Few Words on Market…

Tamilnadu Investors’ Association – Investors Digest

by Vivek Karwa, CPFA, CFPCM ,Investment Strategist & Retirement Planner

120117: In the previous month write up it was mentioned that if the Sensex stays below 15600 for three days then we can expect to hit the next range 15200 – 14700. The market hit a low of 15136 just to test the mentioned range and has bounced back on sustained FII buying. Hope everyone remembers that we had mentioned that valuation in that range will start looking very ripe though some analysts are calling for a target of as low as 12500 on the index which can occur only on fierce panic selling in situations wherein a country actually defaults in the euro region.

We have been seeing a total policy paralysis on the government’s side along with high inflation and high interest rates which has made the fears of slow down real and we are now talking about missing all the targets on the GDP. The positive side is we are still among the fastest growing economies and little pro active steps from the government can make push us to number one spot since the recent growth numbers in China shows that they are loosing steam which we have been expecting since long time.

The worst pain in last one quarter has been the Rupee devaluation against the dollar. Even the large company like TCS has lost around Rs.300/- crs in the quarter. Though most of the IT companies hedge their forex business such fast movement in the currency is not anticipated much by the people. In case the Rupee remains in this range IT companies will benefit but the over all Indian economy will get hurt. Rupee is showing signs of recovering back.

The devaluation has been mainly due to the rising fiscal deficit and the lack of government ability to attract FDI due to total inaction. The FDI will start coming only when investor friendly measures are taken up. Action just on the infrastructure front can bring in lot of attention from the foreign investors.

One of the major reasons why the Rupee is appreciating is the FII inflows in the cash market and the major reason why FII and the NRE money is coming into India is the Rupee level itself. Banks have started offering 9% to 9.5% tax free interest bonds to NRE. Assume the money is coming in at Rs.53 a dollar and when repatriating the same if the Rupee value against the Dollar is say at its usual level of Rs.45 a Dollar then even if the market or the FD does not give any returns the investors still ends up making Rs.8 (53-45) as profit on their investments which is equal to 18% without any efforts! Hence it makes sense for investors to bring in dollars in the present situation.

In the previous month it was mentioned that Direct Tax Code will mostly not be implemented from the coming financial year which is almost true now and that itself is one more example of the slow working of the system, but the good news is that we have moved one more step forward when it comes to implementation of GST. Most probably DTC will come from 2013-2014 and GST after the 2014 parliamentary elections. Thus the wait is still not over, but the present government will try hard to bring it before the elections.

The Banking Sector, Automobiles, Metals may rally if the interest rates are cut on the Jan/24 meeting of the RBI. The chances 50:50 and hence if not now March could be seen as the time when the rates are actually cut. The Gold, Silver have finally corrected though they are investors favourite. Silver can turn out to be a good bet if it trades in the range of 48000 – 50000 a Kg. But the Best Returns will be made in the equity markets over next 2-3 yrs if selection of stocks is done really sensibly. One should sell out the non performing stocks and convert them without any emotional thoughts.

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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