Market Direction

The markets are usually up in the month of April in India due to businesses taking a sigh of relief after taking care of March month which is the last month before the financial year closes. The last installment of advance tax is paid in March which also strains finances. This is not to say that the money meant for investing in stocks is used for other purposes but the overall liquidity situation remains tight and affects the markets. The money that is unaccounted but seeps into businesses one way or the other is also taken out so as not to let it appear in balance sheets . This money starts to get back into circulation with start of new year.

 

Since after the RBI’s benign gesture , the markets had to have some up-moves (please refer to post ‘RBI’s Bold Move’ earlier this week) and this has happened but in a controlled way. This is good in fact that those who have conviction have time on hand to buy slowly. If we look back at the history of the market for last decade , it will naturally will have to be seen in two parts i e from 2002 to 2007 and 2007 to 2012. It is hardly digestible that first period saw Nifty go up by four-five times while the second period keep it almost the same level. Five years is a long period for a developing economy when the economy has been continuously performing better than the most other nations of the world.

 

There is a further point that the interest rates have been lowered in the world’s most big economies and the expansion of money supply has been huge. India also has been more less doing the same thing but it also has been cautious on account of the inflation remaining at high level. This concern did not allow for the needed expansion to take of the needs of the economy for the increased stock of capital which in fact made the Indian corporate sector post lesser than the possible bottom line gains.  But the corporates have been busy expandng and the CMIE (Center for Monitoring Indian Economy) report today confirms that project completion in 11-12 has been of the order of Rs 4 lac crs against less than Rs 1 lac cr some five years back.

 

Now what should we gather from all that has been said above ? I think it says that the market is not optimistic due o variety of factors and hence is not in euphoric state but it has a consensus that that there is hardly any room for down side.  If  we look at Nifty stocks about half of them have had good going during last five years and the respective prices are reflecting that . For the rest which also represent sectors that have been under pressure due to one thing or the other like telecom, housing, infrastructure,metals and power etc , the share prices are down by between 10 to 40 percent. n the middle remain financial stocks and tech stocks.

 

So when those at highs are okay due to progress in past many years and the rest have lost all the flab that was possible to be shed and when the middling are perched in the middle , the balancing act is just fine and can hardly be disturbed. So, naturally the exposures in market should reflect one’s appetite for taking risk which in any case is not substantial at this stage at least.

 

Nifty closed today at about 5330 which is just the level on the budget day last month.

 

Hariom,

krsnaKhandelwal

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