The week ahead : Market plugged, Writing Unplugged

Through last few days I haven’t seen you coming to my pages. And that off course is not your fault. You got no new stuff to read. But I must convey that author also has some compulsions. Blogging to its purist form is spontaneous. If author hits any literally blockade, that spontaneity gets hurt. And the result is my absolute absence from writing. I do not wish to feed you rubbish.

In my last post, you read that market might taste new highs and that high would be in the range of 4400 to 4500 for Nifty50. And market is moving in the same direction. Suddenly by the end of last week, a concern got spread regarding further Cash-Reserve ratio hike. And the reason, explained, was influx of extra liquidity due to timely maturity of G-Sec series and RBI intervention in Forex market.

RBI preferred to use Market Stabilization Bond(MSS) to shed any extra pound. But in near future is it possible to witness another CRR hike? And the answer has flip sides.

First of all, monsoon is going to touch coastal India within a few days. Farming activity will start in most of the parts in India. Working capital requirement will remain steadily high. Any CRR hike will push the fund cost up for agri-community. Government should not like to risk farm-production or political credibility before strong agri-lobby.

Opposite side is, during monsoon season prices of primary commodities increase in some parts due to supply side problem. That would effect the inflationary composure. If central bank start intervening forex market to restrict rupee appreciation, rupee liquidity will increase. And that might encourage speculative activity in both of the financial and commodity markets. So, CRR hike would become inevitable along with MSS activity.

Now central bank have to choose any of these options and market will react to both.

For the sake of soothsaying, market will remain positive for few more days but not expected to show any swift rally. So start preferring tortoise over rabbit. Any prominent correction should be visible only after mid-June or July due to first-quarter result related issues.

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The Week Ahead 14/05/2007 to 18/05/2007 – The Road Ahead

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This Friday people skeptically remembered the day on which many investors lost their shirts – the 11th of May 2006. And from the morning only, market-players were suspecting another horrific Black Friday. Back stage was ready as international markets were quite down in the opening. But things turned opposite as day proceeded. And after quite a volatile movement market settled for a slightly positive closing.

For few day, I am voting for a range bound market. And the range, I wish, market would follow is pretty narrow, 4000 to 4200 for Nifty50 with some plus/minus error factor. You can argue that how long market will abide
by such a limited range. I do ask myself this question. And indirectly, the answer to this question will be ” as long as fresh follow through buying is not coming”. And follow through buying is possible only when new outlook opens up in valuation front. Till date Nifty50 is trading at around a PE of 19.35 times. If we consider that historically PE resistance for Nifty stands at around 22 then upside is limited to 4650 at fair value. So upside is of 400-450 points only or rather of 11% approximately.

Add to that the currency risk and risk regarding Monsoon. Last week Met Department forecasted an early arrival of Monsoon. But as fate of many sectors like, FMCG, Cement, Consumer durables, Auto depend directly and indirectly on the Monsoon, market might become volatile as response to Monsoon updates.

So, ultimately risk adjusted return is lower then our previously calculated possible upside of 11%. And this can be a spoil-sport.

Primarily, I feel market will try to breach 4200 and taste a new high very soon. But market time is not my forte. Only thing I wish to do is to wait and watch. I would prefer your company.

The Week Ahead 07/04/2007 to 11/04/2007

During my professional hours, often come across people who want to make money from share market but lack basic sense of the market. When share price goes down they get panic and when price rallies they inactively keep thinking, how far price will go up. Thus waste precious time. Problem is not that they are scared to take position rather they don’t understand rule of the game. If you feel yourself as one of them then I am coming with a series very soon that will give you some “sense of the market“.

Coming back to the actual fact, last week market remained as per our expectation. It moved in certain predictable range. I have earlier said that boring days are ahead. And that’s the fact. Strong rupee is keeping exporters’ stocks down, no immediate solution is visible. But I must say, this situation is giving some splendid opportunity to accumulate front line IT stocks.

Other than ITs, you can also go for sectors like, telecoms, fmcg, and banks. True, telecoms are quite fair valued now but ranged market often offers values at discount!

Credit policy turned out as quite liberal and private banks can skim
the benefit of this liberal policy.

FMCGs do not have much downside unless monsoon turns up really bad. So you can opt for that even.

Apart from these, you can look for mid-cap even but certainly with bigger time frame.

Unless I am seeing no big change in the picture I will go with my previous outlook regarding market.

See you on next post.