TIA Article – 090817

Few Words on Market – Tamil Nadu Investors Association – TIA

090817: It is now official that India is going to face the worst drought in over seven years, and market participants expect a major setback for the recovering economy. Estimates suggest that the drought can have an impact of 0.5% on GDP and hence there has been some profit booking in the market. The unstable global markets and the Swine Flu are keeping the mood jittery. We feel what is being preached from various quarters is more than the reality. Monsoon is an annual phenomenon and hence a bad monsoon cannot mean that markets are supposed to just crash. Yes a drought would definitely make life a bit difficult and we are already seeing the effect on the food prices. The Inflation may have fallen to negative 1.78% due to base effect but in reality people are worried about food security due to the spiraling prices. In the case of Swine Flu, media is creating panic by showing how many people died and not showing how many people recovered and survived from the disease.

The volatility in the market is justified as investors are trading cautiously on back of the fact that markets have almost doubled in last few months. China factor is often spoken and the demand from the country may indeed slowdown. The speculation in the Chinese market is much more than other global markets and hence we see frequent sharp corrections which in turn affect the sentiments of other markets as well. These corrections can be used by investors to enter stocks. The market is likely to remain in a range and these corrections and rises may occur within that range.

The recently declared IIP numbers 7.80% YoY points towards a reviving economy. The first signal of revival was the auto sales numbers which was mentioned here. Things are improving on the ground, we have stopped hearing about the layoffs pointing that the worst is over. Worst is over does not mean its start of the best but equity investors generally take this in positive manner and discount the start of the good, hence we have seen the rally over last few months. We have been mentioning here that we are bullish on the markets for the longer term and would enter stocks as and when short term corrections occur. The economies of Japan and few other developed nations have stopped deteriorating as per those countries official announcements.

The Direct Tax Code which was announced recently, the new code is likely to replace the existing IT Act on 1/4/2011. The act does not provide many benefits for retail investors to cheer except that of removal of STT. The concept of EET will not let people save much. India has not seen the worst effects of global recession due to the savings habits of the public. EET concept will deter this. The very fact that NPS is still to see the day light is since the withdrawals at the vesting age is not tax free. There should be clear cut concessions to the low income earning group vs high earners.

Sensex has medium term support at around 14300 – 14250. The medium term targets for Sensex would be 16600 – 17000. Expect buying from FII’s as and when there are corrections in the market. Even if drought takes away 0.5% from the GDP we still would be most attractive market in the world. Sugar stocks have run way ahead of justifications hence they remain good only with trading perspective and investors should stay away. The line up of IPO’s show that interest in the secondary market is back but the subscription numbers from the retail still points towards lack of confidence. One can look at selective PSU stocks keeping possible disinvestment in mind. There are few companies where the government has more than 90% shareholding hence can be good bets if bought during panic corrections.

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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