Weekend Reflections 16.11.2019
- The world was awash with Liquidity with the Fed Reserve cutting rates.
- The economic environment was deteriorating slowly and steadily while the Capital Markets paid little heed to it.
- While the Western Markets were buoyant, China had peaked out and was starting its decline well before the West.
- India was one of the rare markets where the exuberance was at its peak during the last quarter of Calendar year 2007 even though there were clear signs of a Bubble , especially in the Infrastructure Sector with a visible amount of herding among Fund Managers who justified higher and higher P/Es .
- At the peak of the Bull Market in January 2008, Nifty P/E was around 28 and NSE 500 was slightly lower at around 26.
- In November 2007, Nifty was flirting with 6000 trading in a narrow range of 5700 and 6000 for most part with huge volatility.
- Currently most of the above factors seem similar.
- The “Bubble” seems to be in the “Value Plays “with the Fund Managers herding around these stocks.
- Virtually no one is expecting a significant fall just as it was during 2007 November.
- The P/Es of Nifty and NSE 500 are the same as they were in 2007, yet no one seems to be concerned.
- The targets on CNBC is around 12345 for the Nifty. The Nifty topped out in 2007 around 6357 in January 2008.
- It looks like the targets are Jan 2008 + 6000 points .
- The Economic Environment is far bleaker than what it was in late 2007.
- Its pertinent to remember that after hitting 6357, Nifty went all the way to 2250 levels, even when there was no perceptible Economic Slowdown.
- So if the same pattern repeats, one should not be shocked to see 2250 + 6000 = 8250 levels sometime next year.
- Tread cautiously, there are surely good stocks to invest like it was in end 2007 which withstood the rout of 2008 and went up.
- In 2008, Hero Motors and Hindustan Unilever were the heroes. Time to identify the Heros and the Levers of this time around.
Search and you will find.
Weekend Reflections 08.12.2018
Most important week of the Bull Market:
A week is a long time in politics, its said, but some times a week is also a long time in the markets.
Remember the week (actually a fortnight) in 1992 when the markets were on a holiday in April 1992 when Sucheta Dalal broke the story on the scam that Harshad Mehta was perpetrating which broke the back of the bull market.
Cut to 2000, when India and Satyam were looking forward to Clinton’s visit to India and that week was the topping of the ICE Bull market.
2008 heralded the arrival of the Anil Ambani’s Reliance Power but the power of the Bull Market dissipated.
2010 and 2015 , Obama came while the Bull Market went
Now we are at a crucial stage of the “bull market” though most people who invested in small and mid- caps think the bull market has long gone away in the early part of the year itself.
However, if one looks at Nifty and Bank Nifty, we are still technically in a bull market.
This week will most likely determine whether the bull has still got legs or will the Bears come out of their hibernation.
Exit polls suggest Rajasthan to Congress while MP and Chattisgarh to NDA with a small margin Telengana to TRS .
If the exit polls are right, then one can bet on the bull.
Anything to the contrary we could be headed towards a long winter.
Whatever you do, hope you are successful
ARE FALLING OIL PRICES GOOD OR BAD FOR EQUITY MARKETS?
Oil prices are falling like there is no tomorrow. Just a few months ago when Brent Oil was ruling at $ 86, almost everyone was visualizing $100 as a given. But the markets have their own logic. Since then Oil has been on a relentless downtrend and today it trades around $60 which was last seen 13 months ago.
So why are Global Equity markets, including India not rejoicing. Welcome to the real world of Liquidity. Global liquidity is tightening, hence will affect all asset classes. At the end of the day Oil is more an asset class and just not a consumable alone, since the final price of oil is not dependent on supply- demand but more on the liquidity available with global speculators.
Most may not know that while Global Equity Markets had topped out in late 2007/early 2008, Oil continued to defy gravity in 2008 and crossed $150 in the first half of calendar 2008 and topped out only around July 2008 and then within a span of 5 months it dropped more than $ 100 to bottom out in early December 2008 at below $ 40!!!
In reality, Oil and Equity markets are positively co-related most of the time, hence sharp drop in oil prices in the past have had adverse effects on Equity prices and this time may be no different.
QUE SERA SERA : NATURAL,LIQUIDITY DRIVEN OR THE BURSTING OF A BUBBLE : QUE SERA SERA
1 Since the beginning of this Millenium, market has been subjected to 6 Major downsides.The first bear market happened in 2000 when the dot com bubble brought the Nifty down by more than 50 %, though the damage in Individual stocks especially the ICE sector of K-10 group lost upwards of 75 % . BUBBLE & LIQUIDITY
2. The second one ( Jan2004-May2004) came out of the blue , literally . It was an overbought market which needed to let of steam since it had risen almost non stop from April 2003 by more than 100%. Though strictly this downward move was not a classical bear market yet it lost 35 % peak to trough . NATURAL
3. The Third one was again a sudden surprise which lasted for just a month but took away 33 % during that time ( May 2006- JUne 2006 ).Again this was too fast too soon and worked both ways. NATURAL
4. The 2008-09 was unravelling of the Excesses in its truest sense as all the sectors lost. At its worst it fell 65 % from the highs. BUBBLE & LIQUIDITY
5. Obama's curse Part -1 was the fall from October 2010- December 2011 , when Nifty in a grinding way took away 30% from the top. NATURAL
6. Obama's curse Part-2 was slightly benign but it did not end till we lost 24 % over the next 12 months between March2015 and 2016. NATURAL
7. Is this the SEVENTH OF THE DEADLY Moves ???. Based purely on stocks in the broader market we are definitely in a bear market. If we take the broader market we are already 9 months into bear territory, while for Nifty and Nifty 500 we are just getting started . We are down 12 % to 15 % respectively.
