Thought for the day
"To succeed in life, you need two things: ignorance and
confidence."
-
Mark Twain (American, 1835-1910)
Word for the day
Rubricate (adj)
To mark or color with red.
(Source:
Dictionary.com)
Teaser for the day
By VHP definition all Pakistani and
Bangladeshi Muslims are converted Hindus.
Then why Bangladeshi Muslims are
illegal in India?
2015: Market outlook...the battle continues
On December 16, 2013 when I sat to write my outlook for
the year 2014, the conditions were mostly reverse of what we have on our
hand today.
In the eternal war between the forces of Fear and Greed, the
forces of fear then had exhausted most of their ammunition, e.g., EU
disintegration, Grexit, PIGS default, hyper-inflation resulting from the Mints
printing money incessantly, Iran reneging, Currency war erupting and
endangering emerging economies, hard landing of Chinese economy, etc. Whereas
the forces of Greed had just got fresh batch of ammunition – stable job market
in US, housing boom in UK and US, stable financial markets in EU, stronger USD,
Chinese growth crawling up, moderate or no inflation, US financials back in
business, lower commodity prices, US energy revolution, and mostly stable &
peaceful conditions in hot beds like Pakistan, Afghanistan, Iraq, Iran, Libya,
Yemen, Sri Lanka (except smaller pockets like Syria).
Filled by hope, the outlook for 2014 therefore was mostly
optimistic.
Sadly it is not the today. In a reversal, the forces of Greed
appear exhausted this time. The global scene has turned windy, wet and depressing
and narrative
has turned scary.
Moreover, the domestic scenario which was filled with hope a
strong government that will be able to deliver very fast on economic agenda, is
also circumspect. The PM, Narendra Modi, appears struggling to bring all his
supporters on the same page insofar as the priorities of the government is
concerned. At least in public discourse Feudalistic
idea of Nationalism seems to be dominating the socio-economic concerns.
Lack of ideas to implement the PM's vision of economic
reforms & development, poor
innovation skills, and extreme risk aversion amongst Team Modi is not
lending any credible support to the forces of Greed either.
The forces of Fear are likely to get fresh ammunition during
2015 when further – the disinflationary impact of stronger USD gains
strengthens its roots, US Fed begins to raise policy rates, EU and Japan
slither deeper into recession, commodity universe continue to sink and the
impact of fall in commodity prices begins to reflect on global financial
system.
Like before, many battles of this ongoing global war will be
fought in India too. Indian politicians continue to side with the Fearful,
providing them with enough ammunition and food to survive.
Inarguably, the investors’ sentiment at present is positive
about the cyclical recovery. But never in history the cyclical recoveries have
began with benchmark indices ruling close to their all time high levels and
bond yields also at such high levels. The current cycle could therefore be
short, shallow and volatile. Investor positioning and market internals are
clearly pointing towards that. The market implied volatility, volumes and
breadth continues to remain low. The volume concentration in top 15 traded
stocks is close to all time high.
My outlook for the Indian equity markets for 2015 is as follows:
(a) The marketplace
will witness an intense battle between the forces of Fear and Greed and in my
view, forces of the Fear will have an upper hand.
(b) 1H2015 may be
more volatile whereas 2H2015 will mostly be calm and cold.
(c) The market will
have more opportunities for traders than investors. The quality stocks may
continue to trade at exorbitant premium and therefore may not offer much in
terms of investment opportunity. The cyclical will continue to be confronted by
the prospects of weak recovery in at least1H2015 and hence continue to move in
a trading range with much higher volatility.
(d) There is little
chance of any material re-rating of Indian equities, so the return expectations
will remain muted in the range of 10-13%.
(e) The bond yields
may not correct much from the current level, as the fiscal pressure may remain
intact and global cost of capital rises.
(f) Save for a
drastic global event like Lehman collapse (not improbable), Nifty may move in a
larger range of 7420 - 9400. Strong trading buying and leveraging opportunities
will therefore emerge in to 7850-8000 Nifty range.
My strategy for 2015 will therefore be as follows:
Strategy: More trading needed to meet return target
·
Retain equity allocation to overweight.
·
Increase allocation to trading from present 10%
of equity allocation to 25%.
·
Target 15% absolute return in the risk portfolio
over next five years.
·
Normalize overweight on global pharma and IT.
·
Continue NIL weight to underweight on global
commodities.
·
Increase exposure to domestic Cyclicals,
excluding minerals and metals, in 2H2015.
·
Maintain overweight on domestic consumers
including consumer staples and healthcare.
·
Stay invested in longer duration debt.
·
Plan for lower tax benefits on financial
investments.
·
Avoid PSU in general. Selective policy neutral
companies could however be considered on case to case basis.
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