My View on Market and Economy : Debarghya Mukherjee

[iamroopak]

Tomorrow's gdp number holds the key.

If the number is above 5.2, bull market starts tomorrow.
If the number is sub 5, we may see a small bear market may start in the short term.
If number stays between 5 and 5.2, bull market may be delayed a bit, or it may start. Difficult to say, but wud be better to go long.

Today's price action hints that GDP numbers would be good. Often these are leaked out beforehand, and today's price action could be an indicator of it. Anyways, would act only when I see the actual numbers.

Cheers,
Roopak!

 

[iamroopak]

so now we are witnessing big rallies!! maybe I was 15-20 days ahead in calling a bull market. Anyways, 3 big reasons which make me feel this rally will sustain(albeit at a slow pace) are:

1) Europe agreeing to bond purchase program--huge development!!
2) US starts open ended QE3, of Mortgage securities..again positive development
3) India's earnings growth and rate cuts have to start getting priced in, so above 2 points seem to be serving as catalysts..

Diesel price hike and LPG limit is also sending out huge positive signals to FIIs. One thing people forget is that apart from sentiment, markets also have an intrinsic value, and that value would show up in prices irrespective of the mood in popular press. August inflation is a bit high, but its well known that its a temporary spike due to bad monsoons, and things would get normal in 2-3 months.

Cheers,
Roopak

 

[iamroopak]

Now mamta has withdrawn support. before pessimists and perpetual bears start telling you 'look, i told you it was foolish to go long' etc. and all that crap, one must understand that markets rallied not just because of reforms alone..infact reforms acted as a trigger for the rally. Anyways, markets were due for the rally.

Even I will liquidate my positions tomorrow(I wish i had a stronger nerve, in situation like these you make a killing!!). Not because I am scared that rally will not sustain or a bear phase is starting, but because markets had run up quite a lot. Anyways, a correction was coming. So 3-5% correction from here should not be a big deal.

Europe is temporarily fixed, US is pushing growth and 75-100 bps rate cuts are coming, and then earnings discounting. Govt or no govt, we are officially in a bull market now.

 

[iamroopak]

Now even technicians would agree that we are in a bull market. Should one start buying? Technical would say, buy on a correction coz the SL from this point would be too far off. And that is why I say TA sucks...coz market is not going to give you any corrections anytime soon. If you are out of this market now, you will have too stay out until a large rally has taken place. So RIP technicians.

We already had 4 very solid reasons for a bull market to start, viz. Europe's temporary fixing, US QE3, 2 expected rate cuts and 2012-13 earnings getting priced in. Now here comes 5th reason...the start of so called reforms. All these are raising GDP forecasts, India Inc. profitability forecasts and resulting in India's risk premium falling. No wonder we are witnessing such a rally.

Earlier i had said that markets would be around 6000 or so by early next year. Now new all time highs looks a very likely in FY12-13. Those waiting for a correction should stop waiting, coz there wont be any in near future. Everything looks so favorable as of now.

Cheers,
Roopak.

 

[iamroopak]

Ok, before bears start predicting start of a bear move, let me remind them that what is happening since a couple of days is called a correction after a sharp rally. One would be stupid to sell in the phase, and worse would be to short sell.

Fundamentally, in my opinion, the chance of rate cuts, earnings in 2012-13 and more reforms' announcements would ensure that smart money is will not sell for quite some time. Markets will correct only due to some profit booking and lack of buying interest after a sharp rally. One must keep adding positions at such correction points.

Let me also add that, due to the reforms coming, risk premium on India has gone down. Emerging markets carry a huge risk premium compared to developed world, and this has gone down in recent time. So automatically Indian markets as a whole re-rate. Then required return on equities in general has fallen across the world with liquidity programs of world central banks. So in my opinion, markets have not rallied ahead of time. The valuations are right and there's a lot more rally to come.

Cheers,
Roopak.

 

[selviramesh]

Hi roopak
Nice view about the current situation, however in my point of view i think the following
1. Due to high inflation - RBI may unlikely to cut the repo rate
2. Issues with banks about the NPA keep rising (no proper solution for KFA, DCHL)

If anybody have different opinion, do share.
Thank you

 

[iamroopak]

Yes, one may say that inflation is not coming down, so RBI may not reduce rates. But in my opinion, as well as from what I have read, inflation would likely cool down maybe from November..December or sometime during this time. So even if RBI sees slight moderation in inflation, rates would be reduced. There is a huge indirect pressure from government, industry and foreign participants on RBI. So RBI may even preempt rate reduction by a month or two. So 75-100 bps reduction in this fiscal is a fair assumption.

Secondly, Bank NPAs always lag the turn in economic cycle, its a well known fact. GDP growth has started rising again, so Bank NPAs would also start falling significantly in a quarter or two.

Also remember that stocks as valued with assumptions made until infinity. So if there is a high confidence in some event happening in near future, that would start getting priced in the stocks today itself. That is why stocks always lead the economic cycles, and funny thing is that economists too take hints from the stock market to predict business cycles.

 

[selviramesh]

Today S&P downgraded the rating for SBI, UBI - based on asset quality. will it affect the share price of those companies further? Because many people wont consider the judgement of S&P.
Do share ur thoughts.

 

[TheDreamer]

Today S&P downgraded the rating for SBI, UBI - based on asset quality. will it affect the share price of those companies further? Because many people wont consider the judgement of S&P.
Do share ur thoughts.

I am expecting a nice rally tomorrow or the day after based only on this news. From my previous experience, it can be easily mentioned that decline in stocks come before a possible downgrade & a rally thereafter when the news is out.

 

[iamroopak]

Really cannot say about individual scrips. But would start such analysis in near future..

S&P and these rating agencies are often late, as pointed out above. Most of the things are already known by smarts and priced in.

Anyways, broadly speaking, bull market will continue. Just be watchful of inflation numbers. If it comes above 7.5 or 8, i expect a 1-2 month pause in the rally. If it comes sub 6, buy for all you can.

Cheers,
Roopak.