Making this more significant is the fact that the stock indices bounced back from all sharp declines very quickly, ignoring all bad news.
There were buyers for stocks at every decline. The rally was more pronounced in emerging markets with India being the top Asian performer for the month.
Bullish overseas investors:
Analysts, especially from foreign institutional investors (FIIs) and mutual funds with a global presence, are very optimistic about this rally.
They are of the opinion that even after the current gains, the valuations for emerging markets remain attractive, and the rally is expected to continue as the economies in developing nations are proving to be more resilient than what was expected earlier. China's GDP expansion is about seven percent for this year and India is growing at five percent.
Hence, analysts from these institutions feel it is an interesting entry point for long-term investors, and the levels seen over the past six months will be remembered as very attractive in the next few years.
Strong rupee :
Confirming this optimism from global investors, the rupee advanced after the latest data showed that FII stock purchases were the highest since August last year.
The currency strengthened as the signs of a global economic recovery promised to increase demand for emerging-market assets, thereby for the rupee.
The SEBI data showed the net investment by FIIs in equity for April was Rs 6,508.20 crores.
Cautious domestic investors :
Other experts, especially from domestic institutions, are cautious in their optimism about the markets.
They say that what started out as just a slowdown snowballed into recession due to failures of large financial firms. Now that failures and bankruptcies have declined considerably, the markets have stopped going down. But key indicators like industry demand, employment, capital spending and profitability are still declining A recovery in the global economy, which is currently standing at a 'low point', will depend on a rebound in the US economy.
The gross domestic product in the world's largest economy fell 6.1 percent in the first quarter reconfirming that recovery of global markets was still sometime away. In India too the news flow was far from rosy. India's inflation held near a 27-year low. Inflation went up by 0.57 percent year-on-year in the week ended April 18 after gaining 0.26 percent in the previous week.
There are fears that inflation is likely to turn negative from early May. India's diamond sector shed two lakh jobs. The IT industry too announced layoffs. But the biggest fear that India Inc has is that of a hung parliament, which could end the rally in the stock markets.
Hence, domestic institutions actually sold some of their investments in this rally.
With experts so divided in their opinions of the markets, the quandary in the minds of individual investors is understandable. A perspective that can help them decide whether to hold on to their investments is portfolio returns.
Rather than worry about whether the market is poised for a decline or not, investors can focus on whether their portfolios have generated the required returns or not. In this rally, some stocks have gained more than 50 percent with some of them rallying up to 80 percent.
If the investors have such stocks in their portfolios they can sell them as their returns targets will be achieved. This rally can be used to rebalance portfolios by weeding out weak stocks.
A good strategy for longterm investors who have already invested in the markets would be to hold on to their investments. They can wait for the outcome of the elections before committing further funds into the markets. Short-term investors, however, can book profits in this rally and wait for an opportune moment to reenter the markets.
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