The Indian Stock Market in 2011 has started with a big bang — on the downside. 6 of the last 10 January’s have had market-wide falls, and looks like we stuck to this long term pattern. We believe a lot of the negatives being talked about suddenly in last 7-8 weeks are not unique to India, however the Indian stock market (and Nifty) have fallen 15% from their recent highs despite global equity markets moving higher.
But the net selling has not been much — just about Rs 4000 crore, which is less than 0.001% of the Indian stock market capitalization of about Rs 75 lakh crore at recent highs, which is now at Rs 65 lakh crore. 15% market fall with just about 0.001% selling — just 1 share sold among 100,000 shares — indicates that the Indian market lacks depth; its dominated by traders who can’t hold stock for even 3-5% falls, and thus the selling cascade starts if one can somehow get the market down by 3-5%, the remaining 10% will come by itself as the weak trading hands look for escape at losses. Long term investors won’t sell their stocks at such market falls, though some maybe tempted to sell if the market remains below the 200 day moving average for a longer time.
Overall, not much has changed in the India growth story on the ground level; the focus on corruption and governance is actually a positive. The short sellers have got the market to a lower level, made good profits, and re-deploying those profits to buy the same stocks at low prices. This has also given us all attractive prices to buy for good gains by the second half of 2011. We continue to believe that 2011 will be a positive year for the Indian market, though its difficult to see given all the negativity around at this point. We have been buyers of various Nifty stocks in this fall, and have not sold a single share.
Our top picks for 2011 are: Reliance Industries, Reliance Capital, Reliance Infrastructure, Larsen & Toubro, BHEL, Ranbaxy, ICICI Bank, IDBI Bank and IFCI.