TIA Article – 090618

Few Words on Market – Tamilnadu Investors Association – TIA

090618: Media has spoken a lot about the targets the new government should have in the first 100 days of swearing in. No one is able to understand the significance and the logic of this 100 days theory! Frequent television programmes on budget expectations and possible measures which can be taken by the new finance minister are creating confusions in the minds of small investors. All these seem more of hype than real expectations, being the first year of swearing in, we should talk about what government can do to revive the economy and not what sops if can dole out for the people, hence the general expectation of reduction in taxes, removal of service tax etc., may not materialize. The government does not have the liberty to be liberal since it has to finally deal with the fiscal deficit, which our country is facing.

At Sensex levels of around 8500 – 9000 it was mentioned here quite a number of times that this looks like a bottom and the down side is minimal, indications like rise in vehicle sales pointed towards revival in Indian economy, hence we recommended Index funds. In the last issue we were cautious on the “run to buy stocks” which led to first ever upper circuit in Indian market. We continue to be cautious for the short term and are very bullish for the long term (24 – 36 months).

Sensex hit a high of 15600 recently and has corrected almost 9% till date which is good for the health of the indices. The recent rush was on account of liquidity which just poured in due to missed out feeling. Sensex retracement levels from March’09 lows to June’09 highs point that any panic in the market can take the index to 12000 – 12500 levels, this would be a great entry point for investors who missed the rally yet again. The medium term resistance would falls at 16100 (+/- 500). The current PE of around 20 is a de-motivating factor for fresh liquidity to come in.

The short term view may be cautious but we are optimistic on what market can do over a period of time. The latest IIP number has shown a minor recovery, the advance tax numbers are not bad either. There are indications which now point towards global economic recovery as well. Chinese GDP forecast has been raised to 7.5% from 6.5% by World Bank. $700 bn to be spent in various Asian economies would act as a stimulus package. The shipping freight rates are on the rise, the Baltic dry index is still up month on month even after the recent small correction. The home sales index in the US is also rising marginally.

We can consider all these as pointing towards a global recovery and the major beneficiaries would be emerging countries like India and China. Prudent investors should be very stock specific in buying. Wrong picks can lead to erosion of capital if Sensex tests the above mentioned 12000 – 12500. Spend some time to identify stocks in sectors like Power Equipments, Banking, Infra (not reality) which would benefit when we see an economic recovery.

US markets are still consolidating and would take some more time to give any major buy signals. Money would flow where there is growth, it’s like water and would find the right place to be parked. Investors in recent past have shown signals of panic buying which too is bad. Bloated expectations of large scale divestments of profit making PSUs made these stocks hit the roof. The move is already facing resistance. The government can take many months on issues like these. It is good enough if the sops the government announced in form of stimulus packages, few months before the elections are not reversed. Some more tax reductions at the manufacturing level can be more beneficial to the economy than reducing taxes at personal level and corporate level. A fall of 50 basis points on interest rate is again expected and that would open the gates for further buying.

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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