Monthly outlook
DON’T LET THE ALTITUDE BOTHER YOU
As the Nifty crossed the 6000 mark last January, after a two year hiatus, it triggered celebrations and concerns alike. The celebrations were quite in line. After fall that is what you do when your portfolio appreciates and gives you a sense of well-being.
But the investors were also concerned. The issue at hand was simple. You have waited for these levels of the Nifty for two years and now that those levels have been reached, should you sell and count the wads?
Booking of profits to carry to buy your own house or to take a long promised family holiday is never a bad idea. After all, booking of profits has always been a profitable idea. But selling simply because of the fear that markets could fall from here is something that needs to be revisited after you have washed your face with some cold water.
Where does the fear stem from?
Fear stems from history. Past highs seen act as a natural resistance. Because people remember the levels at which the indices or stocks had reversed last time, the levels act as a barrier and require higher volumes and more vigour to cross.Merely looking at the Nifty’s 6000 levels can give you vertigo. But the moment you dawn your fundamental glasses, things begin to change and fear begins to ebb. We will come to the fundamentals in a while, but first a trip down the memory lane is a must to judge where we have been and where we are.
The first time the Nifty touched 6000 level was on 1st November, 2007 when it touched 6011 in intra trade but fell back to close at sub-6k levels. It wasn’t until six weeks later on 11th of December that it finally managed to close above the 6000 mark at 6097. The Nifty made an all-time intraday high of 6357 on 8th January 2008.
After plumbing the depths at 2252 on 27th October, in the post Lehman crash, the Nifty recovered one ore time to the 6000 levels in in September 2010 and closed above the 6000 mark for a collective period of 45 days, before slipping off the perch in the first week of January, 2011.
Changed fundamentals
But when you look at the fundamentals, they are not the same. Our GDP has grown between 6.2 and 9.3 in the past 5 years. But markets are still lower by about 5 from the all-time highs. The actual earnings per share of the Nifty for the year 2007-08 was Rs 229, which gave you a price earnings ratio of 27.75 times. Today the Nifty is at 6034. With most of the results for the December quarter in, the expectation is that Nifty could clock an EPS of Rs 411 this year ( March 2013). This gives you an attractive PE of 14.68. That’s almost half the PE of 28 in 2008. Feeling better? Good. Read on.The Government is in execution mode
Ever since Mr Chidambaram moved into the North Block, the Government has been in a tearing hurry. The GAAR ghost has been exorcised. Investor confidence, read FIIs, has come back. The disinvestment programme which had hit the pause button is once again in play. Diesel prices have been hiked and have been put on the auto mode.Some worries would always be there
The worries are that you don’t know, when the Government could draw a line of Diesel hikes. If the Government runs it food security programme will not the fiscal deficit rise. How would Chidambaram marry the desires of the FIIs and the poll bound Congressmen is a genuine question.But we must remember that the current valuations also reflect that. Had these concerns not been there, we would have long crossed the 7k mark, forget the earlier high.
Some worries would always be there. If you wait for the perfect setting you will never be able to invest.
But let’s take a practical outlook. The current problems in coal allocation , gas pricing, land acquisitions are nothing but an opportunity if looked form a different angle. Fresh opportunities would arise from the very same problems.
It takes two to tango
For a change both the FM and the RBI Governor are on the same page. Both are now rooting for growth. The benefit from the double bonanza of a Repo Rate Cut and a CRR cut would be reaped in the days to come. The new bank licenses, when they are announced could see frenzied buying in some stocks and selling in others. But the gains of the market operations of the RBI would be keenly watched and positively reacted. The improved liquidity and lower rates will start showing in the corporate bottom lines.Don’t fret about US contraction
The markets may be worried that Q4 GDP shrank 0.1% . They were expecting a growth of 1.1% from the 3.1% seen in Q3. Hurricane Sandy and a deep cut in Government defence spending are the tworeasons attributed to the contraction.
But beneath the surface, the economy is in better shape than what the headline number would suggest. Consumer spending rose at an annual rate of 2.2% , led by the largest increase in purchases of durable goods in two years. Consumers don’t buy durables unless they feel a bit confident that their incomes will keep coming in. Businesses increased capital expenditure at an 8.4% rate. Spending on equipment and software increased at a 12.5% pace, the best in more than a year.
A big change from the scene in 2008 and 2013 is the US Housing. Housing, which was in the dog house in 2008 is now making a comeback. Home building added 0.4 percentage points to growth in the quarter. Economists are of the view at full throttle, housing alone can contribute 2% to GDP.
February: When expectancy runs high
This is the month in which the FM presents his Union Budget. But how the markets actually behave during the month is more about what the expectations and the events that lead up to the budget than the budget itself.The Rail budget precedes the actual budget. There is no need for a separate railway budget. It could well be a part of the Union budget itself. In the future, like the way that the time of the of Budget was changed , this too will change.
Readers would recall that till the year 2000, the Union Budget was presented in the Parliament at 5 PM on the last day of February. This practice was inherited from the Colonial Era, when the British Parliament would pass the budget in the morning followed by India in the evening of the day.
It was Mr.Yashwant Sinha, the then Finance Minister of India in the NDA Government of Atal Bihari Vajpayee, who changed the ritual by announcing the 2001 Union Budget at 11 am.
The change in timings did wonders for Mr Sinha as the markets surged 4.36% that day. The crown of the highest budget day surge of 5.13% in the benchmark also rests on the head of Mr Yashwant Sinha. The year was 1999.
Last year, the month of February gave a return of 3.25%. The average returns for the 23 years is 4.27%. If you normalise that be removing the best and the worst year, it comes to 3.27%. But one must remember the risk in dealing with averages. If you consider only the last ten years, then we have a negative reading of 0.58%.
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