The rollback of GAAR does provide some relief...

Finally the rising interest rate regime has ended with RBI cutting Repo Rates by 50 basis points after a gap of nearly three years. While this may provide a temporary sentiment boost, nothing significant is likely to change on the economic front. Many of the leading banks have reduced their prime lending rates by 25 to 50 basis points. Corporates who have been bearing the burden of high interest rates for the last few years, besides heaving a sigh of relief that debt servicing costs would not go up further, would have very little to cheer about from a quarter percentage reduction of prime lending rate.

Moreover over the last decade, India has never been so negatively viewed by Foreign Investors as it is today. Poor administration, retrograde policies, intolerable delay in implementing important reforms and innumerable populist measures resulting in spiraling fiscal deficit have nearly derailed India’s growth story. Though the rollback of GAAR does provide some relief, yet the broader situation remains very precarious.

The above mentioned scenario has a stark resemblance to the era of 1995-1999, where the Economy was in doldrums with huge political uncertainties. Markets remained range bound during this period though there were stock specific movements. A similar scenario seems to be playing out again. So over the next year or so we can expect a repeat of the way markets behaved last year. Markets might go up and even test the all time high if liquidity inflows remain strong. However all these moves will be short lived and provide investors with a good exit opportunity. However as in previous bear markets, stock specific buying opportunities would still exist. Within this range bound markets over the last year there have been various stocks like Jubilant Foods, Bata, Lovable Lingerie and Sun Pharma which have delivered very smart returns to investors. This pattern is likely to unfold going ahead as well. In other words money making opportunities will exist but it will need a lot of hard work to discover them. Investors who do not have access to quality research or the temperament and knowledge of analyzing stocks would be better off parking their money in debt market instruments. Fortunately interest rates are still close to peak levels and bond prices are likely to rise as interest rates start declining thereby delivering potentially smart returns to investors.