"The backbone of
surprise is fusing speed with secrecy."
—Carl von Clausewitz
(German, 1780-1831)
Word
for the day
Prelapsarian (adj)
Characteristic of or
pertaining to any innocent or carefree period, e.g., a
prelapsarian youth
Malice
towards none
Attributing cheaper food
prices to DeMo and before time monsoon season sales to GST is a mistake, rather
stupid one!
First random
thought this morning
A good friend, who also happens
to be a fund manager, lamented that after spending so many years in stock
market, I am convinced of the massive role that "Unintended
Consequence" plays. A large part of the stock market profits (or losses)
in India are unintended, fringe or collateral. A handful corporates actually
work to enhance shareholder value.
Unfortunately, I had nothing to
say. And I do agree - in toto.
Mid Year Review - 2
The benchmark indices have gained over 17% YTD, while the broader
markets have done even better returning over 25%.
Bond prices have been volatile, but on YTD basis, benchmark yields
are lower and average return in bond funds has been 4-5% (not annualized). So
not much to complain in this either. The lending rates have however fallen much
more than bond yields, as the lenders have transmitted the benefit of previous
rate cuts to borrowers.
INR has appreciated close to 6% YTD, versus USD.
In this period, the markets have weathered many a storms, including two Fed
hikes, intense political drama (both in domestic and global spheres), slowdown
in growth, disinflation, and anticipation of material business disruption due
to implementation of GST, etc
Now, with each passing day, the expectations of the market
participants from political establishment are diminishing. Though, the
government is focusing on administrative reforms, the political compulsions are
constricting the implementation. Beginning October 2017, the great election
season shall commence that will last till May 2019. The government is widely
expected to be populist rather than reformist.
Given the falling trajectory of inflation, poor visibility of
investment demand growth due to still high real rates & poor capacity
utilization across industries, challenges in job markets and poor farm
realizations, the prospects of any significant acceleration in earnings growth
are clouded.
Nifty currently trades at ~18x its 12months forward earnings
estimates, which is a premium of ~20% to its 10yr average valuations. On the
basis of FY17 earnings, Nifty trades at ~23x PE ratio. Though still some
distance from bubble valuations, the probability of any spectacular return from
current levels in next 12months looks low.
I have seen arguments for further rise in stock prices on the basis of
price to growth (PEG) and price to book (P/BV). Some analysts are arguing for
material rise in earnings in FY19. I find these arguments mostly just that
"arguments"; lacking in conviction.....to continue next week
No comments:
Post a Comment