TIA Article – 100420

Few Words on Market… Tamilnadu Investors Association

by Vivek Karwa, CFPCM

100420: The month since the last issue has been very eventful both market related and otherwise. We have been cautioning short term investors by mentioning that 17700 – 18000 range is critical resistance area. Sensex hit a high of 18048 and tried to cross the level but the bulls could not hold the same, Sensex has corrected 600 points since then. Markets require reasons to correct and this time many of them came in a platter for the bears to have an upper hand.

Cricket fever is at its peak with the ongoing IPL. The fever has already taken its first toll with the external affairs minister Mr.Shashi Tharoor resigning and now government tightening its noose over IPL commissioner Mr.Lalit Modi. Finance Minister has already announced in the parliament that investigations of all dimensions would be held over IPL dealings. Involvement of black money, underworld connections, match fixing is not new in cricket. Such a large controversy over Kochi team does not require great intelligence to guess involvement of all three here.

IPL broadcasters are set to rake in Rs.700 Crs this time compared to earlier Rs.500 Crs. Pune team recently got sold for $370 mn and Kochi team for $333 mn which surpasses valuations of all the teams sold when the IPL was first launched. The owners expect to make upto 400% returns from these teams, that is the reason we are seeing so many companies willing to own a team! No wonder many may be using IPL to convert their unaccounted money into legal! The investigations which government is likely to initiate may reveal more things.

The numbers used while talking IPL may be fascinating, but we feel it’s a Big Bubble waiting to burst. It may take a year, two years or even more but we are sure things cant keep going the way they are at present. Advertisers at some point of time will surely start looking at the ad rate hikes in IPL compared to industry average ad rate hikes. Hence investors investing in companies holding franchisees of teams should always be vigilant.

New ULIP products may not get launched in the near future. The fear that money may be withdrawn from the existing products, and may affect the markets is not correct as the old products remain status quo as of now. The move would be good for investors in the long term as the expenses may come down as there would be more transparency.

We are overall bullish on the markets and maintain the target of around 19300 – 20200 on Sensex by end of this year. The inflation seems to have peaked out. The RBI has raised only 25 bps on various benchmarks as against general expectation of 50 bps shows that they too do not fear immediate pressure. The GDP expectation of 8% with an upward biased will go down with the markets. The US companies have recruited more people in March (190000) as against cut of 36000 in Feb. Manufacturing sector is at its highest pace in EU. PIGS remains a concern and it is prudent not to trust the various confusing statements coming out from that region.

Two Wheeler sales in India is at its highest pace with a 28.6% jump. Indian exports have been consistently going up signaling a better and stable west. The biggest fear for Indian markets is that a improving US economy may slowdown the funds flow into markets like ours. Many Indian companies are looking to raise funds, and government is also divesting its stake in PSUs which would keep pressures on liquidity. We may hence not run up but may keep trading in a range. Next one year would be a stock pickers market.

The immediate support for Sensex falls at 17100 and then in the range 16300 – 16200 if the correction was to get deep. This time we would peg the resistance for Sensex at 18100 – 18330.

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.

Vivek Karwa is a Committee member of TIA, Views expressed here are his own and may not be that of TIA.

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