With negative Global cues surrounding, its time for cherry picking...

Aggressive stance taken by RBI to hike repo rates by 50 basis points spoilt the nascent bull rally which was building up in July. Determination of the regulator to bring down inflation even at the cost of significantly slowing down Economic Growth is causing nervousness in the markets. Moreover Government does not seem to be addressing the supply side constraints; the real issue which is causing inflation. In the absence of any major policy initiative taken by the government to augment supply of goods and services we seem to be heading for a secular high inflation, high interest rate regime. 

Global cues are also negative; thereby adding to the woes of market participants. Debt worries of the developed world again do not have any immediate solution in sight. To sum it up, we seem to be very far away from a stable and sustainable bull market. The only silver lining is the relatively better economic outlook for the domestic market despite the specter of soaring inflation. Also liquidity in the international markets is likely to remain high on the back of more economic stimulus and relief measures announced by various governments. This means that inflow from FIIs should remain robust despite gloomy indicators all around us.

Under these circumstances our best guess is that indices will remain range bound. They may not break out on the upside due to so many negative indicators and at the same are unlikely to fall significantly due to strong inflows from FIIs. Stock specific movements are likely to continue dominating proceedings in the market. Stocks of companies with good cash flows, reasonable leverage and unseasonal businesses are likely to be the best places to park your money. FMCG, Pharma, Retail, Media, Lifestyle and utility sectors are likely to have the maximum buying bets going forward.

For investors our advise is to stay invested but rotate your holdings in favor of stocks of companies enjoying good cash flows in their respective businesses and available at attractive valuations. A stock specific approach with preference to fundamentally strong counters in consumer and utility sectors should help reap good returns despite the overall negative bias in the market.