TIA Article – 090518

Few Words on Market… Tamilnadu Investors Association

090518: The long wait is finally over and the Indian public has delivered its verdict. The verdict is clearly in favor of the sitting PM and is seen as a verdict for stability of government than anything else. The people did not want to take any chance in the times of crisis which is evident from the following 1. Ruling national party gets the mandate 2. Regional parties which remained in the coalition got people’s support 3. Regional parties which were non committal to either BJP or Congress have been battered out of shape 4. Left has been completely left out from the scenario.

PM Manmohan Singh now has clear five years in hand to act on all issues which can make India strong in the coming times. The most positive thing the stock market is celebrating is that this new government is not going to be towed frequently by parties like the Left when it comes to issues like the reforms. Market wanted a clear majority government either by Congress or BJP, and after long time the wish of market participants has come true.

There’s a paradigm shift in the fundamental sentiment, we expect policy decisions to move at faster pace now. Reforms in pension, consolidation of banks, insurance, social sector revival, and many other tasks can be immediately taken up by the prime minister and the new finance minister in the coming budget itself. Since he has been on the post for the last five years he is well aware of the issues and need not waste anytime in analyzing the scenario, which a first time prime minister may mostly do. Fiscal deficit continue to be big worry for India and the government can this time take the route of diss-investment to raise funds.

Sensex has vaulted to second upper circuit today and is up by 2100+ points, the exchanges have closed trading for the day, it is the result of positive factor on political front but the market reaction seems to be that of over exuberance. We have seen constant flow of FII money into the market since the levels of 9000 which took the Sensex to 12000 levels. Left has been left out at New Delhi but the retail investors also have been left out in the rally from 8500 to today’s level of 14300. FII’s and Institutional investors are sitting on huge profits and 20% plus returns in one day would be enough bait for them to come and book profits. Hence it is not advisable to jump into the bandwagon now.

The medium to long term outlook for the market if the government acts as per expectations is extremely positive. Investors need to be highly cautious in the short term and infact should book profits and sit on cash so that stocks can be bought once the initial euphoria dies down. Sensex may have changed 20% in a day but will the earnings of the companies also change in same speed? Markets usually discount future in present prices and today’s level seems to have discounted even 2010 earnings. The short term worries will start surfacing once sense again prevails.

Money is waiting on the sidelines to enter into the market and positive actions will attract FII money. The Rupee situation is alarming, steps need to be taken so that India attracts more FDI and FII money. Cleansing the promissory notes mechanism would bring in more genuine long term money into the system and would drive out the volatile as speculative money would be discouraged. Indian investor is still at mercy of FII money for Sensex movement and hence we need serious money.

There might be change of guard at fag end of the tenure of the present government. Rahul Gandhi most likely would lead the party then. PM Manmohan Singh has enough time to prove himself now. Invest into Power, Power Equipment, Infrastructure, Banking sectors with three year time horizon. Start buying once Sensex nears 11500. Bottom seems to be at 10500 now.

by Vivek Karwa, CFPCM

Disclosure:- It is safe to assume that the author may have interest in the sectors recommended in this news letter. Seeking personal advice from your Financial Advisor is recommended before acting on any of the substance given herein. The numbers, figures, etc., presented may have been taken from various sources.

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