Thought for
the day
“It is greed to do all the talking but not to want to
listen at all”
-Democritus (Greek, 460-370BC)
Word of the
day
Gelt (n)
Money (slang)
Money (slang)
(Source: Dictionary.com)
Shri Nārada Uvāca
With Tata withdrawing and Mahindras not too keen, will the
new bank licenses be a non-starters?
How to play Modi rally?
The current market conditions present a classic dilemma before
the investors in Indian equities. There are reasonable indications to suggest
that the global equity rally may extend little further into the summer; and
along with this Indian markets may also show strength notwithstanding the fact
that the trends in macro fundamentals of Indian economy may not suggest any
improvement in 1H2014. The actual corporate performance has been better than
pessimistic expectation in September quarter, but still no one believes it to
be sustainable over next couple of quarters.
Prospects of Narendra Modi forming a proactive and decisive
government next summer is also a catalyst for the equity markets. An
overwhelmingly large number of analysts and investment strategists are now
pinning hopes on positive outcome of this political event.
From the market internals it is however evident that domestic
investors are still not much enthusiastic about a huge rally in equities. The
volumes in cash markets, poor market breadth, and flows to domestic funds
indicate that these investors have yet not taken plunge.
The moot question is should they be taking the plunge or
continue to sit on the sidelines?
In our view, they should participate in the rally by –
(a) investing in
select stocks that may benefit from the tangible recovery in global economy
(mainly US and Japan); and
(b) trading in high
quality stocks that may benefit from sentimental improvement in local business
confidence.
In our view, investors should stop bothering about Nifty level.
By over focusing on Nifty level, they risk missing some good opportunities.
Nifty is a tool for traders and is enslaved to movement in 5-7 stocks – why
bother about that?
While investing or trading, one needs to believe that no matter
what happens to the headline macro numbers – GDP, inflation, rates etc. Indian
equity markets are not shutting down. Only remember, the more poor the number,
the higher would be the concentration in “expensive quality”.
In strict technical sense, a big round of rotation from high
PE/PBV to low PE/PBV is beginning to show. This may accelerate in two ways – 1.
The same money gets out of IT/FMCG and goes into Infra/financial or 2. The new
money goes only to infra/financial etc.
In first case Nifty will not go anywhere (5700-6300 range with
occasional violation on either side). In second case however, Nifty could go to
6700-6800 or even beyond. In our view, the odds are 3:2 in favor of second
probability. Modi will play a big catalyst in this rotation that may occur post
8th December.
It is however pertinent to note that technically probability of
Nifty testing 4700 before March 2015 still exists. But as we said earlier, why
bother about this if it is going to be a ‘V’
kind of move.
We shall discuss some of our preferred local and global themes
next week.
Also read:
Letter to Mr. Narendra Modi
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