A spell of seemingly positive news flow in past two weeks has
provided much needed relief to the struggling stock markets.
The ‘taper’ talk has been tapered. The plan to attack Syria
appears to have bombed out. RBI appears and sounds decisive after a long time.
INR bears are seen scurrying for shelter. Recent data on industrial production
surprised on the upside after a long. Consumer prices appear cooling down. And
most critically, FIIs exodus reversed and Indian equities saw some good inflows
after what seems like a long time.
We indubitably like the Zephyr and welcome the optimism in the
markets.
However, it would be inappropriate to answer the calls on
investment strategy just on the basis of news paper headline of the day.
The recent news flow, policy measures and global positive data
does strengthen our belief of “no collapse”. However, it provides no more clues
to suggest that Indian economy and therefore Indian businesses have completed
the correction.
In our view,-
(a)
If US Federal Reserve does decide to defer the
timing of moderating its US$85bn/per month bond buying program because economic
growth persists below estimates, deflationary conditions continue to prevail,
and employment conditions are not improving to the desirable degree – it is a
matter of concern and not relief.
Market optimism over tapering of taper talk is akin to relatives
of serious cardiac patient in ICU celebrating because the patient’s surgery has
to be deferred due to elevated blood sugar level.
(b)
The measures announced by RBI and the Government in past couple of weeks are primarily aimed at dissuading speculative
elements and assuaging fears of an imminent currency and therefore economic
collapse. These measures would be of little help to the corporates struggling
with unaffordable debt; government struggling with fiscal constraints; sagging
consumer sentiments and falling investments.
As we expect, the corporate earnings would be little impacted by
these measure in next 6months, at the least, and earnings downgrade will
accelerate post 2QFY14 results.
(c)
July’s jump in capital goods output lifted
industrial production by 1.9 percentage points. But consumer durables output,
that is considered more reliable indicator of the health of the real economy,
shrank 9.3%.
It would therefore be little early to celebrate the bottoming
out of industrial activities.
(d)
Everyone seems to be pinning hopes of revival of
consumption demand due to above normal monsoon this year.
In our view, the optimism over rural
demand needs to be moderated for higher indebtedness due to last year’s
drought; falling MNREGA spending; higher rural inflation; rise in agri input
prices; floods in north and central India and sub-normal rains in east and
North East India.
Thought for the day
“Hope is a dangerous thing. Hope can drive a man insane.”
“Hope is a good thing, maybe the best of things, and no good thing ever dies.”
Dialogues from the movie Shawshank Redemption (1994).
Word of the day
Joggle (v)
To shake slightly, move to and fro, as by repeated jerks; jiggle:
(Source: Dictionary.com)
Shri Nārada Uvāca
Would BJP be better off making it “MODI vs. THIRD FRONT” rather than “MODI vs. RAHUL”, given Congress is losing ground on its own?
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