Friends,
The present times have been most confusing in the Indian stock market place as well as in world’s other markets. The cross currents are very many and no two analysts are in agreement with each other. I am in fact looking at things in slightly different light. You may have noticed my bearish bias throught out the year 2007 and you may be thinking as to why I have turned bullish inspite of the many matters that have been mostly seen as not very good for the markets. I give my reasons below:
Firstly, my idea about the market is bullish on account of the basic strength of companies in India which has grown in the last two to three years of high profitability and retained profits.
Secondly, the inflation that has made the entry for the new players rather costly.
Thirdly, the high oil price is a dampener but has lost its future impact for it has been there for far too long. If any thing changes in the oil sphere it may only change for better.
Fourthly, the real interest rates are very nominal in India because while the inflation has gone up interest rates have not been raised here in view of cheap money policy being pursued in USA.
Fiftly, the rate of saving is very robust in India . The FD deposit interest offered by bank does not cover even the erosion in value of rupee and are taxable. No rational person would therefore be comfotable to keep funds with banks and would be happy taking slight risk of fall in market but would go for equity investment. This at least makes him owner of some concrete assets and gives some money back through dividends.
Sixthly, the markets have fallen and hence the dividend yield has become respectable and is tax free.
Seventh point is that the rupee wekness of late has made the Indian industry less prone to competition from out of India . This has also made the IT scrips far better placed now.
Eighth point is that govt. has relaxed the inevstment by foreign entities in debt paper and this would see funds flowing in to India.
Ninth point is that while there is choppyness at the surface , there is bullish current underneath. The markets have not broken to new lows in the last three months.
Tenth point is that the slow down expectatins have receded over the last three months as the fourth quarter 08 has not given bad result on average. The first two month of the current quarter have so far passed peacefully inspite of every attempt by the polititians to upset the applecart.
Eleventh point is that the corporate taxes, personal taxes as well as the indirect taxes are low when seen in historical perspective.
!2th point is that China has failed to impact the Indian industry by supplying goods cheaply and seems to have seen the folly in going for too agressive export policy which has made inflation high there.
13th point is that the infrastructure spending is keeping pace and has not subdued.
14th point is that salary hikes will be moderated by the industry in times to come .
15th point is Indian banks have not been too badly impacted by the sub-prime crisis in USA and luckily the same kind of scenario is absent here as the property prices are holding firm and the housing morgage business has not come under threat here.
16th point is that the loans advanced for purchase of two-wheelers and four-wheelers have not seen defaults of menacing proportions and the banks have become slightly more choosy in the mean time.
17th point is that the food inflation will moderate with coming crop.
18th point is that sugar is aplenty and the cane growers are not going to get too high prices for cane as they did in past. This will see transfer of some of the cane area to other crops, helping both fronts ie the sugar front and the grain and pulses front. You may see how the inflation in food prices and the glut in sugar was invited by the wily polititions. They are out to do the similar thing in the area of cement of steel by meddling in free pricing whcih is so necessary to ensure the balance in supply in times to come.
19th point is that the next elections are likely to throw up a majority commading party (or compact combination of like minded parties) unlike the compulsive adjustment of pseudo rightists and pseudo leftists.
20th point is that the govt. has compfortable tax revenue which will be sufficient to take care some spending for populist causes.
21st point is that the organisation of Indian stock market place is near perfect and it responds to the new needs in a smart fashion. There has a near absence of the scams.
In the end suffice is to say that if you keenly watch smart money , it will be seen getting in to stocks rather than going out of it. The correction from top of the order of 25% is no small thing to happen. This has happened during the period when the profits or sales of companies actually did not suffer. Market was wrong in the month of Jan 08 at 6000 plus Nifty level and the market is wrong at sub 5000 Nifty level just now.
Hariom,
krsnaKhandelwal
