My View on Market and Economy : Debarghya Mukherjee

[selviramesh]

September inflation came out 7.81% which is bit higher than previous months. Where as IIP data grown 2.7% in the same month and Finance minister Chidambaram mentioned that reforms alone not possible to boost the growth rate, so the central bank should take "calibrated risk" inorder to boost the economy becuase rating agencies downgrade the growth rate of India.

Based on these data I think there's possibility for rate cut from RBI in the upcoming policy review instead of CRR eventhough its inflation limit is 4-5%.

Pls do share ur views.

 

[iamroopak]

Yes, inflation seems to be stuck in 7-8% range. RBI may or may not cut rates soon. In any case, remember that equities are valued ad infinitum, so even if rates are cut 6 months later, that would keep the equities up. Also, in 2012-13, earnings grew by 15-20%, so half of that has to get priced in.

So in my opinion, because of inflation not coming down, the rally would be slow, there could be some 5-8% corrections(in worst case) and if rate reduction is front loaded or inflation eases in November /December, then that would be icing on the cake. In any case, its best to be long, and sit tight. Primary move would still be bullish, although a slow one.

Cheers,
Roopak.

 

[iamroopak]

US earnings reports have been bad. For the first time in several years actually de-growing earnings are seen in many sectors. Though its a bit premature to say a sell off of emerging market equities will happen, but signs look too grave to be ignored. The problem of de-growing earnings is that you get into a spiral. An immediate de-rating of stocks happen. Also, we must remember that this would not be an one off bad quarter. This follows quarters of consistently decelerating earnings.

Frankly speaking, today's broader market fall had puzzled me a bit. Then rupee today depreciated quite substantially. One thing we all must remember that in an risk-off environment, risky and emerging market stocks stand out to loose the most. Investors need not worry. But traders must watch the market very carefully on Monday. Check the FII outflow today that would be out tomorrow in newspapers.

The prudent thing would be to watch Moday's price action carefully. Then watch US markets and earnings and act accordingly. My apprehension could all turn out to be bogus, but from what i know of FII behavior, emerging markets would be first off their portfolios even if they sniff a bit of risk anywhere in the world.

Cheers,
Roopak.

 

[iamroopak]

At the same time I would like to add that, Indian companies' profits have been growing better than recent quarters. Also checked out the interest rate curve and the interest rates have cooled down somewhat. Looks to me a great development.

If market stays strong tomorrow, its time to be more bullish than ever. Except commodity stocks, or manufacturing export plays, generally the market should do well all through early next year.

Cheers,
Roopak.

 

[321Phani123]

The economy in India is definitely improving and that's the reason Nifty was able to break the crucial resistance of 5450. There was a small trigger in the form of QE3 and the world markets moving up and that helped the Nifty to move up. Now, even the Dow is not able to build on it's rally, Nifty is still showing up. The strength in the economy must be visible in this earnings season. Otherwise, the Nifty will not be able to sustain this ral;ly and will, for sure, come down.

Regards,
Phani

 

[iamroopak]

Well summarized. But let me add that, though the earnings cycle seems to have picked up again, even if earnings growth was 'normal', markets would not fell. The rise in earnings growth actually re-rates the markets. So thats why we should be doubly bullish on domestically focused companies.

 

[Robert500]

How can a bank give loan of 81Rs. when the deposit amount is 10 only??? From where it got the balance 71 Rs.???

 

[321Phani123]

Well summarized. But let me add that, though the earnings cycle seems to have picked up again, even if earnings growth was 'normal', markets would not fell. The rise in earnings growth actually re-rates the markets. So thats why we should be doubly bullish on domestically focused companies.

Hmmm.. But, I don't think the market has enough steam to rally on this support and break the all-time high of around 6300 as most of the market analysts are predicting. It needs to build a strong base here. For now, I would still say that the markets will find support at the 5450 mark. See, today HUL will be announcing it's results. Even though, the results will be in-line or a little above the market expectations, the stock will fall. Volume growth is the important thing to watch out for.

Regards,
Phani

 

[iamroopak]

Hmmm.. But, I don't think the market has enough steam to rally on this support and break the all-time high of around 6300 as most of the market analysts are predicting. It needs to build a strong base here. For now, I would still say that the markets will find support at the 5450 mark. See, today HUL will be announcing it's results. Even though, the results will be in-line or a little above the market expectations, the stock will fall. Volume growth is the important thing to watch out for.

Regards,
Phani

Why do you think so yaar? There has to be some reason. Please care to specify.

 

[iamroopak]

RBI did the right thing by not going for rate cuts. The purpose of RBI is primarily inflation control, and it can't stake its credibility on government's and corporates' whims and fancies. If at all RBI budged today, and inflation rose in coming months, RBI would be in a very embarrassing situation. Going flip flop on rates would have done irreparable loss to its credibility then.

Anyways, the message is loud and clear to the government to move beyond mere lip service and rhetoric on fiscal consolidation to doing something really concrete.

Today's is big development in my opinion for the long term stability of economy and financial markets. Maybe one will make some money shorting in the next few days or so, but I would still be medium term long. One can punt a few shorts here and there, but in my opinion, bull markets would continue. If one does not have nerves to stay in the position in these pauses, no big money can be made. Even I have shorted Bank of Baroda today, but its more of an hedge my longs in BankNifty.

So my call, is to stay long on banks(especially pvt. ones) and rate sensitives. I do not expect institutional selling at these counters. The picture infact has just got brighter with RBI showing its the boss!