Some food for thought
"People can have rhinoceros skin, but there's a point when
something's going to hurt you."
—Janet Jackson (American Musician, 1966)
Word for the day
Whataboutism (n)
A conversational tactic in which a person responds to an
argument or attack by changing the subject to focus on someone else’s
misconduct, implying that all criticism is invalid
First thought this morning
Indian stock markets not only appeared relieved, but jubilant
after reading the exit polls for the general elections. It did not bother to
wait for the final results, scheduled to be announced on Thursday and recorded
huge gains.
A plain reading of the traders' screens at 3:30PM yesterday
highlighted the following:
(a) An overwhelming
majority of market participants believe that prime minister Narendra Modi led
NDA government would be beneficial for the businesses and markets.
(b) An overwhelming
majority of market participants believe that certain businesses may do much
better when a NDA government led by Prime Minister Modi is in power. (Memo:
F&O 5 top gainers - Adani Entprises +27%; Adani Power +15%; Reliance Power
+18%; Reliance Infra +12%; India Bulls Housing Finance +13%)
If someone argues that it could be due to short squeeze, then
he/she must answer how come so many short positions were created in these
counters and what has changed that requires covering these shorts in panic.
(c) Zee
Entertainment was an exception to the trend. Is market giving up hope on this,
regardless of the election outcome.
(Note: These are the first thoughts that came to mind after
looking at trader friend's work station. It is not based on any analysis, and
is certainly without any prejudice.)
Chart of the day
Don't rush
Last week, I wrote about some of the notable challenges Indian
financial markets are facing. Out of the ten points mentioned (see
here), the last one seems to have been adequately addressed by the exit
poll results. Relieved markets recorded their best single day gains in many
years. The benchmark indices closed at their all time high levels.
I would certainly not like to be a party pooper here, but
nonetheless, I do find it in order to remind the readers about the following
nine points in my list of concerns:
(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.
I do believe that the next five years would be much better in terms
of corporate performance as the ground prepared in past 2 decades shall soon
start yielding results. Seeds like higher Power generation capacity, expanded
ports, roads and rail networks, IBC, GST, are already showing green sprouts.
Any investment today therefore must be done these factors in
mind, not just driven by sentiments or mob mentality.
Please do remember, past performance is no guarantee for future
returns.
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