Thought for the day
“Computers are useless. They can only give you answers.”
-
Pablo Picasso (Spanish, 1881-1973)
Word for the day
Adret (n)
A side of a mountain receiving direct sunlight.
(Source: Dictionary.com)
Teaser for the day
Entire print and electronic media is highlighting caste of
new Bihar CM.
Why is it necessary?
No
change in strategy
Since Friday afternoon a number of readers have asked me does
the unexpected election results warrant any change in investment strategy. In
particular, people are asking should we be chasing the financials and infra
developers and thereby increasing beta of the portfolio.
To this my reply is that I do not see any reason to change my
core investment strategy due to government transition at the center for the
simple reason that (a) I follow a strategy which is designed to be mostly
policy independent and enjoys an optimum beta relative to macro economic
growth.
Insofar as the tactical trading opportunity presented by the (a)
global optimism towards global emerging markets and (b) buoyancy in investors’
sentiments due to change in regime, is concerned, I would like to reproduce the
strategy
summarized at the beginning of current financial year
“In my view it is clear that we are headed towards a major
trading rally in Indian equities over next 12-15months. I will not be surprised
if this rally actually transcends into bubble territory as the “US rate hike”
clamor gains further momentum. Also there is little doubt that this bubble will
also meet the same end as the previous ones, more recently 1998-2000 and
2005-2007.
Having this view in mind, I set my strategy for trading with
following assumptions:
1.
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.
2.
Government will raise substantial resources
through aggressive assets’ sale to recapitalize struggling public sector banks.
3.
US Fed achieves the QE tapering target driven by
consistent improvement in housing and job market. US rate hike anticipations
lead to stronger USD, and massive rotation from US bonds to risk assets like EM
equities.
4.
No major geo-political event occurs that would
create supply disruption in energy market.”
With these assumptions in mind I have been suggesting a
“leveraged but beta neutral” trading strategy with a 12-15months time frame. I
do not see any need for change on this front also.
In the said strategy piece published on 1
April 2014 I had suggested that “Buy global
businesses (IT, pharma, auto ancillaries) as INR completes its correction over
next 2-3months,
I feel, I will get this opportunity in next 5-6 weeks. Till then
I am looking to book some profit in my trading portfolio, especially stocks
which have seen 40-50% rally in past 7weeks.
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