices are some of the leading factors which account for this bullish trend. However, the positives do not end there as falling inflation raised hopes of early interest rate cuts by RBI which could be a big boost for the banking sector and its anticipation drove banking stocks up for a while.

For the moment, RBI has decided to keep its rates unchanged, which has been a bit of a dampener for the markets in short-term but RBI Governor Raghuram Rajan has made it clear that rate cuts could be considered in early FY2015 if inflation reaches a new low. Apart from that, a slew of reform measures being announced by the government in the past few months have helped create an investor-friendly environment and markets have responded positively so far.

Most of the experts agree that if only the Government is able to deliver on its promises, it would give a real boost to the economic growth and financial markets are also likely to enter a long-term bullish phase. With Sensex having breached the resistance level of 28800 to create a new record high in recent times and Nifty drifting up to cross the crucial mark of 8600, markets are already bullish with continued positive outlook in near future.

It is also important to understand the impact of global crude oil prices which have fallen by nearly 30% in last few months. This has helped ease inflation levels, improved the balance of payments and current account deficit apart from helping reduce the burden of subsidy bills, especially for fuel and fertilizers. These factors go a long way in improving the macroeconomic fundamentals and sustaining a positive outlook for the economy which has a big role to play in how things pan out for financial markets.

Going ahead, there are a number of factors which can contribute to the performance of the markets on the whole. One of the main factors is increasing participation of retail investors in equity markets, which is especially visible in equity mutual funds data. Spurred by rising stock markets, nearly 7 lakh investors have so far invested Rs 39,000 crore in equity mutual funds schemes in the current financial year which is a precursor of increased direct market participation for retail investors.

Experts also contend that historically, the last 3 times markets have entered a long-term bull phase, they have never peaked below PEs (Price-To-Earnings Ratio) of 25 times. Comparing this against the latest bull phase, experts say that equity markets are trading at a PE of 16 times which is at quite a distance from historical peaks of PEs of 25 times, which indicates fair market valuations that remain attractive and are not expensive. Some of the experts believe that market can rally by another 15-20% in 2015 and equity markets are in for a rather long-term bull run despite any short-term corrections, presenting some exciting investment opportunities for investors.