Thought for the day
"We hear only those questions for which we are in a position
to find answers."
-
Friedrich Nietzsche (German, 1844-1900)
Word for the day
incommunicado
(adv or adj)
Without the means or right to communicate.
(Source:
Dictionary.com)
Teaser for the day
The color of money is never black.
Money in fact has no color of its
own.
It usually acquires the color of
hand holding it.
Conventional wisdom
I have been insisting for past many months, rather annoyingly to
some, that given the uncertainties that underscore the present global financial
and macroeconomic conditions, it is critical to anticipate and understand the
risks – evident, potential and unforeseen; and calibrate the investment
strategy and portfolios accordingly, without losing the sight of the opportunity
waiting on the horizon to be seized.
"Easier said than done" - yes it is.
Nonetheless I would like to offer some tips.
Be conventional
The current market rally started last summer with change in
leadership at RBI. The event coincided with the government taking a series of
measures to control the worsening balance of payment, inflation and fiscal
balance conditions. Some measures were also taken to stabilize the rising
stress in the financial system.
Most of these measures succeeded in achieving their immediate
objectives. Consequently, global investors reposed faith in Indian markets.
However, it took a change in government for the domestic investors to come back
to the markets.
The market rally since last summer however has many
peculiarities. For example, the rally was a very narrow one - confined largely
to the stocks of companies with global linkages. Subsidiaries of global
corporations, domestic companies with sizable global presence, and exporters
were prime target of the buyers.
This group of stocks were given an unconventional and
unsubstantiated nomenclature, viz., "quality". The traditional
classifications like "growth", "values",
"defensive", and "cyclical" etc. were ignored. The conventional
criteria like valuations, growth outlook were also ignored in many cases.
The consequence, mostly inevitable, is a price bubble as per the
conventional valuation norms, and a seriously crowded ownership.
A large part of my fear is emanating from this peculiar
situation. Many of these stocks could correct or underperform in substantial
measure (a) in case a global risk off is triggered due to any global liquidity or solvency event or (b) a risk on
is triggered in domestic market due to pick up in investment and consumption
activities.
In my view, therefore, it is time to seriously consider and
calibrate investment strategy to the conventional theories - valuation, growth
and earnings momentum. I believe many outperformers of past 13months may fail
the test and warrant an immediate exit.
It is pertinent to believe that the bull market in Indian equity
market is yet to commence. What we have seen in past 13months is just influx of
few dollars chasing yield arbitrage opportunities.
...to continue tomorrow
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