8. So what does the future likely hold ?. If its a "bubble" we should not be surprised with a 50 % drop ie a scary level of below 6000, last seen in 2012 ; If its a Liquidity issues we may end up with a drop of one third which means we may see a figure which prevailed during Demonetisation time. In the Best Case scenario of it just being a "natural correction" which would mean a 25% drop just like the 2015-16 mini- bear market which would still mean 8800. So what will it be : Only time will tell
9. So how long would it take to reach there ?. Based on past observations it may end around August - September 2019. The fastest drop has been in 2006 when the pain ended in a month, the worst case is when the pain prolonged in the 90's when between 1992 Harshad Mehta Peak and 1999 when Vajpayee Govt won a full 5 year term, the Sensex moved within a range of 4500 and 2800 for 7 long years.
10. So will it be a "quickie" like 2006, or a " swiftie" of 5 months like 2004 or a "slowie" of an year as is the norm or would it be a "death by thousand cuts" one , which was the most painful of them all : The 7 year curse ? Only time will tell.
QUE SERA SERA , WHATEVER WILL BE , WILL BE
During Advani's Rath Yatra in the early 90's , the Nation was curious to know whether he would be arrested by the UP Government and alerts were sounded in various towns of UP. People feared the worst about UP. Surprise surprise , Advani was arrested when the Rath Yatra was passing through Bihar by the Bihar Government . No one was prepared for this turn of events. How is this relevant to today's markets ??. Today, everyone is concentrating on the Equity Markets and wondering what will happen next. However , the debt markets are larger and affect almost all parts of our lives. We have more money in debt markets ( Debentures , Bank FDs , SB account etc) and connected to debt markets ( Car, Housing Educational Loan ) and specific products like OD, TOD s etc. We have investments in the actual debt market through MFs like Debt funds , Balanced Funds etc. WE SHOULD FOCUS NOW ONLY ON THE DEBT MARK.
For people observing the Govt 10 Year yield , Friday was a landmark day since the 10 Y yield crossed 8 % Intra day. Remember it was 6.3 % just 10 months ago. Which means the yield has shot up TWENTY SEVEN PERCENT . This is huge by any standard. Bond portfolios of Institutions as well as Individuals would have gone for a TOSS.
And this is not the end, probably its just the end of the beginning since the RBI pushed back the yields below 8 at the close of the day. This will continue to rear its head and we don't know where it will stop. WE SHOULD BE ALERT on this more than ever before. Interest rates on everything will RISE. While the retired may be happy to see that the FD rates will now rise , all others who deal in debt are likely to be dealt with a DEATH BLOW.
I have been pointing out for several months , when yields were about to touch 7 % that the interest rate scenario was changing and one should OPT OUT OF ALL BALANCED AND DEBT FUNDS and hopefully people have followed my logic. Its still NOT TOO LATE .
Happy and thoughtful Sunday
Weekend Reflections : 17th June 2017
I started investing in stocks in 1983, while still in college. The first Bull Run I experienced was in 1985 during Rajiv Gandhi's time, but I had not studied history of the markets and hence sold out early.
The second time I thought I was better prepared. In 1992 I was scared of my wits when the market started rising irrationally. However, having seen '85, I held on and saw my NAV spiraling upwards, When I could no longer believe that it was God's intention to make me Rich, I sold out and that day almost coincided with the peak. When the Harshad Scam broke out I thought God was really on my side and keeping some money aside for my first Car : A Maruti 800, I ploughed back the rest of the money a 1000 points below the peak. But I saw a slow downward grind of the market which fell another 1500 points over the next year, thereby completely wiping out all my gains.
In the 1999-00 Dotcom Bull run , I was more careful and I advised clients to put a trailing stop loss ( ie. protecting their profits in case market reverses) and was able to save a few of my client's profits, since most of them did not heed my advice.Same was the case in 2007-08 Bull Run. Again most of the clients called me a Perma Bear and refused to listen.
Now we are in the midst of another crazy bull run with all the analysts in the media goading investors to buy blindly. The valuations today are higher than we have ever seen for so many mid caps and micro caps. Stock Markets are irrational for more time than we can imagine.
In such times, while enjoying the Bull Run and the positive effect it has on one's portfolios, it would be prudent to keep trailing stop losses and protect one's profits. Hope some one else other than me learns from my past mistakes.
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