“buy on rumors and sell on news”

Over the past 3-4 months the market assumed that Namo will win, Mahagadhon ka bandhan will win, Pappu will win….and fluctuated accordingly. Obviously those who thought Namo will win were correct – and they were perhaps more in number. So the did a lot of buying and the market did touch 40,000.

Now a fund manager will tell you the following:

  • there will be greater spend on infra
  • interest rates will go down
  • financialisation of assets will happen faster
  • gold is not really a great alternative
  • real estate is going nowhere
  • we are decoupled from the world
  • capacity utilisation will go up
  • EPS will improve in the corporates IN ALL INDUSTRIES. (they said all this in 2014, not my original)

Well I am not a fund manager and do not see enough reasons to be so bullish. However, I am sure that there are many sector specific stories. If car sales go up, Maruti will go up, and if Jet airways takes more time for revival, Indigo’s market share will go up, and so will the profitability in the short run at least. One day the 50% + market share had to translate to a higher PE for both the companies. Ditto for Hdfc Asset management and its slightly poorer cousin Reliance Nippon. Happy to have participated in all 4 (caveat)..but over all the market may not be headed in any particular direction. Too many traders who are bullish, and may close positions soon.

On the other hand FII committment may be more longer term in nature and many infra shares could consolidate even further – Cummins, Siemens, etc. come to mind. On the consumer spending space the eternal trading favorite and invesment nightmare could be Mahindra Holiday Resorts.

However, the market direction is not really clear. Many many sip started in enthusiasm are closing down. Banks are no longer selling SIP – you should see the ULIP and other life insurance product sales. A lot of this money is likely to go to meet the government’s borrowing needs – and hence keep the interest rates down. However, I can see interest rates for the retail depositor at 9% and for borrowing he pays about 11% in the housing space. Yes there is scope for interest rates to come down. Remember Namo has been lucky too with crude oil prices. So if crude is headed to 66, and hence reduce the pressure on the US $ rates, and the US-China trade off results in some benefits for India, we could be headed for a rally.

However, one will have to wait for a full budget from the new Namo government to know in which direction this gov is headed. Obviously the bottom of the pyramid – toilets, gas connection, bank account, mobile connectivity, Mudra loans – have been the success stories. There will be push in that direction for sure.

So where is the market headed? Ha,  I knew that was coming. I do not know, but we have BOUGHT on rumors of a Namo victory. We will sell on the news of a Namo cabinet. Yes we could see some sales, but yes there are a few good stories for you to munch. There will be some stock movement – of some stories – and of course the good old SIP will work. However right now the SIP money is the only money coming into mutual funds (remember I am not including PMS and AIF), there is a lot lot more money going into life insurance companies – which could be going to government bonds also.

Take your pick, market will see 75,000 sensex in this 5 year term of Namo. Will it go from 40,000 to 35000 and then go to 75,000, NOBODY knows.

 

 

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  1. There are enough indicators of economy slowdown just before and during election. Auto sales and other consumption including FMCG. RBI itself cut the repo rates down. Not much progress of IL&FS crisis and also funding crisis to NBFCs. RBI has to do special study on why significant drop down happened in retail FDs with the banks. Many of us thinks Sensex 35K is like recession and no one is able to think what it is like 20K or below 20K. If crude spikes to 90 to 100 levels, difficult to think consequences for Indian economy.

    Guess, new govt will definitely be pro poor means, lower interest rates, NPA rules relaxation, injection of cash into NBFCs, PSUs will be milked as much and savers will be punished and rupee will be devalued.

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