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Billionaire |
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K. V. Ramaswamy, Vijay S.
Choksi and C. S. Gourinadh From Ram’s Desk A FANTASTIC bear market rally it is. Almost 2000 points on the Nifty or 77%. Too good to be true, maybe Oil boiling at over 70$ will be the spoilsport, hence safety is to book profits at current levels in phases. 17000 seems to be technically possible, but this rally seems to be non-fundamental. Facts do not support the transition theory, though markets are capable of surprising most analysts most of the time. As mentioned by us since Jan, 09 , April to August, 09 seem to be the turning period both up & down, when the markets could consolidate & find direction. The classical 2/3rd retracement are still valid at index levels of 9590 levels (which is likely to hold & not retested). This could be the bottom unless more negative news comes out from the US. We believe 2009 would be a consolidation year but with an upward bias. 1. Debt P/ E is over 11 times interest rate updated (13 times earlier) & equity P/E is around 17 times (14 times earlier). This cannot be sustained as low risk asset class had higher returns and high risk asset class low returns. This was not sustainable and one asset class had to give way. Now the situation seems to be inverted as Debt has got cheap and Equity fairly expensive. 2. Cash is King, if invested later. Cash rich companies would get better market share and hence higher discounting 3. Interest rates are starting to rise as Oil boils over 70$ due to the peculiar nature of Indian economy. We believe the interest rates will again spike up to 7% but for only a short period 4. Greed instead of Fear is now the dominant theme and as somebody said “BULL MARKETS ARE BUILT ON THE WALL OF BAD “NEWS” & “BEAR MARKETS ARE BUILT ON THE VALLEY OF HOPE” 5. Indian markets have again outperformed other emerging markets (EM) yet again & have become relatively expensive, hence the chances of a correction are very high and may see a level of 10000-11000. When anybody talks of 15000 or even 19000 after 3 years, now as compared to last month all agree with him and that is probably when markets will correct. Smart money has started moving out surely. We recommend our clients to read the Quadratic Grid and adhere to its targets. A fantastic time to start your SIP’s in both MF & Direct Equities. Basically we are getting quality companies free, as cash on the companies books are also available at less discounted values. This is truly capitulation. A sure sign of a BOTTOM. OIL as earlier mentioned touched 70$/ bbl and may touch 90$/bbl again in Aug / Oct, 09, but not sustain there. Lower GDP growth or poor political will, may show us an index of 10500 or lower for a short period only. Gold which was a major theme in 2008-09 would be very volatile and touch 750US$. The current theme would be INFRASTRUCTURE. As said last time, range bound markets between 9000– 16000 is a certainty. Corrections& pullbacks would be the order of the day. Technically, the Sensex seems poised for a breakout to a higher level of 14500–17500 only after Aug, 09. Probably the worst is over & 12000–14000 would be the short term bottom & 11500 may hold out as the next intermediate level and the long term bottom would be logically 10500. Cairn India, RIL& Sugar stocks would be the dark horses to watch. The near term supports are available at 11800, 10400, 10200. The longer term resistance are 15200, 15777, 16277, 16900 and then 18167. Support levels are 11,100, 10200, 9700, 9200, 8800. Corporate earnings would see the worst quarter in June, 09. Elections would be a very strong trigger for the market.July/Aug,09 would be very volatile months (15% either way). Present P/E of 17 or FYQ 309 & maybe under 13 for FYQ410 is fairly valued. After a certain volatile phase (read as fear), there would be an upswing again & a downswing probably in Oct / Dec, 09 (due to Global / Political factors) for a brief period. Power, Infrastructure, Cement (only for long term), Pharma, Media & Auto are bullish in that order. In our article “Investor Behaviour in Volatile markets”, we have tried to spell out the manner in which investors behave in different market situations. Right now they are all in disappointment mode and when it turns into pure frustration, we have touched top. We believe it could be around 16000-17000, after that there will be another big dip lower due to fundamental factors emanating from the world. SIP / STP’s are the way forward for a safer return profile. Remember “Rome was not built in a day” so is wealth – it takes time. K.V. Ramaswamy |