Few Words on Market…

Article printed in Investors Digest magazine of TamilNadu Investors Association – TIA

by Vivek Karwa, CFPCM

100817: The stock markets have been behaving totally as per expectations for quite a long time now. Last month it was Sensex which took proper resistance at the mentioned levels and then we had mentioned fresh resistance levels for Sensex at 18360-18600 and for Nifty at 5480-5555 and Nifty later hit a high of 5492.30 and then both the indexes corrected in a small way again. The indexes have been not moving in a major way either side and are stuck in a range.

Indian markets had out performed most of global markets over last few months and hence instead of giving a price correction the market has decided to do a time correction wherein the broader bell weathers don’t move much in either side sending a signal of consolidation and also with time the PE valuations also come down a bit. One can find lot of action beyond the Sensex in specific stocks and sectors and thus an Investor has to be very choosy while buying in this market.

The inflation continues to be a worry for the public which has resulted RBI increase the interest rates and many banks have already raised the deposit rates which now is a clear signal that lending rates will as well get costly and thus putting that burden on the businesses which again are themselves suffering due to high input costs. The manpower cost is the biggest burden today. Though we say India is young country employable and skilled manpower is not available that easily. We have always been bullish on the education sector and some stocks in this space have given phenomenal returns over last month.

The quarterly results season is over and the announced results do not show any signs of drastic slowdown in the corporate profitability and hence we should be on track to achieve the GDP growth targets given by the RBI and the IMF. RBI has projected a growth of 8.5% and IMF has projected a growth of 9.4% which should settle down to 8.5% in FY11.

The global markets have been fearing a double dip and now it looks like the PIIGS fear was overdone just like many other events like the Y2K and Sub-Prime. We don’t hear much from PIIGS now and though the economies are not in good shape there, they are not deteriorating either. The situation in these developed countries is at its lows and any positive developments can bring back the confidence in investors. Money would definitely flow in to Indian markets, the GDP growth itself is enough to attract more money. The money not necessarily flow into index stocks since as already mentioned above the action lies in specific stocks.

Cash rich Indian companies are already eyeing stressed assets globally and it would prove to be beneficial in long term as building up assets and diversifying geographical risks would make these companies globally competitive in certain areas.

One sector we have always been recommending is Banking and PSU banks. Last fortnight has been ruled by banks and PSU banks especially. Many of these stocks have more than doubled in this period. We continue to be bullish towards banking space but at this point of time would like to advise caution as well. Since the rally has been sharp impulsive buying can be avoided at this point of time and investors can buy on dips or be very stock specific when entering the sector. In long term, if India has to continue growing then financial sector has to perform first.

Government seriously should look into the scam in the Common Wealth Games and punish the guilty without any mercy. India is attracting global money since the entrepreneurial skills of an Indian has now been proved across the globe. Any mismanagement during the games (leave alone the present mess) would showcase how unskilled India is when it some to managing a professional event like this which is going to be watched by the world! This may have repel effect when it comes to India bidding for mega projects.

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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