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Rajiv Kapoor is a Share Broker, Certified Mutual Fund Expert and MDRT Insurance Agent.

IT and Pharmaceutical shares are good stock options

The turmoil in the global economy has led to large outflows from the emerging markets due to short-term heightened risk aversion issues pertaining to the slowdown in China and likely rise in interest rates in the US by the Federal Reserve. The Chinese authorities have brought in measures to stem their stock markets from falling by halting all trading if it moves 5% or more in a session. Also, they have proposed to withdraw the 5% dividend tax if stocks are held for a minimum period of one year. On the other hand, the US Federal Reserve would be meeting on 17 September to review its interest rate situation and only after that would the trend reversal signal be clear. Brokerage houses have started to scale back their yearend targets as the Sensex and the Nifty have cited lower earnings recovery for Indian companies and expect the indices to end the year marginally higher from the current level. Since last month the foreign portfolio investors have pulled out a hefty $3.3 billion from our equity markets while net purchases year to date is $7.4 billion despite the recent outflows. It had been the large cap companies with 60-80% free float which were favourites of most foreign institutional investors during the last one year. Unfortunately, it was them facing the brunt of massive selling and dropping nearly 11% in the carnage.

But this huge sell-off in the Indian stock market has turned into an advantage for many promoters who are using this opportunity to consolidate their equity holding by purchasing their company stock from the open market. Promoter owners of companies like JSW Steel, Cox and Kings, Alembic Pharma, Bombay Dyeing among many others have acquired shares from the secondary market and increased their share holding plus arrested the stock fall. Corporates and economists are betting on the RBI Governor to reduce the interest rate on 29 September and kickstart the economy on the fast track. While the Prime Minister gave his dose of gyan to corporate leaders last week to take more risks, the moot point to consider is why would they invest in new projects when assets are available aplenty at low prices?

Some market men are quite optimistic and of the opinion that this time the US Federal Reserve may defer the increase in interest rates for the time being and our own RBI Governor may reduce policy rates by at least 50 basis points. That would be a great scenario for the Indian stock market and a Diwali bonanza for investors.

Most analysts are betting on interest rate sensitive stocks from the autos and cement basket along with selective bottom up plays in the pharma and IT space. But investors are forewarned that next week is definitely going to be a choppy week for sure and should watch the India Volatility Index for more cues.

Rajiv Kapoor is a share broker, certified mutual fund expert and MDRT insurance agent.

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