Indian Stock Markets - what should investors do now ?

Indian Stock Markets have run up sharply and the Sensex has gone up from 8000 to 11000 in a short span of time. What should investors do at this point of time. Buy, Sell or wait and watch ? The answer to this question lies in two important factors. The Q4 results which should start flowing from next week and the elections.

The Q4 earnings growth trajectory is set to slowdown
Capital Goods / Power, Construction and IT are the sectors which are expected to report revenue growth of about 15% on a YoY basis. The IT sector will be positively impacted by the depreciation in the rupee v/s the USD.

On the other hand, metals / mining sectors to drag the overall growth lower. Realizations in these sectors have fallen sharply over the corresponding previous quarter and this will get reflected in the 25% drop in revenues YoY.

As far as banking sector is concerned, the aggressive PLR cut by most banks in H2FY09 (with falling deposit rates) along with liquidity build up in the balance sheet are likely to negatively impact the margins.

While the Jan - March 09 results will be watched closely,increased visibility on FY10 performance will be watched even more closely. The recessionary conditions in the global economy have impacted the export demand, on one hand. On the other hand, the low business confidence has impacted the domestic demand and consequently, the investments.

The RBI and the Government have come out with several fiscal and monetary measures to restrict the impact on the economy. However, concerns still persist that, the GDP slowdown will continue well into the next year. This logically leads to concerns on the top-line growth of corporate India in the future quarters.

Conclusion

Markets have moved up recently on expectations of stability and improvement in the global economy. Effectively, several of the perceived positives are already priced in. Hence, increased visibility in revenues and earnings for FY10 is of utmost importance for the markets to sustain the current levels and move up.

Apart from the quarterly results and outlook, the election results will also be an important event for the markets. A strong coalition Government is a pre-requisite to carry forward the reforms process in the backdrop of a challenging macro environment and a high fiscal deficit. In case the elections fail to result in a stable coalition government, the markets may react downwards.

So investors could wait and watch, though the current rally has got some more upside , over the next few weeks.