Get, set…wait!
Dwindling car and home sales, slower air traffic despite sharp
cut in fares, first negative reading on core sector growth in a decade, virtual
collapse in capex announcement, slower project credit growth, and persistently
low stock market volumes and volatility – all indicate the present state of
confidence in the economy. The investors, consumer and businessmen all seem to
have lost confidence. Pessimism is the only graph that seems to be moving up
sharply.
Historically speaking this is a valid sign of imminent economy
and therefore market bottoming out. However, in our view, the markets are yet
not reading these signs and therefore not yet close to bottom.
We feel the concerns like depleted order books, rising NPAs,
fast eroding margins, collapsing revenue etc. are well recognized and
documented but not yet truly reflected in analysts’ earnings forecast. This
might occur once 4QFY13 result are announced
Similarly, investors have been very vocal in their expression of
concerns over worsening fiscal and current account deficits. The market
volatility, volumes and flows are indicating that they are however not walking
the talk.
The market tops and bottoms are usually associated with rise in
volatility. During 2007-10 the market witnessed 121 daily moves of over 3%. Out
of this 33 daily moves were greater than 5%. In past 2years we have seen just 6
moves of over 3% (none over 5%). No such move has occurred in past 15months.
This suggests that the panic usually associated with market bottoming has yet
not set in.
Post conclusion of budget session in May 2013, we expect the
politics to completely dominate the economics. Monsoon and winter sessions may
not see much activity given a heavy election calendar and minority status of
the government.
Nonetheless, we continue to believe that the economic downturn
that started
Q2007 shall bottom out in next 3-4 quarters. The market downtrend
that started in early 2008 shall bottom a little earlier.
Watch out for the following signs before you set off the block:
(a)
RBI panicking – watch for couple of unscheduled
announcement.
(b)
Collapse in G-Sec yields below 7%. This could be
preceded by a sharply lower reading on core inflation chart, sharp cuts by RBI,
and a sharp rise in NPA provisioning by banks.
(c)
Real estate and crude prices fall sharply.
(d)
Nifty trading 10% or more below 200EDMA, and RSI
is below 30.
(e)
Nobody talks about stocks at social gatherings
you attend, and you get a strong urge to sell the stock you have been holding
for more than 5years.
(f)
There are few large daily moves, ideally over 3%
on closing basis, in Nifty.
(g)
S&P500 in USA falls below 1275 and US 10yr
yields breach 1.5%.
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