Thought for the day
“Fear tends to manifest itself much more quickly than greed, so volatile markets tend to be on the downside. In up markets, volatility tends to gradually decline.”
—Phillip Roth (American, 1933 - )
Word for the day
Cuittle (v)
To wheedle, cajole, or coax.
(Source: Dictionary.com)
Teaser for the day
Baru has told what 1.26bn Indians and most foreigners always suspected/believed.
So what is this all fuss about?
Stay put to take the beta bait? - II
Yesterday, we highlighted (see
here) that a large outperformance by midcap over the large cap stocks
usually occurs in the final phase of a market rally.
This phase could last anywhere between 12-24months and is
highlighted by stronger momentum as measured by higher volatility, positive
better market breadth, deeper participation and rising volumes.
The divergence that has been taking shape since past 3months has
the characteristics of a large beta rally in the making - Volumes have gone up.
Volatility has risen dramatically. Market breadth has improved. Stock prices
have gained sharply. Though participation (no. of stocks trading and no. of
people trading) has not deepened yet, it may be due to wait and watch attitude
of investors due to ongoing elections.
In my view, this rally shall extend for another 9-12months.
However the following needs to kept in mind:
(A) A
government not led by BJP
with Narendra Modi as PM (less likely in our view) may slow down the market
momentum during May-August period.
I believe that notwithstanding the form (majority or minority)
and constitution (UPA, NDA or New Front), the fiscal and monetary correction
that started from September 2013 shall continue and keep the markets in good
stead. The market therefore should regain the momentum post budget session in
August.
(B)
A government led by BJP with Narendra Modi as PM
may acquire even greater momentum immediately post election results (16 May
2014) and complete its course much earlier, say in 6months.
The current market direction suggests that the consensus is
assuming that the new government in India will follow the classical
Keynesian method to revive economic growth. Both fiscal and monetary stimuli shall
be provided to spur consumption and investment demand. Monetary policy will not
be further tightened. The sharp rally in PSEs and PSBs appears to hinge
on the premise that the Government will
raise substantial resources through aggressive assets’ sale to recapitalize
struggling public sector banks.
Expectations of successful inflation targeting by RBI and
consequent controlled inflation and lower rates are also giving direction to
market wherein cyclicals that depend hugely on lower rates and higher investment
demand are outperforming.
I personally do not with many of these premises, and therefore
not convinced about the construct of the rally.
I believe that more likely scenario post election would be
tighter fiscal discipline, mostly tight monetary policy with selective
loosening for priority sector, higher taxes, lower public consumption, higher
capital flows, and better consumer and business confidence.
…to continue tomorrow
Follow @VIJAYGABA
No comments:
Post a Comment