RL Narayanan, Vice president-Institutional sales, Bonanza Group spoke with Rex Cano about the market trend in the short and the long-term and the factors that are likely to affect them.

Where do you see the markets going forward from here in the short- and long-term?

At the the outset, will like to start the comments with a warning that prediction of the markets is dangerous & its better to follow the markets, But to answer the question there is a 60% probability of the market crossing 5500 before Budget and 20% probability of the market crossing all time high before Budget.

The reason for the same is emerging market as a pack has given close to 130% return last year and India has sound fundamentals, so the chances of FII flow coming in the first part of the current year is very high, which can propel the markets to greater heights. But steady raise in dollar can dampen the flow.

Secondly govt is planning to raise more than Rs 20,000 crore before budget so the chances of market coming down are less.

From $2billion reserves in 1991 to $285 billion reserve in 2009, India has come a long way and mile's to go from here. The seeds of reforms sown in 1991 have become trees, the fruits are already visible and much to come so one has to be ready for harvesting in the markets. Very much positive for the long term, sectors to watch will be power, infrastructure and technology. Investment into Indian index can also be a good option as it is inflationary in nature and will remain the same way for the years to come. India with its young talent has a potential to become a knowledge hub

What are the factors are likely to affect the markets?

Local Factors like bad monsoon, fiscal deficit of close to 7% of the GDP, higher inflation rates leading to gradual increase in Interest rates.

On the other hand, global factors - as interest rates in mature countries are raising with regards to strengthening dollar against euro, it can lead to slower FII flows in India. Crash in Chinese markets due to excessive credit. Mounting sovereign debt & government misleading the numbers. Iceland and Dubai might be tip of the Iceberg & have already reneged on foreign debt obligations. There is a growing concern about similar trouble with the debt of Greece, Spain, and several Eastern European nations.

“It is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is the most adaptable to change&" – Charles Drawin.  The above quote will be true for the markets as well for the current year and the years to come.

How is the Budget likely to affect the market?

There will not be any big announcements in Budget; if the market rallies before Budget one can expect a decent correction after Budget.

In case of stimulus withdrawal or rate hike? How will the markets react?

The above factors are already discounted in market but still auto, real estate and banking stocks might correct.

Which sectors are likely to outperform?

IT and Pharma in the first part of the year. Capital Goods, Cement oil and gas will outperform in the next phase but stock selection will hold the key.

The mid-cap (119%) and small caps (145%) have outperformed the Sensex (83%) in the last year. Do you think that will be the trend this year as well?

Mid cap might continue to outperform Large Caps as base of 2009 year is higher so returns would be relatively lower than 2009.