Sensex may rise to 34000 in the near run - NEWS SENTRY


Monday, 15 August 2016

Sensex may rise to 34000 in the near run

The Sensex has crossed the 28000-mark several times and is poised to rise even further. The better-than-average rains have played their part as has the performance of Indian companies. An S&P Report recently published submit that the top 200 Indian companies have done better than their Chinese counterparts. Additionally, FII inflows into the share market during the period January to July 2016 were $4.8 billion, which is 78% higher than the same period last year. India's GDP growth, pegged at around 7.5%, is better than many other countries. The matter that we need to focus on now is how the remaining months will unfold considering that there are some factors that we must reckon with.
The first is the exit of Raghuram Rajan as the governor of the Reserve Bank of India (RBI). In a recent interview, he mentioned that he could have been persuaded to stay to continue his reforms and the suggestion was that there were no overtures from the government in this regard. Rajan has, without a doubt, done an excellent job in containing inflation and managing the monetary policy of the country. India and the world wait with bated breath as to who the next governor would be and whether he'd be able to contain inflation and manage the monetary policy without succumbing to pressure. One of the aspects the governor has to focus on is loans – to whom are loans to be given to. RBI, in view of the large non-performing loans banks are saddled with, must ensure that banks do not give loans to those who cannot repay.
And talking of banks, RBI released its guidelines on new banks which have some interesting aspects. Finance companies that are not part of a conglomerate and any individual with a 10-year bank experience at a senior level can apply to set up a bank. Both these offer opportunities and the possibility of abuse. In recent times two banks have opened - IDFC Bank and Bandhan Bank. Both were well established in their space but neither have really taken off or made their presence felt (as yet). Will they? In this scenario new banks jumping into the fray to take on the already well-established banks will have considerable difficulty – unless they are very specialised banks who have an expertise others don't have – as was proven by YES Bank. Now, with these new guidelines coming in, the question does arise as to whether small payment banks will even take off. I am personally very sceptical.
Looking at the stock market, it is interesting to note that it is, after the initial rise, moving in a fairly tight band. I believe this is the time when you should switch your savings to shares. Keep the very minimum in fixed deposits as the rates are going to come down. This will happen. Then the only way you'd be able to keep ahead of inflation is by buying shares. I believe that we may be at the beginning of a bull run. If that occurs, the possibility exists of the Sensex rising in the near run to around 34,000. However, this run, as opposed to other runs will be more circumspect. Only certain shares – shares of good companies will rise. Therefore, the ones one should purchase are the large caps and the mid caps. I would leave the small caps alone. This does not mean that they will not rise but that they are riskier. Of the ones to buy, stick if you can to the evergreen shares. Happy investing.

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