India's Bull Rally: Three More Quarters?

With India's bull rally reaching about 3 years now, and the BSE Sensex heading towards 10,000, the question on everyone's mind is how long this market rally will last. Forecasting markets is fraught with risks, more so than any general forecasting, since market values are an outcome of actions of thousands of participants. That said, here's my guess:

My belief is about 3 more quarters -- until the middle of FY07. One simple reason: Profits have risen now for 3 years, and counting FY06, that becomes 4 years in a row. On historical basis, it is hard to see net profits rising for 5 years. That has never happened in India, and only perhaps once in the US. So statistical evidence is against this. FY08 profits will thus be weak. The market has to start correcting before that. So middle of FY07 is a reasonable time for the rally to flatten out for a while.

There will be other factors to a slowdown. Indian interest rates are edging up, as the rigidities of Indian banking system manifest themselves. Also, the US economy is headed for a slowdown. The US dollar could depreciate, making the rupee appreciate. Also, the Indian political situation could get increasingly murky as we head towards the next general election.

Likely positives -- FDI, overseas acquisition by Indian firms. But there are too many negatives lined up. They will overshadow the positives by FY07.

« Any opinions expressed on the Seeking Alpha sites are those of the individual authors and do not necessarily represent the opinion of Seeking Alpha or its management. »