Markets round Up-
Nifty cheered both 4550 & closed at 4750 during the week ending 23rd Dec 2011.
During the week we had a game changing event of the whole debt crisis in Europe at least for the time being. The fear that EU will collapse has been subsided as the ECB (European central bank) pumping nearly half trillion Euros(489 billion) Euros into their banking system. The loans provided to the banks by ECB are for the period of 3 years so the problem of liquidity & sudden stop in financial markets has gone(and obviously its affect to India`s service sector mentioned in my last blog has also been delayed)Unfortunately the only thing which dithers us to be clearly optimistic is that out of these 489 billion Euros 347 billion Euros are still kept by the banks as deposits in ECB, which shows lack of Industrial confidence in EU. This also indicates that there is no Industrial demand for money as the consumption is sliding in EU
This alone has the power to cheer the equity markets up in Emerging Countries & has the power to absorb most of the bad news which might prop in near term because of downgrading of AAA rated countries. So net in net we might see a little bit of blip in markets when the rating downgrade happens but I feel that markets have overdone in terms of stock prices going reasonably down for value buying to come as liquidity problems erode. I foresee a huge opportunity in terms of few stocks which are trading almost equivalent to their book value & having a good dividend history to jump back sharply to a reasonable level(remember these jump backs can be in the range of 30-50% from current levels without overall Index moving up substantially). Also our view on Ruppee mentioned in my blog need to be tinkered as global liquidity crisis abates for the time being. Value buying can be done in Capital Goods sector & Power sector as the risk reward ratio seems to be working in favor. Stocks which are overbeaten will perform. The major problem is lack of visibility of uptrend in commodities which will pick up only when industrial demand picks up & without commodities picking up we can’t say that we are out of woods. An uptrend in commodities will clearly denote that the bad times are over, but now since we are focusing in value buying the only part what we can do is to accumulate value stocks gradually with low exposure avoiding Commodities space.
Coming home to India
RBI`s policy meet in 3rd week of January will play a important role and one can expect a moderate view(25 basis points cut in Repo/Reverse Repo) as Inflation data suggests. Also elections in major states will force Central govt. to take moderate view. One has to keep in mind that if at all Inflation falls in India we need not be bullish on Equities as falling inflation also suggest falling demand and more importantly if inflation is falling from it peak from Double figure to single figure it can’t be taken as matter of rejoice, instead it’s a matter of concern that with demand slowing down & prices coming down how will the economy survive. In fact my view is that it’s a period of rising inflation(from low level to median level) one should invest in Equity as rising inflation denotes rise in demand as well as rise in prices whereas the situation in which we are in is a total reverse of that situation. So according to the terminology in economics I should say this as deflation rather than falling inflation. So in such a situation, one should wait for inflation to settle at a median level & interest rates in an economy to have a downward trend for meaningful investment to be done. Alos looking to Government of India Fiscal Deficit figures we can`t be aggressive in calling that Interest rates will start their downtrend even if RBI cuts rates this time .But yes, atleast we can call it a STOP to rising Interest rate regime. The best one can do in these stages of economy is put their money in G-Sec`s and related securities to earn double digit return with less risk.
Obviously one needs to relook at his Asset allocation strategy as per the prevailing economic trends, if not done wisely and with proper advise, there is no second thought in my mind that most of us repent on time.
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