Jan. 02--MUMBAI -- India's stock markets in 2014 may be affected by a host of factors including inflation, interest rates and fiscal outlook, but a lot would depend on policy actions from the next government, say analysts.
"The general elections are the major trigger for 2014 and the investor community expects that the new government will take strong decisions for the growth of the Indian economy," said Swati Saxena of Religare Retail Research.
She said market volatility, which marked 2013, should be used to pick strong fundamental stocks for the long term.
Volatility is set to continue into 2014 mainly caused by the US Fed's announcements on QE3 taper and domestic political issues.
"While an accelerated taper will impact liquidity flows into India, the absence of a clear mandate for any particular political party will be negative from the reforms perspective. This can have a bearing on the growth rates for the next fiscal," said Dipen Shah, head of private client group research, Kotak Securities.
Despite these challenges, there are sectors and companies that have potential upsides from the current levels, experts said.
"Within the defensive sector, we like select stocks in IT (information technology), fast-moving consumer goods (FMCG), media and private sector banks," Shah said.
The IT sector, in particular, is expected to see improved demand as developed economies recover and stabilise. In the FMCG space, consumption demand is still growing, albeit at a slower pace. The media sector is also expected to benefit on higher spending ahead of the elections. Private sector banks are also expected to gain because they have relatively better asset quality compared with their government-run peers as well as relatively higher margins.
For 2014 as far as investments are concerned, Saxena said Britannia Industries (target price Rs. 1,050, potential upside 14%), Glenmark Pharma (target price Rs. 610, potential upside 14%), Jyothy Laboratories (target price Rs. 225, potential upside 19%) and Rallis India (target price Rs. 210, potential upside 18%) have the potential to appreciate from current levels.