"Never be haughty to
the humble or humble to the haughty."
—Jefferson Davis (American,
2909-1889)
Word for the day
Superluminal (adj)
Appearing to travel faster
than the speed of light.
Malice towards none
Does yog guru cum
industrialist Baba Ramdev want to become UP Chief Minister?
First random thought this morning
In the present political scenario, Indian voters face really tough
choice. Between the incumbent prime minister Modi, who is being seen as not being
able to meet peoples' elevated aspirations (which he himself has raised in past
5yrs); Rahul Gandhi who is still untested in any administrative role; and a
host of regional leaders who lack national appeal.
If the recent voting trends are any indication, we are heading for
a 1996 like situation, where some BJP supporters may press NOTA; Congress may
only be able to increase its vote share marginally from 2014 and regional
parties which got decimated in 2014, emerge stronger.
If this assessment proves correct, expect 5 out of 7 Delhi seats
for AAP!!!
Is it dotcom all over again?
The greed trade that dominated the Indian equity market for past
couple of years has suddenly weakened in past few weeks. There are signs of
fear emerging as the dominating factor in the market. Though they may not have
capitulated as yet, but a sense of unease is palpable amongst investors.
This is a typical case of hangover after a spell of ecstasy and
overindulgence, and a key sign of the beginning of the market cycle bottoming.
It is pertinent to note that the bottoming of stock markets is
usually confused with the lowest point of indices in a cycle. In my view, it is
a complicated and often long drawn out process through which the factors
supporting a positive environment for “risk investments”, e.g., equities, fall
in place, and a foundation for the next cycle is laid.
The following pieces, in particular, should fall in place before
we could call the market bottom.
- Psychological bottom should occur, i.e., greed should conquer the fear.
- Macro environment should be supportive of corporate initiatives for growth.
- Valuations should be fairly cheap to entice investors into taking higher risk.
- Earnings upgrade momentum should be positive.
- Technical bottom should be achieved.
- The alternatives to equity (debt, bank deposits, gold, real estate) should sound less attractive on risk-reward basis.
- Moderate to low volatility.
However, before I try to make any analysis of the bottoming
process and form a strategy for the new cycle, it is important to assimilate
the anatomy of the extant market cycle.
In past four years (FY14 to FY18), Nifty EPS has grown at measly
~2.8% CAGR, whereas Nifty has risen by ~12.2% CAGR. In this period, real GDP
growth rate has fallen.
It is therefore important to examine if the extant market cycle
that started in summer of 2013, is more like 1998-2000 dotcom cycle.
The dotcom cycle was purely a global phenomenon, in which Indian
markets also participated, returning a phenomenal ~88% CAGR during November
1998 and February 2000. The retail participation in that cycle was
overwhelming. But in hindsight we all know that it was mostly a
"bogus" and "manipulated" market as rise in equity prices
was not supported by earnings improvement or macro growth pick up. The gains
were ephemeral and evaporated totally in less than a year.
In next few days I shall share my views on the same. Comments welcome.
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