As hopes of Mr Modi performing miracles for the Indian economy gained ground, money started flowing into Indian stock markets. The surge in the indices was largely on back of expectations that the Modi government will unleash a slew of reforms that will put India's GDP growth on a higher trajectory. However, this easier said than done. Year 2014 witnessed a remarkable run up in Indian indices. The FIIs played a crucial role in this robust rally. However the markets have remained quite volatile since the beginning of 2015 and more recently, have been in correction mode. Rising oil prices with other macro factors, declining industrial activity and fresh concerns over retrospective taxation have been the prime reasons for the recent market correction. And what more the Indian indices continue to witness selling pressures. So should investors give upon India?
Not really. In one of our most recent The 5 Minute Wrap Up editions we had discussed about can Sensex fall to 24k?.
The article highlights why investors should not get swayed away by this correction. It is important to note here that the rally last year was largely based on expectations of reforms. And of course these reforms cannot be implemented overnight. One needs to be mindful of the speed breakers that may come in the way of growth. This is something the Indian stock markets ignored in the general euphoria. Most of the stock prices had zoomed even though earnings had not picked up.
For investors, our view is that rather than predicting the next Sensex level, it would make more sense to follow a bottom up approach in stock picking. And carrying this further, investors could instead focus on picking high growth stocks that have the potential to outperform the Sensex and generate wealth over the longer term.