Thought for the day
“People deal too much with the negative, with what is wrong. Why
not try and see positive things, to just touch those things and make them
bloom?”
-
Nhat Hanh (Vietnamese,
1926 - )
Word for the day
Wanderlust (n)
A strong, innate desire to rove or travel about.
(Source: Dictionary.com)
Teaser for the day
Is Gujarat less secular than Maharashtra? Or MP less
secular than Bihar?
If yes, is that a breakdown of constitutional machinery
that calls for President’s rule?
If not, what is this commotion about?
No hurry and no worry!
While I do not expect 18 May 2009 like dramatic move in the
market, the next week is likely to be eventful. The good part is that most
investors appear fully prepared for higher volatility, disappointment and
exuberance. Abysmally low volumes in past many days indicate that most traders
have pruned their trading positions and moved to fringes.
A disappointing election result may therefore not lead to a
panic attack in the market; whereas a result seen positive for the economy may
drive the fence sitters into market. If forced, I will bet on an up move rather
than a down move in the market in coming three weeks. Though left alone, I
would also prefer to sit out and see the volatility through.
Bottoming process on, but no bull market in sight
The bottoming of stock markets is usually confused with the
lowest point of indices in a cycle. In my view, it is a complicated and often
long drawn out process through which the factors supporting a positive
environment for “risk investments”, e.g., equities, fall in place. The
following pieces, in particular, should fall in place before we could call the
market bottom.
•
Psychological bottom should occur, i.e., greed
should conquer the fear.
•
Macro environment should be supportive of
corporate initiatives for growth.
•
Valuations should be fairly cheap to entice
investors into taking higher risk.
•
Earnings upgrade momentum should be positive.
•
Technical bottom should be achieved.
•
The alternatives to equity (debt, bank deposits,
gold, real estate) should sound less attractive on risk-reward basis.
•
Moderate to low volatility.
There are some signs of market bottoming process progressing
well. However, in my view, we are still some distance from a sustainable bull
market.
The investors are not fearful but they are not willing to take
risk either. The macroeconomic environment is stable but not encouraging enough
to induce risk taking. Bank deposits are earning over 9%pa. Earnings upgrades
have started to trickle in but are still sporadic and confined to top end of
the market. Technically market is nowhere close to a bottom. Volatility has
shot up.
It would take at least 4-6 quarters of sustainable effort on
part of the new government to put the missing pieces in place for a new bull
market to take shape.
I am happy to use this interim period for structuring and
building my portfolio for the next bull market. For now “no hurry and no
worry”.
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