Thursday, October 9, 2014

Stock Market Outlook: Keep Your Expectations in Check

Sensex gained almost 57% (~9900 points) from its Aug 28, 2013 intra-day low of 17449 to its Sep 8, 2014 intra-day high of 27355. That is an exceptional performance considering it occurred during a period of high inflation, low GDP growth and high interest rates.

Inflation has started moderating. GDP growth is showing signs of picking up. But interest rates still remain high. From its all-time high of 27355 touched on Sep 8 ‘14, Sensex underwent a moderate correction of 4.4% by losing 1200 points to touch an intra-day low of 26150 on Oct 8 ‘14 – thanks mainly to FII selling.

Today’s bounce up from trend line (UL3) support is an indication that the correction may have run its course. Can the index gain another 9900 points to touch 36000 over the next one year? The possibility can’t be ruled out. But note that in percentage terms (~38%), the gain will be lower because of the higher base-effect.

In a recent article at morningstar.com, investors were advised to keep their expectations in check because the US market looks fully valued. The same can be said about the Indian market. With both markets near lifetime highs, there are no easy pickings left for new entrants.

Stock-picking skills will be tested, and return expectations should be moderate. That doesn’t mean stocks will not give better returns than bonds, NCDs or bank FDs over a 3-5 years period.

You can read the full article here.

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