One year back, on this auspicious day, I sat with many stock gurus to discuss what lies ahead for the Indian market. The market had just generated a whopping 52 per cent return since the previous Diwali. As we basked in that reality, almost everyone felt that return expectations would have to be moderated and that a 15 per cent annual return would be good enough after such heady gains. As I write today, it is an overwhelming feeling to note that the Sensex has notched up a 50 per cent return since that day, perhaps surprising even the biggest of bulls. Even more importantly the CNX mid-cap index is up 55 per cent, dwarfing the modest 26 per cent gain it registered between the previous two Diwalis. The direction was not in question but the extent of the gains certainly comes as a positive surprise. The trading screen has never been illuminated with more festive colours as it has these last few years. Diwali looks so much brighter in a bull market.
As we look forward to the next Diwali, there is no reason to believe that the bull run will not continue this year. Sure, there are challenges. They year 2008 will be when we will finally know if the US is indeed slipping into a recession, in a sense it may be the year of reckoning for global equity markets. Will the global equity party continue through next Diwali? The outcome is crucial for us as well. Locally, there could be some political uncertainty and maybe even early elections before next Diwali. Not a certainty anymore but certainly a possibility. While earnings growth, despite slowing down a bit, remains fairly robust, macro-economic indices like inflation need to be watched carefully as commodity prices balloon. This is important as the expectation of falling interest rates in 2008 is a potential bull trigger next year. Meanwhile, many sectors will continue to grapple with the appreciating rupee and there is no reason yet to believe the rupee will turn versus the dollar.
Despite these challenges, the Indian economy continues to be one of the sweetest spots in the global universe. That should be enough to ensure superior relative performance for our market even if things turn a bit hairy, globally. And while valuations in some sectors do look stretched, there are still plenty of pockets of opportunity. In the year gone by there have been several multi-baggers like Educomp, India Infoline, Punj Lloyd, Larsen & Toubro, Reliance Petroleum and IFCI. Investors should try and seek out the jewels for the coming year instead of focussing too much on the Sensex. Equally, stocks like Bajaj Hindusthan, SRF, Cipla, McLeod Russell have been big drags. Must be careful to avoid some overheated stocks that may disappoint. The sun is shining on our market today, the idea is to be optimistic, disciplined, not get carried away and try and stay the course. To every investor in the market, heartiest festive greetings. I will pray, as always, for your safety and prosperity.