Thought for
the day
“If you're trying to summarize something for your
1-year-old, you put it in very simple terms. You only gradually complicate the
explanation as they get older.”
-Emma Donoghue (Irish, 1969 - )
Word of the
day
Turpitude (n)
Inherent baseness or vileness of principle, words, or
actions; depravity.
(Source: Dictionary.com)
Shri Nārada Uvāca
Should Congress conserve resources for 2019 or spend all of
it in 2014 itself?
2014 – Starting close to finish
Imagine the reaction of a 100m race participant, who is allowed to
begin the race from 75m mark! Assured of victory will he be delighted? Much
ahead of competition will he be complacent (remember the classic hare and
tortoise fable)? Or will he feel depressed and opt out of competition?
Now imagine the reaction of a professional formula 1 driver, who
is informed in middle of race that the priced money for the race has been
reduced by 75%! Will he continue with the race with same zest? Will he take
lesser risk in the remaining part of the race? Or will he choose to abandon the
race midway?
In our view, the athlete may opt out of the race as the
privilege of beginning from close to the finish line would hurt to his sense of
competition and take the thrill of winning out of the competition. However, the
car racer may decide to continue in the same zest, despite lower price money,
because getting out midway could be riskier, and a win would still add to his
confidence and give at least 25% of the reward.
The 2014 strategy for investors in Indian equities would depend
on whether the investor is like an athlete waiting for the race to begin or a
car racer in the middle of the race.
We feel the investors who have been waiting on the sidelines for
past few years should continue to be so despite some visible signs of economy
bottoming, because (a) the cyclical recovery is now a consensus and so is
“cyclical overweight” trade; there is no thrill left in this and (b) market has
mostly discounted the cyclical recovery in past three month’s outperformance of
cyclical, leaving no fruit on the lower branches.
However, the investors who have been investing over past few
years should stay put, as the risk reward at this stage looks positive, though
not spectacular. 15% earnings CAGR over FY15-16 and market trading at average
of 15x might provide ~15% CAGR over next couple of years.
Inarguably, the investors’ sentiment at present is positive
about the cyclical recovery. But never in history the cyclical recoveries have
began with benchmark indices ruling close to their all time high levels and
bond yields also close to their cycle peak. This time perhaps it is different.
The next cycle could therefore be shorter, shallow and volatile.
Investor positioning and market internals are clearly pointing towards that.
The divergence between large cap and small cap prices is high and rising. The
market volumes and breadth continues to remain low. Implied volatility
continues to remain low. The volume concentration in top 15 traded stocks is
close to all time high.
Last but not the least, the primary catalyst for the positive
investors’ sentiment is hope of a decisive mandate in 2014 general elections.
So far it remains a hope, as none of the opinion polls has projected a decisive
government. Most of hoping that conditions will improve as NDA gathers more
momentum post recent assembly elections.
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