"O, what a tangled web
we weave when first we practice to deceive!"
—Walter Scott (Scottish,
1771-1832)
Word
for the day
Honorific (n)
A title or term of respect.
First random thought this morning
From "Nani Yaad Kara Denge" by Rajiv Gandhi, to the
latest Balochistan rhetoric - little has changed in independence day speeches
made from Red Fort, insofar as Pakistan is concerned.
Those reading too much in the PM's Baloch reference might be doing
just that - too much.
Market leadership may change soon
The current bull market in Indian equities began three years ago
in early September of 2013. This was the time when the then finance minister P.
Chidambaram and the newly appointed RBI governor Raghuram Rajan made some
concerted efforts to repair the fragile balance of payment conditions. Many
more fiscal and monetary corrections were also initiated.
In due course, the efforts were duly supplemented with the massive
correction in the global commodity prices; abundant liquidity infusion by the
central bankers in developed markets; yields vanishing from the global bond
markets hence motivating the global liquidity to funnel into the emerging
economies like India; and marked political changes in India that were perceived
to be reform and action oriented.
The benchmark indices have gained 55-60% in past three years.
However, over the same period the broader market indices have gained over
130-140%. If we consider the fact that INR exchange rate vs. USD has
appreciated by about 2% in this period, the return in USD terms is even higher.
My greed and fear chart shows that the present spread between
greed and fear (as represented by the divergence between the performance of the
broader markets and the benchmark indices) is the maximum recorded during the
past three years and compares well with the divergence recorded during the peak
months of the past cycle (August 2007-January 2008).
Considering that in strict technical sense, the benchmark indices
are not showing any signs of any major correction as yet, the spread may
normalize only through meaningful correction in the broader markets.
I therefore am gearing for a ~10% correction in broader markets
while the benchmark indices record gains of ~5% over next three months.
I would not mind even if I go completely wrong on my timing; since I
seriously find the valuations in broader markets little bubbly.
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