Markets on a shaken ground, refuses to climb up

Despite Asian Recovery, Indian markets disappoint

Ever seen a 1 year old child trying to stand up on his feet and keep falling unless he finds supporting hand of parents. If not, see the movement of sensex on the charts and it displays the same characteristic. Unable to hold itself at higher levels due to lack of confidence and growing pitch of voices expressing concerns on the dwindling fortunes of the emerging economies, the markets are facing stiff resistance at every upward movement.
Let’s analyse what’s going on in the markets and what will be the shape of things to come

The Global Factors –China, Yen & US economy

The China factor
Blame it on the china stock markets which saw a bloodbath after reports of overheating of china’s stock markets. The Chinese government has limited the appreciation of the country’s currency, the yuan, by buying dollars on a massive scale. As a result, it has accumulated more than $1 trillion in foreign exchange reserves. To pay for the dollars, the Chinese central bank has issued hundreds of billions of yuan. The central bank has been able to absorb some of these extra yuan by selling more government bonds to Chinese banks and the public. But part of the extra cash issued to pay for currency market intervention has made its way into the financial system. This has contributed to steep rises in stock prices — the Shanghai stock market rose 130 percent last year — and in real estate prices. The slump in share prices has raised questions about the long-term sustainability of high prices for Chinese assets. The fear of Chinese downtrend spread like a fire across asian continent.

Yen Carry Trade
Yen carry trade is borrowing at low interest rates in yen and using the loan to buy higher yielding assets like equity markets of emrging economies to generate superior returns. However with talks of rate hike in Japan, and with other countries to follow suit, we have witnessed a sharp sell off by hedge funds who used this route for money making.


The Bid Daddy sends Weak signals
The US economy is showing signs of slowdown. The US employment data were not encouraging and to add to the fire was the report on rising deafult on mortgage loans in US. US is one of the biggest Net Importers of goods and most of the emerging economies have significant export to US. Any slowndown in US economy has a effect on the prospects of these countries. Take the Example of China where the exposure of exports to US markets is as high as 40%. However Indian is comparatively well placed with US exposure at 18% . Are the markets listening !!!

Local Factors – Congress defeat, Pale Budget
When the Global Factors were playing havoc on the bourses, the local factors just did the work of putting salt on the wounds. The Ruling Congress led UPA lost its face in the recently concluded elections in Punjab and Uttaranchal which sent tremors to the Dalal street.
The markets which had built expectations of another dream budget from the finance minister was shown a plain thumb and it proved to be a another factor to add to the woes.

Was market fall justified ?
Why blame these Global and Local factors for the fall in Indian Stock markets? Don’t you think that these were just the excuses to drive the downfall in the otherwise stretched market Valuations. Experts are of the view that most of the emerging markets were running at extremely high valuations and a correction was warranted. The Global and Local factors provided an opportunity for the same. Though I feel that market fall was justified in view of sharp surge in the markets since September, the extent of the fall was more than expected due to these factors and what was expected to be a healthy correction turned out to be confidence shaker. Let’s see what will take the markets forward from the current levels.

Wow ! Reliance at 1250, Infosys at 2000
Did you imagined these prices a month back? But yes, its true that after this sharp fall, even at these levels you may have your own doubts of whether to buy or not? This is known as the “Fear Factor “. Why the Fear? Because you see that sensex climbs in the morning and starts diving by the second half of trading. Selling merges at every high levels. This is also called as bottom fishing. Investors have no clue to what extent the markets will fall and they keep postponing their buy decision anticipating further fall.

Is it a good time to Buy Stocks ?
Yes, if you are not a bottom fisher. Let me tell you upfront that timing the markets is not everybody’s cup of Tea and people end up loosing opportunities in doing this. What is more important for an investor to analyze his risk taking capacity, choose fundamentally strong company whose performance will not be impacted by any of the reasons for fall and where the stock price has fallen just for the overall sentiments of fear in the market. These stocks will bounce back eventually giving superior returns from a medium to long term perspective. So Am I giving an impression that its time to grab up the stocks? If yes, then please hold on, the best strategy in such markets is to stagger you buying. Don’t put all your cash in one go. Markets will not go up in a hurry. So take your time and take informed decisions. You must be wondering So what are the good picks in this market.

What will drive markets up ?
Well, the only trigger I see in the near future is the Quarterly results that will be announced in the month of April. India Inc is expected to continue its strong run and this should well be a reason for markets to cheer back. So it makes sense to hold on to the stocks that are expected to post superior results.

Good Picks at current levels
These picks are strictly from medium to long term perspective.

Safe Plays
Infosys Technologies ( Ideal price to Enter 2000)
Reliance Industries (Ideal price to Enter 1250)
Mahindra and Mahindra (Ideal price to Enter 725)
Larsen & Tourbo (Ideal price to Enter 1450)

Money Minters but the flash comes with additional risk
Gitanjali Gems (Ideal price to Enter 186)
Skumars Nationwide (Ideal price to Enter 60)
Yes Bank (Ideal price to Enter 110)Again this is not an exhaustive list but few of my favourites.

There are many other stock. If you have any stock in your mind , do drop a comment and I would try to provide my views on the same.

Happy Investing !

9 comments:

Anonymous said...

How about Ranbaxy? Available now at 52 week lows..

Manish said...

Dear Sir,
I am holding 10 shares od siemens. My buy price is 1390. The stock has fallen to 1000 in this crash. should I hold or book loss?

please advice

Manish

Anonymous said...

Hi Rajesh

I have 1000 shares of Narmada Chempatur bought at 43 long back. Will there be any upsides for this stock?

regards, sajith

Anonymous said...

hello rasoni
i want to buy stocks of satyam computers and sbi. do you think it makes investment sense to buy at current valuations or should i wait for some time.

Anonymous said...

Hi Rajesh
How about Tulip ITS at current levels? It touched 52 week high of 686 and cMP is 560

BTW...Your article was quite informative.

Sunil

Anonymous said...

rajesh,
what's your outlook on nifty futures ?

hello sir said...

s kumar nationwide,has a low of 35 for the past one year,what is the safety limit this stock gives at 60?...please comment rajesh.....

Anonymous said...

Hi rajesh
Can you please advice if one can buy shares of punjab national bank at price of 400 rs.
thanks
rajiv

Anonymous said...

Rajesh,

I am holding 1000 shares of JK Investo mart(BSE Code: JKCHEM @135.

Would you let me know your opinion whether to sell or hold

- Siva