Investonomics-ManFina-Series 9

Time to trim!!!!

Stock markets today reached a high of 5629 and closed at 5505 with a corrective note on account of Greece debt down grading by Fitch to near default. While the index hardly fell by 1.5%, stocks in general fell around 8-10% on an average. As already suggested in my previous blog about the market range of 5400-5700 and to increase exposure in G-Sec while reducing the same in Equity, we stand tall and right in our approach to portfolio management and justice to our client portfolio. As propagated it’s the time to reduce the trading quantity in stocks, using options as investing strategy will certainly help clients minimize their losses while remaining invested.

There were some news and events and data in last week which are worth noting before taking great exposure in Equity market. I would like to highlight some of them as these events/data has the ability to jeopardize the rally which we have seen in the recent past. These news have been collected here from various sources for the sake of knowledge of the reader of my blog for their understanding on how to approach markets when we have these kind of news flows

a.       “Euro zone unemployment reached 10.4 percent at the end of last year, its highest      since the introduction of the European single currency, official data showed late last month. It is seen peaking at 10.8 percent in the second half of this year.”

Comment:This might keep industrial activity under check in EU and will dampen GDP Estimated figures

b.      “China's manufacturing sector contracted in February for the fourth straight month as new export orders dropped sharply in the face of the Euro area debt crisis. Trade data for January showed imports and exports falling at their fastest rate since 2009.”

Comment:This indicates that actual consumption even in china is not showing pace of recovery despite Central bank of china cutting rates by 100 basis points in last 3 months. So we can’t say that even if RBI cuts rate in India, we can expect demand in Industrial goods/Services or a resultant effect on GDP

c.       Fitch ratings agency on Wednesday slashed its rating for Greek sovereign debt to “C” from “CCC,” indicating that default is “highly likely in the near term. In Fitch's opinion, the exchange, if completed, would constitute a 'distressed debt exchange'           

Comment:If history is to repeat itself, one can expect sub prime like crisis in Europe but this time it will be default on soverign debt involving many nations. So we have to be prepared for the worst ever corrections in Equities as and when it happens. Idea is to keep low exposure in Equities now so that whenever this kind of crisis happens, One has the fund to Buy Blue-chip stocks at reasonable throw away prices. This correction will be lifetime buying opportunity.

For dynamic Asset Allocation advisory on the basis of above opinion, contact me on my mail

Investonomics-ManFina-Series 8

Investonomics-ManFina-Series 8

The Mad Rush!!

As I write today, Equity markets are cheering up & Nifty touched 5500 and closed above this level, I find many investors now talking irrational targets for their stocks and market as if we have come out of all the problems which were there 2 months back and global economy is now back on track for the new bull run to emerge.

The momentum of this bear market rally (as I call it) was so fast that it has made many bears, bulls. People who were talking of new lows in markets are now talking new highs for the market according to there whims and fancies. This sentiment or over confidence as I call it is generally very good for FIIs (as they can now exit) and usually a nightmare for retail investors.

The saying “Be fearful when others are greedy and greedy when others are fearful” is made for these situations only. The irony is that even if markets go up from these levels the risk –reward for fresh investments in equities as far as my understanding goes is not favorable. Although for those investors/traders who are fast to take an entry/exit there exists a greater opportunity to make money from market provided they have the guts to limit their losses.

I foresee probably Nifty to touch 5650-5700 and stabilize around 5400-5700 range till the budget. The month of February may not find much of correction but there are numbers of events in the month of March 2012 which will make sentiments change. I would therefore take a cautious stance and be very selective in stocks as I find some stocks which have potential and have not participated in the rally to now participate.

The major worry of this rally is actual consumption of commodities not seen picking up as commodity prices globally remain stagnant and majorly non participation of Copper which indicates pick up in industrial demand is still not visible. As I have indicated in my series 5, out of the entire three indicators still only one is visible and that is Auto demand picking up. The remaining two indicators viz. Copper demand & government Borrowing rate although moderately on positive side are still waiting for some precursor.

As per my previous blogs we have propagated value buying at 4700 Nifty levels, I now change my stance at 5500 Nifty levels to selective buying and booking profits. Remember your overall quantity of buying should get reduced at these levels, while generally it is seen that Investors tend to get over enthused and are tempted to buy greater quantities in order to earn trading profits. Beware of this. Try and limit your trades with the help of Options where you have a selective bet. For further advisory on how to use Options for trading do le me know.

The 2G Order!!!

An important event that has occurred between my last blog and this blog was an order by the Honorable Supreme Court of India regarding the 2G disputes. Telecom licenses were quashed and were held Null and Void. Government of India has been asked to reissue licenses with fresh bidding process. This order has come like a blessing in disguise for government which has missed its Fiscal targets and Disinvestments targets. According to my estimates Govt. Of India may be able to get around 40000 crores of fresh money in reissuing licenses which will nullify its inability to raise funds through disinvestment to an extent.

This alone decision has the power to bring Fiscal deficit in check and will help RBI to raise funds for Government at a lower rate. Added to this government can now raise spending in Infra Sector which in turn boosts the economy as a whole. I expect this whole exercise to be done by our Finance Minister Mr. Pranab Mukherjee in his coming budget on March 15, 2012.

 So the Budget 2012 will be an important event to watch out for. If the above mentioned things happen then I have no doubts that Nifty shouldn’t touch previous highs of 2007. Expect Nifty at 6100 and the start of the new Bull Run. Also for the short term, 6months to an year view we continue to remain bullish on G-Sec as we expect Interest rates to fall at least by 100 basis points in next One year. Allocate major portion to this as it seems more certain with less risk.

The Game Spoilers!!!

Crude

Brent Crude currently trading at $118/barrel is a cause of concern as 70% of India’s imports is oil. If the tussle between America and Iran aggravates the expect Crude to touch $150/barrel and at those levels we cant expect our economy to be on track of 8% GDP growth. Also Iran banning supply of Crude to EU which is already in recession will only worsen the Geo Political risks as the money which has comedown into our markets because of EU printing will surely go back to its origin and will bring major corrections in equity markets. Buy Gold if this happens to hedge your portfolio. Also this will be negative for INR and Rupee may fall back to 53+ levels. For further advisory on how to make money in these conditions do let me know.

Europe

We have seen that Greece has accepted austerity measures to avoid possible default. Although the help provided by EU to Greece is still very little as compared to its requirements, we may find some more issues with Italy & Spain in the month of March 2012 as there debt rollovers happen. So it will be in March 2012 that we will be seeing a major trend reversal across markets.