September saw an upward movement of around 8.4% in Nifty, from 5259 levels (17430 for SENSEX) to the closing high of 5703 (18763 Sensex). FIIs have been net buyers of Rs 208.83 billion for the month. On the other side, DIIs have been net sellers of close to Rs 91.53 billion in the cash market. From the low of 5,218 on September 6, Nifty closed the month at a high of 5,703.
``Since then, the government has started the reform process. The markets were taken by surprise as till now it was all talk and no action. Though now talks of even more reforms have been suggested. This has and could keep the markets in upward momentum. These reforms have also come on the back of monetary easing by ECB, constitutional court of Germany not putting a spanner in the ECB plan of Euro Bond buying, US Fed announcing QE3 and the RBI reducing the CRR rate,`` Religare Macquarie Private Wealth said.
The two most crucial administrative actions are behind us - diesel price hike, subsidized LPG restriction and FDI in retail. These actions could help reduce the probability of a downgrade in India`s credit rating status, it opined.
Easy money policy of US and Europe could reduce the cost of funding and improve the flow to risk assets. This theme will continue going forward. From now on, the corrections may not be deep. Sentiment has improved and buying is expected on these shallow corrections. Hence, the market is not expected to fall below 5,350-5,400. This is slightly below the mean valuation of Nifty at 5,467, it said.
Further it said the upside expectation also moves by 200 points to 5,700-5,900. For movement above this range, there could be reduction in interest rates and improvement in profitability of the corporate sector. Also, valuations become stretched above these levels at mean+0.5 SD levels. The change will now be in the sectors. Overvalued sectors like FMCG and Pharmaceuticals can see less interest and undervalued sectors like Banking, Infrastructure may gain traction.
Also as the large caps get optimally valued, the money is expected to flow towards mid-caps. So, the markets may be in a marginally higher range, but stock picking will make the difference to returns, it opined.
``With improvement in domestic (speeding up of government reforms along with monetary easing measures) and global environment (USQE3 and increasing liquidity measures in Europe) leading to a positive uptick in investor sentiment, we are changing our call from neutral to overweight in equities. Now is the time for investors to accumulate equity investments for the longer term,`` it concluded.