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Tuesday, January 11, 2011

Stock market India : correcting now, what's next?

In the article "BSE SENSEX & Small Cap Stocks In 2011", I had talked about correction in Indian stock market at those levels before rising further (BSE SENSEX was at 20,389 on 30th December).

After touching 20,560 on December 31st, SENSEX has corrected to 19,196 as on 10th January. A correction of 1365 points or 6.6% in one week. It might correct even further. How much? No one knows. But you can make an educated guess.

India's macroeconomic conditions have not changed much and Indian businesses are on long term growth trajectory. What's causing the uncertainty are a few important issues like FII Money, better investment opportunities for FII, India's political conditions, interest rates and of course valuations of stock market.

Interest rates are rising in order to control rising inflation and so the credit available in market is shrinking. Politically, opposition parties in India are making survival a lot difficult for congress formed government to function on the issues of spectrum and bofors scam. They have threatened to shut the budget session (February) of parliament as they did in winter session. This certainly destabilizes political environment.

Chinese and American economies are expected to emerge from recession in 2011 with good numbers. 2010 was certainly a flat year for these two giants and these markets would pull some FII money for investment in 2011 reducing the FII money flow in Indian stock market.

Valuations in Indian stock market were quite a high at 20,500 - 21,000 levels. With some correction in large caps and more correction in mid cap and small cap stocks, as mid and small cap stocks correct more in such stock market corrections, stocks would be available at attractive levels and valuation if stock market corrects further. If markets correct to 18,500 or even worst 18,000 levels, that could be the best opportunity to buy stocks of good companies.

You should be ready with a list of stocks to buy in 2011 in this correction from mid to long term investment horizon. I am compiling and researching on best sectors to invest and stocks to buy for 2011 for which you can suggest the stocks. I would analyze the stocks suggested by you, put up my recommendations on it and publish it here on Indian Stocks News.

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