Friday, August 30, 2013

4500-4200 nifty Next 9 Months

Global equity market and the Asian economy would be under severe threat from many angles. I have tried to keep the short and crispy so that with less time one can understand in details about the market outlook in the coming 9 months. The coming 9 months would be volatile since political betting would be at the highest level which would be reflected well on the market. In between currency and 2nd and 3rd quarter results are expected to be one of the worst in coming days and hence more down fall of the NIFTY levels is in the wings. Weak IIP numbers and delayed policy reforms are of no use to provide support to the market. A wild calculation can be made but it would be prudent to have extreme conservative expectation from the market. 4500 nifty or 4200 nifty might sound as lunatic number but capital withdrawals at any point of time is going to be killing instinct for the countries like India and China where hot money flooded the streets hence the numbers are realistic to be achieved. Asset behaviors would be volatile and much of the risk goes to the one who are currently employed in the financial market. Capital withdrawals from the central banks across the globe and particularly from US would cause currency weakness, which, in turn, will drive falls in asset prices, such as bonds, stocks and property. This we are witnessing and more volatility would be their where each day we will get around 700 point correction followed with another day of 300 points of up in Sensex levels.

Decreased availability of finance and higher funding costs will increase pressure on overextended borrowers, triggering banking problems which feed back into the real economy. Credit rating and investment downgrades will extend the cycle through repeated iterations. Hence Indian corporate is on the verge of negative ratings and re-ratings downward due to the ongoing problems. Central bank currency purchases, money market intervention or capital controls will reduce reserves or accelerate capital outflow. Quality of CD and CP would be under extensive threat in the coming decades and this will also lead to substantial correction in the markets. In between I would like to draw the attention of my readers that the GAP up open of UPA II election of 2000 pints in sensex is yet to be filled up which we all have forgotten. But the market has kept alive the same and now the next 9 months (till elections are over) are going to be the deadful market.

Higher interest rates to support the currency and counter imported inflation will reduce growth, exacerbating the problems of high debt. India, Indonesia, Thailand, Brazil, Peru and Turkey have implemented some of these measures. A weaker currency will affect prices of staples, food, cooking oil and gasoline. Subsidies to lower prices will weaken public finances. Support of the financial system and the broader economy will pressure government balance sheets. The “this time it’s different” crowd argue that critical vulnerabilities — fixed exchange rates, low foreign-exchange reserves, foreign currency debt — have been addressed, avoiding another emerging market “death spiral.

Well reading the content above many of my readers might get angry on me that I have been so much pessimistic but I never get scared from telling the truth of the market movements. In between during the next 3 months would find some consumption demand as monsoon and crop season has been excellent. This will provide some illusion for the market players to enter but that would not be able to change the 2nd and 3rd quarter results. It’s going to be a tough market in coming days. Saving jobs are the key outlook in these times.
But there is catch in between all these that those who are having the guts to invest in these dowanfall markets would be the real gainers in the long term. 2016-2017 rally of the Indian stock market based on valuation of sectors and stocks of today would lead to a stupendous growth of returns at that point of time. Valuation of large caps and mid caps would play the biggest role during 2016-17 when the Indian economy would be back on its foot with 8% GDP growth. Hence active portfolio management and buy and hold strategy is the best game to play for the next 9 months. I have been repeating 9 months since within the next 9 months elections would be over and who ever forms the central government economic investments would begin and that would spook the market momentum which would get reflected in EPS and PE form during 2016-17 period.

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