Thought for the day
”Some say the world will end in fire, some say in ice."
-
Robert Frost (American, 1874-1963)
Word for the day
Defenestrate
(Trn verb)
To throw out of a window.
(Source:
Dictionary.com)
Teaser for the day
I said "Bharat Ratana for K. Radhakrishnan"!
Twitratti said "Who's he?"
Consumers to lead Nifty beyond 10k mark
In past few weeks some reputable global investment Gurus have
joined chorus with numerous analysts and strategists in pronouncing secular
bull market for Indian equities. India is thus gradually becoming a consensus
overweight in global portfolios.
I am also putting up in the same camp, but finding it difficult
to adjust with the cacophony. I often find the arguments supporting the
"secular bull market" incongruent, incomprehensible and frenzied. I
also see the dissonance in the actions of bull market proponents insofar as the
construction of portfolios are concerned.
In my experience, a secular bull market invariably sprouts from
grave of the previous bull market. It therefore needs to have new themes,
players, and business models.
The last bull market in Indian equities was primarily based on
large capex predicated on availability of easy and cheap credit. That bull
market ended with collapse of global credit market in 2008-09. Since then
little has changed. To the contrary, (a) the domestic credit cycle has worsened
materially and (b) global credit markets are now preparing for the transition
to tighter money regime that would be ushered by US Federal Reserve raising
policy rates, may be as early as summer of 2015.
It therefore sounds counterintuitive to me to assume that a
fresh secular market could be build again on themes like large capex and
credit.
This brings us to the most natural theme for Indian market,
i.e., 1.3bn consumers.
It is in fact these consumers who are keeping Indian economy and
therefore markets afloat since 2009. Of course, the global consumers have also
contributed their pennies towards this theme. So we have (a) domestic
consumption plays like consumer staples, durables and services like e-commerce,
media & entertainment, consumer credit etc. and (b) global consumption
plays like healthcare and ITeS doing exceedingly well in the markets. On the
sideline, lower global commodity prices have played their role.
The dissonance here is that this space is universally
acknowledged as highly overvalued and closer to bubble territory. Therefore no
one is willing to bet big with high conviction on this theme. On the other hand
the capex or the popularly called "cyclicals" theme is not working
and in my view, not likely to work in near term.
The dilemma thus I see in the camp is that people are invested
in the right theme, i.e., consumption, but they cannot advocate this for the
fear of big market correction in near term; whereas they lack conviction in the
theme they are advocating, i.e., "cyclicals".
In strict technical terms, I feel the preliminary leg of the
bull market that began in September 2013 is over. Nifty must correct to
7450-7620 range and consolidate there for few months. The low point of the
correction could be 7170. The second leg of bull market should see Nifty
closing above 10800 in the following 22months. A big bubble it will be. But
ain't that the case always?
Happy Holidays!
Next post of Investor's Diary will be published on 7th
October 2014
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