Why should one invest in stock market?
Investment in stock market is often considered to be quite risky. People who want to earn higher profits need to take big risks and hence they invest in stock markets. Many people still believe that the rise and fall of stock market is a matter of luck. But, the real truth is that if one does good research, then, he / she can make good profits from Indian stock market without much risk involved. It is all about investing in known companies after doing good homework about the fundamentals and history of such companies. It is difficult to judge when is the right time to enter Indian stock market. But, with patience and smart research, one can make huge profits from stock market, which is otherwise not possible by investing in Bank fixed deposits, Public Provident Funds, National Savings Certificates, etc. One should look to earn profits from stock market over a long period of time such as 1 year or more. With Lok Sabha elections 2014 round the corner, it may not be a bad time to invest in some stocks. Instead of looking for useful stock tips, one should try and analyze the factors that will have a strong impact on the stock market of India.
Important factors that may drive Indian stock market in 2014
For major part of 2013, investors stayed away from Indian stock market due to various reasons like falling rupee value, inflation, economic slowdown, etc. But, towards the end of 2013, Indian stock market witnessed considerable investments from people which led to Sensex crossing 21000 level again. There is a positive energy floating around the Indian stock market and people have again started investing some amount in stocks. This trend is expected to continue in 2014.
In 2013, Gold prices reached new highs when Indian stock market was not doing well, but as soon as Sensex started gaining points, Gold prices dipped and stabilized around the 30K level. With weak currency levels and lack of forex reserves for India, people were advised to stay away from Gold as most of it is imported to India. This led to stabilization of Gold prices in India and people are still not confident of investing huge amounts in Gold like before. This means people will look for alternate means of investment and stock markets are bound to benefit from this trend in 2014.
There was a significant oil reform in 2013 which led to reduction of diesel subsidy burden. Even though price of diesel increased due to inflation, this is good for Indian economy from long term perspective. This is because such oil reform will lead to increased revenue for Indian government and help reduce deficit. Also, this will help improve market sentiments in the long run.
India General Elections 2014 will be conducted in May this year. After the Delhi polls and state polls of 2013, there is a positive feeling among Indians. Everyone is hoping for a favorable change of power in Indian politics. The rise of AAP in Delhi and appointment of Arvind Kejriwal as Delhi CM has raised people's hopes. With all political parties trying their best to outdo each other, current government has started announcing good schemes. Even passing of Lokpal bill was a big positive step forward. It is expected that the stock market will rally upwards in anticipation of good election results.
There are some forecasts that global economy might grow more than 3.5% in 2014 and low interest rates will support improvement of global economy. Even US fed rates are not expected to rise for another 2 years.
In addition to already existing oil subsidy reform, there may be some more reforms brought about by Indian government such as listed below:
-Prioritizing consolidation of fiscal situation.
-Implementation of GST (Goods and Services Tax) that may lead to improvement of tax to GDP ratio as well as growth.
-Increased investments leading to acceleration of growth, more jobs, etc.
INR fell to pretty low levels as compared to US dollar in 2013. India's lack of foreign exchange reserves and increased gold imports further deteriorated the scenario for INR. However, some strict measures implemented by Indian government has helped INR to regain some lost ground and 2014 is expected to be pretty stable for Indian rupee. So, market sentiments will be good with people willing to invest in Indian stocks.
Top stocks for investment in 2014
Share market traders can look forward to investing good amount in Indian stocks in 2014. Some of the popular stocks one can invest for long term gains are Tata Motors, Axis Bank, State Bank Of India, ITC, GSFC, TCS, Bata India, etc.
A few other drivers to consider. The first one is valuations. Markets appear to be trading at very lofty valuations. Both the Sensex and the Nifty are trading at well over 20 times last years earnings and well over 15 times the upcoming financial years earnings. Another key driver is the macro economic outlook. Indian GDP while recovering will in all probability not exceed 5.5% in the upcoming year. Thirdly keep an eye on the current account deficit. The current account deficit can come under renewed pressure from surging crude oil prices in the global markets stemming from tensions between Russia and Ukraine and also between Israel and the Palestinians. This could result in more weakness for the Rupee and a slowing economy here at home. Last but not the least the monsoon is tracking well below expectations at this point of time. If the monsoons fail to deliver, they could create inflationary pressures on the economy which may result in rising interest rates. The RBI may not be in a position to keep rates low or cut interest rates if such pressures arise.