Few Words on Market…

Tamilnadu Investors Association – TIA, by Vivek Karwa, CFPCM

160610: Market and the economy are abuzz with activity over last one month. The biggest news is that the Indian government has hit a huge lottery in the name of 3G auction. The auction is now over and the government has become richer by little over Rs.106200 Crs, the finance minister expected to collect 35000 Crs by way of 3G and Broadband auctions but has ended up getting over 3 times the money anticipated. This money is going to ease the strain on the fiscal deficit by considerable margin. The government may not raise any large amounts from the market in the near future. We need to wait and watch on how these funds are deployed and utilized by the government. The story of the telcos remains sober. Having stretched the balance sheet beyond all estimates these companies may need 3 -5 years before they start making any profits on the new technology. Various rating agencies have already cut the EPS estimates of these companies.

Market has been very volatile over the month. At one point the fears of PIIGS countries going bankrupt were receding and then came a statement from a Hungarian minister that the economy was in grave situation which again caused panic in the indices world over. We last two months have been mentioning that Sensex may take support at 16300 – 16200 and as anticipated Sensex tested 16200 and bounced back on value buying by FII’s.

Indian markets have outperformed majority of the markets due to our on internal strengths. The recently announced April IIP numbers of 17.6% were enough to send in the positive signals to the market. The advance tax numbers are fast flowing in and they seem to suggest the positive trend would continue for now. The capital goods showed a figure of 72.8% as against negative growth of 5.9% and the manufacturing sector grew at 19.4% as against decimals. The monsoon seems to be advancing well at present. All these factors coupled with the money raised by 3G supported the market. We always keep telling that money will find the place where there is growth and hence at present juncture no investor can ignore India. Infact in a statement recently RBI has mentioned that the crisis in the Euro zone would bring in more money flow into the country.

Global markets also have advanced after many of the troubled nations in the Euro zone were successful in selling the bonds. These bonds were absorbed by the ECB and other nations which had pledged to save the Euro. The Euro currency has risen back after hitting multi year lows against the dollor. The market fear that the austerity measures being promised by these countries may not pass through the respective parliaments seem to be fading now as some of them have already been successful.

In India the inflation has again raised the eyebrows and hence central bank may try to take some action. An interest rate hike at this time would not be good for the markets but still a small hike can’t be ruled out. Monsoon can provide a relief if they are normal in reducing the prices to some extent. The news flow from the US and the EU may drive the markets in the short run. We still depend on the FII flows and hence trouble there causes volatility here. Seeing the capital goods growth we still like the Infrastructure sector. Banking, Education and Health remains our favorites. We see sensex facing next major resistance at 18100 levels. Telecom sector may now see the much awaited consolidation hence one needs to keep a close watch.

The recent rule of having minimum 25% public shareholding in the listed companies, will make many promoters announce open offers to delist the companies. Many PSUs will hit the market and hence keeping the liquidity tight. Small free float helps prices of the stocks remain high due to demand supply economics and hence increasing the free float may not be preferred by many.

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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