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The current up-move, analysts suggest, is primarily led by foreign institutional investors (FIIs) who have found some comfort from the government's stance on the minimum alternate tax (MAT) issue. On Friday, the government had clarified that the income tax department would not adopt coercive methods for recovery of MAT dues from foreign investors. Up to May 11, FPI/FII net investment in the Indian equity markets stood at a negative Rs 6,535 crore, data show.
Explains Deven Choksey, managing director and chief executive of K R Choksey Securities: “As a result, FIIs seem to have stopped selling and this has led to the markets rising from the lows seen last week.”
According to Choksey, passage of the Land Acquisition Bill and the Goods and Services Tax Bill by Parliament is important. "The Land Acquisition Bill will bring a lot of new money to the economy. In case the Bill is passed, the markets in the near term will rally. I believe a correction in the bull market is always a good opportunity to buy."
Besides clarity on MAT, the markets also took positive cues as the concerns regarding a deficient monsoon abated, at least for now. Although the Indian Metrological Department (IMD) expects the monsoon to be impacted by the El Niño factor, IMD expects the monsoon to hit Kerala according to schedule on June 1.
Skymet, a private weather forecaster that had also predicted a normal monsoon this year, expects rain-bearing monsoon clouds to reach the Andaman region in the Bay of Bengal by May 25, and hit Kerala thereafter, reports suggest.
"The government seems to be keen to solve the MAT muddle. This is an encouraging sign. The markets are also factoring in the weak results of India Inc in the March quarter and the general feeling among investors is that things should start looking up from here on. A normal monsoon prediction by Skymet has also aided sentiment,” said U R Bhat, managing director, Dalton Capital Advisors.
From a medium-term perspective, investors can definitely buy at these levels. The Nifty can reclaim the 9,000 levels if investors see an economic revival. The economy needs investment-led demand, where entrepreneurs announce new projects, which will likely happen over the next two-three quarters. I expect the Nifty to come close to its previous highs around Diwali,” he adds.
The risksAlthough analysts believe the road ahead for the equity markets looks promising, there are a few factors that can spoil the party for the investors, including monsoon failure, sharp spike in crude oil prices and developments in the euro zone, especially debt repayment by Greece.
"One cannot bank on cheap oil forever. A spike in oil prices to above $80 a barrel will be negative for the Indian markets. However, the chances of this happening seem remote as of now. I expect the oil prices to gain a maximum 3-5 per cent from here on. A weakening rupee could also pose a threat to the overall sentiment. However, I expect it to remain around 64 levels against the dollar over the next six months. At a global level, US economic growth will also be keenly watched," said G Chokkalingam, founder and managing director, Equinomics Research & Advisory.
