Thought for the day
“O wise man! Give your wealth only to the worthy and never
to others. The water of the sea received by the clouds is always sweet.”
-
-Chanakya (Indian, 350-275BC)
Word for the day
Solipsism (n)
Extreme preoccupation with and indulgence of one's
feelings, desires, etc.; egoistic self-absorption.
(Source: Dictionary.com)
Teaser for the day
Paid media! AK is absolutely right.
Ashutosh, Manish Sisodia, Shazia Ilmi, Ashish Khaitan…
AAP has rewarded all journalists who unduly propagated AK
& associates with election tickets.
What the crystal
ball says?
In 2HFY14 Indian
equity markets have been generally buoyant. Benchmark indices have gained ~24%
from lows of September 2013. I find four notable elements in this rally.
First, during this
period foreign investors have been more bullish on Indian equities, whereas
domestic investors have generally preferred fixed income.
Second, four notable events triggered this rally – (a)
appointment of Mr. Raghuram Rajan as RBI governor and some aggressive measure
successfully taken by him to stem the slide in INR; (b) announcement of
Narendra Modi as PMship candidate of BJP for forthcoming election (and
subsequent opinion polls showing he having an edge over opponents) which
stemmed the slide in business confidence to some extent; (c) improvement in
macro indicators especially fiscal deficit, current account deficit and
inflation due to a variety of measure taken by the government; and (d)
encouraging 3QFY14 aggregate corporate performance, primarily led by large
companies having global operations.
Third, the rally was initially led by the global businesses like
IT, pharma, and duly supported by domestic consumption stories. However, lately
the action has moved to the hopes of economic recovery and hence credit and
investment themes are leading the bull charge while defensives IT, pharma and
consumers have taken a back seat. Stocks from infrastructure, realty, energy
and capital goods are more in demand these days. Moreover, the early part of
the rally was confined to a handful of large cap stocks while the latest surge
is little broad based; though the volumes have continued to remain dismal and
overall market breadth mostly negative. Market volatility has also remained
confined to lower range.
Four, the rally has occurred despite (a) US Federal Reserve
moderating the pace of bond buying program (tapering); (b) global energy prices
ruling at elevated level; (c) Chinese economy moderating triggering fears of
reversal of nascent global economic recovery; (d) RBI refusing to signal any
easing plans in near term; (e) early indications of El Nino returning this
year; and (f) no signs of financial stress in the system dissipating.
Keeping these elements in context, I would like to answer the
following queries frequently raised by our readers.
(a)
Is it time to change asset allocation in favor
of equities?
(b)
Are we at the threshold of a new bull market? Or
this is just another bear market rally extended a little far, just like October
2007 – January 2008?
(c)
All new bull markets are usually led by a new
leader. If we are entering a new bull market which sector(s) is/are going to
lead the way?
(d)
What will change if Narendra Modi indeed moves
to 7RCR in May 2014? What if he fails?
(e)
Is it possible for equity markets to rally hard
from here even if interest rates do not fall materially, food inflation picks
up again due to poor monsoon and global rate cycle begins to turn with Fed
indicating a hike sometime in year 2015?
Readers can send their views, comments, criticism to the
author at vijaygaba.investrekk@gmail.com
Follow @VIJAYGABA
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