Wednesday, May 15, 2019

Caught in perfect storm of sorts


Some food for thought
"When one is narrating a story in the first person, one must be that person."
—Daphne du Maurier (English Novelist, 1907-1989)
Word for the day
Jomo (n)
A feeling of contentment with one’s own pursuits and activities, without worrying over the possibility of missing out on what others may be doing.
(Acronym for "Joy of Missing Out")
First thought this morning
The term of 16th Lok Sabha is drawing to a close. A long drawn acrimonious contest to elect 17th Lok Sabha shall also end in 5 days. Though the election outcome is still unclear, a variety of surveys, opinion polls, analyses and opinions have indicated that BJP might not reach the midway 272 mark this time. Especially in the key state of Uttar Pradesh, BJP is seen losing a significant base (in 2014 it got 71/80 seats). BJP has recently lost elections in MP and Chhattisgarh where it was in power for 15yrs. It also lost in Rajasthan. General Election reverses in UP might also reflect on the state assembly polls scheduled in 2022.
It would therefore be reasonable to assume that the kind of massive majority at center and states, may not be seen in near future.
I feel, BJP must have utilized its massive mandate to implement at least the following:
(a)   All NDA ruled states should have adopted CBSE syllabus, dismantling their respective state boards.
(b)   All NDA ruled states should have signed comprehensive binding water treaties, including river linking, water sharing, sewage & industrial effluent flow in rivers, etc.
(c)    All NDA ruled states should have signed comprehensive interstate labor immigration rules, explicitly defining rights and obligations of migrant labors, contractors etc. The agreement must have provided for provision of basic human facilities like safe shelter, sanitation, drinking water, electricity, child education and primary health services to all interstate immigrant labors.
(d)   All NDA rules states must have signed an agreement to share State Administrative Officers, so as to gain from their experiences, and checking cases of corruption.
(e)    All NDA ruled states should have agreed to hold simultaneous polls to LS, State assembly and local bodies.
(f)    All NDA states should have devolved all powers to Panchayati Raj institutions as envisaged in 73rd Amendment.
Chart of the day
 
Caught in perfect storm of sorts
The markets are witnessing a perfect storm of sorts.
(1)   Sino-US trade conflict is rattling global markets as growth outlook gets clouded.
(2)   The debt market is jittery with a spate of downgrades raising possibilities of further defaults and a fresh round of slippages.
(3)   Poor auto sales, NHAI warning over growth in road construction activity, contraction in manufacturing growth, class action suit for price manipulation over pharma companies, rise in H1B VISA cost and other restriction impacting IT companies, and cautious volume growth commentaries by leading consumers firms, fall in global metal prices and continued poor performance of telecom companies may lead to significant broader earnings downgrades.
(4)   Many southern states have witnessed very poor rain fall in past 4months. Unusually dry season has created acute water shortages in many areas, hampering construction and farming activities. Fruit and vegetable prices have surged. Some agencies are forecasting a below par monsoon rain this year. Official forecast also suggested impact of El Nino till July.
(5)   Foreign investors have resumed selling in May. Domestic equity flows have also moderated considerably. In April, net of SIP, both equity and debt funds witnessed outflows.
(6)   Substantial write down of debt fund portfolios has eroded confidence of investors, as yields on savings have eroded sharply.
(7)   Despite OMO and USD swap by RBI, liquidity conditions have not improved significantly.
(8)   Implied volatility has shot up by almost 100% in past two months. Sensing the trouble brewing in markets, regulators have increased margin requirements materially, raising overall cost of transaction for traders.
(9)   4QFY19 earnings declared so far have been mixed. Only a few stocks have beaten the already moderated estimates, while a large number of stocks have either just met or missed the estimates.
(10) Uncertainty about pre poll NDA reaching 272 mark on 23rd May is also adding to the nervousness of investors.
Consequently, in past few trading sessions stock prices have corrected sharply, especially in broader markets and momentum stocks.
The market internals suggest that traders and investors might be on the verge of capitulation. They appear willing to sell in panic and run away. Anecdotal evidence suggests that unlike previous market corrections in Nov-Dec 2016, Jan-Mar 2018, Aug-Oct 2018, this time not many people seem to be looking for buying the declines. Perhaps, they are waiting for election results, or may be thaw in Sino-US relations.
Regardless, it is important to assess whether the ongoing correction in stock prices an opportunity worth availing or one should just let it pass.
I shall be sharing my assessment about the situation over next few days.

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