A Nice Article

Where is Market headed for?

This is definitely the Billion dollar question that everybody wants an answer for. Let us review the state of affairs in both countries individually. First we start off the topic covering the US.

US Market

Stock Market in the US is becoming more and more complacent these days. Many believe that we are once again slowly but steadily approaching the pre-bubble era where people got too greedy and never cared about other circumstances that affect the Market. Take for instance, Baidu IPO that rose nearly 400% on the day of listing. You cannot ever imagine a better return than that in a day, of course this was very common during the pre-bubble period.

Now what does this suggest. It clearly points to one fact. People are get more and more speculative these days and their expectations are growing higher by the day.

Though this is a difficult question to answer, we believe that the Stock Market in the US cannot sustain any more uptrend and would have to rest or correct in a big way before things get smoothened out. Here are the reasonings behind this conclusion.

Tech companies have reported excellent results over the past quarter. In fact more than 70% companies beat the estimates. Guess what. They beat the estimates, because they were all(most, if not all) lowered at the first place. So, it was no surprise that the companies beat estimates.
Companies beat estimates NOT because they had generated NEW sales or new revenues, but mostly through cost cutting measures.
5 main reasons why Markets would go down. Oil, Oil, Oil, Oil and Oil. Why are we stressing so much on just One component of the industry.
OIL is always a lagging indicator. In the sense that, if oil raises by say, 20% this quarter, its effects would not be visible on the companies balance sheets until 2-3 quarters from today. This is the Single biggest factor that suggests Companies cannot maintain the same growth that they have been over the past few quarters.
Markets are ignoring oil altogether. Wonder how small investors are able to survive, when they are under huge debt and have to pay almost Double the amount at the pump compared to what they used to pay just about 1.5 years back.
When considering payroll numbers, Investors miss out one very key aspect of it. The numbers ONLY reflect those who either lost jobs or got jobs in the last week/month. These numbers do not account for those people who are already getting Payroll benefits since long ago.
Interest rates are another key factor. There is no way, they could be kept at the levels they are right now for long. And if the interest rates grow at a faster rate, which they will, then the market would take the south route.
As has already been touted in the industry, most(more than 60%) of the jobs that have been created over the past 2-3 years was ONLY in one sector, Housing. Housing is nearing a top, and the bubble can burst at any time. Which would mean, the jobs numbers(inflated/wrongly put) would take a dive south too.
Though there are many positives in the market, negatives by far, out pace positives. Hence it is better to be cautious from a Long term stand point. Advisable to keep your investment horizons either very long(beyond 10 years) or relatively short(within 1 year).

Indian Market

Indian market is no different than US counterpart. And Indian market also is susceptible to the same overall pressures that the US market has.

Indian market is in a better position than the US market. It is in a very bullish zone and has lot of room to advance to the upside. There has been constant flow of Foreign Funds into the Indian markets which has served as a key triggering factor for all the indices. Markets have been making new multi-year highs for a little while now and is not giving up.

Again, it is difficult to say where the Indian market is headed to, but we believe that the market would stay in a very tight range in the next 18 months. And it is highly unlikely that it will break away from this range. Here are the reasons why.

All companies, mostly Tech have shown tremendous results over the past few quarters and they would definitely continue on the same path. But one MOST important factor to keep in mind is the valuations. Right now, most of the stocks are trading at a high P/E, discounting for next year's growth as well. Which means, they have to Outperform the expectations that investors currently have. Which is again highly unlikely.
Tech companies also derive most of their income from Outside of India. Which means, if Rupee appreciates, these companies will have tough time keeping up the same revenue flow as their incomes would come down. Dollar has been on the decline for a while now, and it will continue to do so. Though Indian Government and Indian Exporters try all means at their disposal to contain Rupee appreciation, after a certain point it gets impossible. Which means, an additional negative point in tech company's kitty.
Oil, though has not been as bad in the Indian sub-continent, it would not be surprising if we see a lot of impact because of Oil in the near future.
Another important factor to bear in mind is, FII inflows cannot just continue forever. Which means, the market will loose this catalyst one day or the other. That would be the time when investors and traders start looking into the real valuations of companies.
Having said so, we are a little more optimistic on the Indian Market than the US market.

Another important fact to keep in mind is that Sectors move up and down in cycles. And we believe right now Energy and Commodities are the best plays.

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Please Note: This article can be re-published as long as the source is mentioned.


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