Tamilnadu Investors’ Association – Investors Digest
by Vivek Karwa, CPFA, CFPCM ,Investment Strategist & Retirement Planner
111216: The most awaited RBI credit policy announcement has again spooked the sentiments of the markets. The central bank has decided to keep all critical ratios i.e. Repo, Reverse Repo and CRR unchanged at 8.5% , 7.5% and 6% respectively, shifting the focus to the January policy. The expectations in the markets looking at the economic condition was that RBI would cut the rates atleast by 25 bps and signal a clear end to the rising interest rates scenario.
This increased the volatility in the market and Sensex hit an intraday high of 16068 and then tumbled sharply to a low of 15425, leading to an intraday volatility of almost 650 pts, finally to close at 15491. This kind of volatility is likely to continue until the government emits strong signals that it is willing to pull up its socks in the run up to the budget.
We as a company have been mentioning since last few months that Sensex should find support at 15600 – 16000 and the fact is that the index has taken support at the mentioned level four times in the past, but now with a close at 15491 the same has been broken. These are Technical Levels and hence breaking of the support would be considered, if it stays below 15600 atleast for three days in our view. If we remain below this level we can expect to hit the next range 15200 – 14700.
We feel that 14700 is where the market should finally find a good bottom if Europe remains stable and no country defaults. Fundamentally considering Sensex EPS of Rs.1300/- for the FY 2012 – 2013 the market would be trading at an forward PE of under 12 which is very reasonable for an economy which may continue growing at 6.5% GDP on its own, without much administrable support. As we mentioned in our previous months article the Indian administration is missing the golden chance of showing how India can perform during the global turmoil.
Many analysts have been mentioning 12500 level on Sensex as the target where market should bottom out. This is pure technical level since there is a gap in the chart which needs to be filled in. This gap was created when the present government had resumed office and the expectations built up were high, reaching 12500 is like doing away all that we have seen in the previous three years. Fundamentally 12500 looks little stretched since the situation there will be more or less equal to 8000 levels like what we saw in the year 2008, but you never know what a fierce panic selling can bring about! Hence be prepared but keep in mind the best of money is made by the investors who buy into the worst of markets.
Inflation may be moderating and that is one of the reasons why RBI decided to halt the rising rates policy it has been adopting till now. The major reason is the slowing growth and the depreciating Rupee against the dollar. We have been mentioning here many times that a high inflation due to costlier dollar and rising petrol prices as its side effect cannot be made a burden for the common man who has actually not started consuming food more.
The finance minister in a recent statement had mentioned that the Direct Tax Code will come into effect from April’12. We discount the words by atleast 50% since the way things are moving it looks difficult for the parliament to discuss this major bill and pass it as a law. Goof ups like the FDI, Insurance Bill, UID, Banking Bill, Food Security Bill, which are being rejected by the government committees itself and not by parliament are sending wrong signals to the world.
The reforms have clearly taken a back stage and thus expecting large foreign inflows would be day dreaming. One can look at the Banking sector as a contrarian bet.
Wish you all a very happy and profitable New Year.
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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