Sensex may gain momentum in second half this year

Sensex tanked three days in a row this week forcing the investors to believe that they might have to press the panic button anytime soon. Sensex dropped nearly 289 points on Friday to a 5-month low on brisk selling in heavy-weight financial companies, on investor concerns about rising interest rates in view of high inflation and weak cues from the Asian peers.

Inflation and rate hike fears have discouraged FIIS to invest in the Indian stock market thus pushing it towards more volatility. This January alone, foreign funds have pulled USD 900 million from Indian equities. This is a sharp contrast with the record USD 29.3 billion which the FIIS pumped in last year.

Although the Reserve Bank of India (RBI) in its monetary policy raised key policy rates this week, inflation is something which is continuing to haunt the market. This is for the seventh time since March that RBI has hiked its lending and borrowing rates. With food price rises well in the double digits and a real risk, this is definitely going to spill into the economy. But the bigger question is: Will it further result in blood bath for the Indian stock market?
Rapid recovery in the OECD market has also disturbed the Indian stock market as the FIIs see better scope in investing in the stable G-7 economy. But the chaos in Dalal Street does not seem to be perpetual. The scene becomes very clear for the short to middle term business.

Although fears of rate hike by the RBI coupled with soaring food prices will keep the investors feeling jittery about investing in stock market, the second half of the year might ease some pressures.
Since during the second half of this year rabbi crop will be ready, the investor can possibly get rid of the fear of food inflation. The Finance Ministry has also expressed hope of bringing the inflation to single digit by March-April, so hike in the key rates might not be required. Hence in the long term there is a safe passage for the equation in investment. Speculation for the high and low of the year can thus be counted somewhere from 16,000 to 22,000 level.

So there is nothing to get fidgety incase the Sensex slides to 16,000 level because after that the market will again start moving northwards and crossing 20,000 level won't be a tough thing.