Share market - a maze s me

Ask any Indian about the share market and he will have a story to tell. If not, he will try and make up an impromptu story at least to strike an interesting conversation. Smart aye? This is the extent to which people are hooked onto the stock market, no matter what their profession is.

During the periods 2005 - 07, the Sensex sky rocketed up from 6k to 20k and people made obscene amount of money. Bravo to the UPA (United Progressive Alliance) that had come to power in 2004 and was serving their first term, Indian economy was booming with increased growth and productivity and so was the world economy, in general. 

Everybody was making merry including the Indian housewives who left their nest and got hooked onto their computers and started trading. Bollywood wasted no time in making a satire 'saas, bahu aur sensex (mother in law, daughter in law and sensex). Those years were mind boggling and every share had a midas touch literally. NRI's felt very miserable squirming and fretting as to how their uncles, aunts, nephews and nieces were making easy money. This was a no brainer to them. 

The party did not last for ever. European banks and the American investment banks well took care of that aspect in 2009 and the markets were doomed so to say. The last four years have witnessed serious global financial and economic disasters one after another starting with collapse of Lehman Brothers, Barclays Bank, Sub prime mortgage crisis, European economy hitting rock bottom and the economy is not on a glorious path of recovery yet. 

In the mean while the UPA enters its second term in 2009 and a year later the Indian people were in for bigger shocks as the media made shocking revelations by exposing the apathy, gross mismanagement and collapse of governance by the Government caught up in an endless list of scams involving billions of dollars and loss to the exchequer. The country is still reeling under the impact and there were rumors of mid term polls last year. All this has left an indelible mark on the share market and the market has been quite wishy washy ever since, with occasional signs of probable recovery, but not gaining any momentum. 

Year 2014 is the election year and in spite of all odds UPA could come to power but the flip side would be that the market could go either way. Strange is the behavior of the share market. Market belies reason and logic. Market mood is unpredictable.

Let me give you  the current position from a broad perspective.

• In 2013 the Sensex has crossed 20k for the third time, twice in January and now on 8th May. 
• During the periods from July 2012 to March 2013, FII on an average have pumped in approximately $ 2. billion. 
• In April the investments were less than $1 billion. 
• In May the foreign investments  has been steadily increasing.
• Inflation is down to 6%
• Commodity prices (gold, oil)  have gone down considerably.
• Normal monsoon weather has been predicted by Met Department.
• The Reserve Bank of India has reduced the interest rates by 25 basis points.  Hence the rate at which banks can borrow from RBI is 7.25% - lowest for the last 2 years.

Flip side:

• The Current Account Deficit (CAD) is still high at over 6%
• Government is in a mess. 
• Corruption allegations are rampant.
• Corporates are still not investing in a big way on Capex
• Retail investors are yet to participate in the equity market
• No meaningful IPO in the horizon.
• Traditionally May has been a bad month for investments (except in 2009 and 2004 where the returns were in excess of 15% - election months)

Which way the market will swing and start a trend one more time will be interesting to see !!