"The first step on the
way to victory is to recognize the enemy."
—Corrie Ten Boom (Dutch,
1892-1983)
Word for the day
Miche (v)
To lurk out of sight.
(Source: Dictionary.com)
Malice towards none
Secondary school students
are a worried lot these days.
Going by the current rate of
growth, their history books would have added at least 50 more chapters on great
personalities in next three years!
First random thought this morning
Upper reaches of Himachal Pradesh received unprecedented snowfall
in April, at a time when most of the country is witnessing intense heat wave
conditions.
On the top, astrologers are predicting major natural calamities as
sworn enemies Mars and Saturn come face to face. They feel tremors in Japan and
Ecuador were just a forewarning.
The Finance Minister is upgrading growth estimates every week!
Mindless bulls may hit the wall this fall season
Impregnated by the hopes of a bountiful monsoon, the Indian equity
markets are euphoric again. Optimistic statements by the people such as the
finance minister, RBI governor etc., are making headlines every morning; adding
more fuel to the fire.
The character of market rally is distinctly cyclical - Hope of a
good monsoon, after two consecutive droughts, is driving companies engaged in the
(a) production of agri inputs and farm equipments; (b) production of fast
moving consumer goods (FMCG) which drive significant part of their incremental
revenue from rural consumers; (c) rate sensitive businesses, e.g., automobile,
housing finance etc., in the expectations that improved macro conditions will
afford RBI an opportunity to cut rates rather aggressively and hence spur the
sagging credit demand.
Besides, the global commodity trade is also getting reflected in
Indian markets. The commodity stocks across sectors - agri, metals, chemicals,
paper, cement, etc. have seen phenomenal rise in past 3-4months.
The investor in me is little disconcerted. Though, I had
anticipated the markets to take this turn; and I had also deliberately decided
not to follow the market on this detour; I feel the smaller investors who are
chasing the market trend again getting crushed, for the following reasons.
(a) The rural sector is
under tremendous stress for past three years. The farmers and laborers are
deeply indebted, after having exhausted all their savings of past decade.
Severe drought and extreme water shortage is a reality, whereas bountiful and
timely rains is still a hope. Even assuming a timely and widely spread good
monsoon, the farmer may not get much money to consume or invest this year. Debt
repayment and rebuilding emergency buffer will take most of the earnings. This
trade therefore may underperform from the current levels.
(b) Outperforming private
banks, NBFCs, HFCs, CV and tractor producers are already trading close to their
average historical cycle peaks in terms of valuations. Whereas the cheaper
public sector banks are languishing (not without reason though). The trade
seems already overdone, and we are still at the take off stage.
(c) Europe and Japan are
flirting with recession. China is expected to remain in slow lane for next
decade or so. Commodity dominated emerging economies like Brazil, Russia, South
Africa, etc. are struggling. Australia, Canada, Hong Kong, Singapore, Korea
etc. are not growing either. US is stable but likely to complete this economic
cycle with weakest ever recovery rate. So where is the case for commodities. In
my view, what we are witnessing is nothing but a sharp correction in a major
commodity bear market that may last even beyond 2020. The trade here, with few
exceptions like Cement, may not last beyond this fall. Those entering the
sector now, I see them working hard this winter to find a bigger fool.
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