Sent: Sunday, September 16, 2012 11:09 PM
Subject: Market Update : Bounce Back : Week ended
15-Sept-2012
Dear Sir,
Greetings from EASY Investments.
We hope you saw our previous email on “Market update:
Roller Coaster Ride dated 6th Sept 2012”. We mentioned that this
Government (Govt) has hardly got 5 months to deliver. And we ended the mail as
“Be
it MOST-STP (or) MOST-VIP (or) plain adhoc investment - investors need to make
use of the current pessimism. Though many of the
investments made in the past have been languishing, valuations are at very
attractive rates. Current Price Earning ratio of index is 13, when compared to
average of 18. No doubt - volatality is bound to persist. With suitable
investment strategy, you can beat the actual index and get maximum benefit. ”
The message was clear. But did you act on it -
it is time to ask yourself.
Meanwhile, following events ( some of them indicated in our
previous email ) triggered the market which rallied by
solid 781 points (4.4%) to close at 18464 on Friday the 14th of Sept
2012. And many stocks gained any where between 5 % to 20%. List
of these weekly gainers are attached for your kind information.
· With Coal Scam hitting the parliament badly, Govt seems to have
done their home work carefully and restrategized their approach. They lined up a
series of announcements / events which one after another would baffle the
opposition. At the end, even if they get through 50% of what they proposed –
they have made a progress.
· The tone for rally was set on Wednesday (12/09/12)
morning when the Industrial productivity IPP data was released as 0.1% Vs
(-1.8%) in previous quarter. Arguably, it means we have not grown instead of
negative growth. But this was perceived as first positive
message.
· Following this was the long pending agenda of fuel price
hike. Govt preferred to time this announcement after market hours on
Wednesday. Price of ‘general’ diesel was hiked by Rs.5+ (12% hike) and the
subsidized gas per connection of LPG was restricted to 6 per annum. And the
beauty is the price of ‘premium’ petrol (+Rs.6) and ‘premium’ diesel (+Rs.16)
were hike steeply many did not take note of it. But Govt has clearly played this
game well. Even if they have to compromise on diesel hike – say by revising the
hike to Rs.3 or so, they may get through with the LPG Subsidy revision and the
price of premium petrol/diesel.
· Meantime International news trickled in: with US FED coming
out with ‘unlimited’ buy back option of bonds to strengthen their economy. In
the views of analyst – this QE3 was much bigger than earlier 2 QE’s which were
announced during Lehman crisis and subsequently. This infused huge cash in the
market. This was on Thursday
night.
· Obviously Friday’s market opened by solid 400 points plus on BSE
(up by 2%+). Then came the inflation data which was not great.
Inflation inched up to 7.55% Vs 6.87% last month. Logically market should have
reacted to it – but market maintained its lead and BSE closed up by 443 points
.
·
Then came the
big-bang announcements on Friday evening: Allowing 51% FDI in
retail, 49% FDI in Civil Aviation, 49% FDI in power exchanges, 74% FDI in
broadcasting sector, disinvestment in four PSU companies – Hind Copper, Oil
India, MMTC and Nalco.
· The so far docile, policy paralyzed Government all of a sudden gave
series of booster dose to revive the economy. With genuine intention to reduce
the fiscal deficit and keeping the reforms agenda, industrialist / economist and
stock markets cheered alike.
· On Monday, RBI’s interest rate policy has been lined up. If
there is a rate cut, then market is likely to fire up further.
And the logical outcome of these events
are:
· After a long gap, it has been a sigh of relief for the industries.
As Prime Minister quoted “It takes courage and Some risk to break policy
logjam.”
· Opposition and Allies are taken aback by the new found zeal. Now
each one of them will be busy objecting to one announcement or other – but never
together. That is a clear game of ‘Divide and Rule’.
· And the prime minister is now busy in Cabinet shuffle. It is
clearly mentioned that some of the allies are likely to get ministerial berth.
That is a strategic way of keeping the allies happy, keeping the government
stable and push across with reforms.
· Hike in fuel price and rationalization in Gas subsidy was need of
the hour. This could address the swelling gap in subsidy bill.
· No doubt FDI in Aviation is the need of the hour to save an ailing
industry.
· FDI in Retail – though debatable – has been on expected lines.
And the beauty
is, state governments will take final call on weather to allow FDI in retail in
their states or not. This is like shooting the ball to your court. Opposition or
allies who are against FDI in retail have the option to deny such stores in
their state.
· Disinvestment – in the four companies mentioned above to bring in
about Rs.15000 Cr to the Govt.
· As mentioned in our earlier mails, revival of monsoon would result
in fall in inflation.
· Tough everything looks rosy- it
may not be a cake walk for the Coalition Government. There is a remote chance
that some of the ‘adamant’ allies pull down the government – but cannot be ruled
out.
· Wheather all these actions / announcements / likely oppositions
would really help in changing the perception on India in the view of rating
agency is yet to be seen. If policies are not implemented, then they may go
ahead with downgrade which could negatively surprise Indian economy and the
stock market.
If the policy makers could negotiate on
some reforms and yet push through, then it would be a huge victory. And in
Investment, the most important but ignored fact is EXIT : Exiting an investment
is much more important than making an investment.
As one investor called me last
week to complain that his investment in shares have hardly delivered 10% returns
over past two years, I had to clarify that in the past two days these stocks
could have delivered 10%. That is the power of stock market. All you need is
patience to make that return.
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