Can We Bank on the Sensex Boom?

By: Pravin Palande/ Forbes India

The Sensex is at a three-year high on the back of FII buying. Is this a sustainable trend, especially when IIP numbers are not encouraging? Forbes India asks the experts.

This is sustainable. FII buying surged due to the US Fed not tapering its QE and the US government shutdown. FIIs will not hesitate to invest in India for the foreseeable future. The US is not going to withdraw economic stimulus soon. The IIP numbers are not a worry since the RBI has stated it is projecting a GDP improvement.

The economy may not have seen its worst as yet, but it will remain attractive for FIIs. We need to worry about short-term volatilities that saw net selling of $3.7 billion in June-August. Partial withdrawal of QE, rise in current account and/or fiscal deficit, and political instability could cause temporary but heavy selling by FIIs.

With GDP growth below 5 percent, a widening CAD, weaker rupee and growing inflation, it is unlikely the market can sustain high levels. The only way these levels can stay firm or the index can rise is if the macro data starts improving. This would require policy initiatives, or a change of guard at the Centre.

Click here to read more

More articles from Forbes India