Unseasonal Clouds Or Signs Of A Storm

The markets are currently in a state of total flux. From the life time highs they hit just weeks ago, benchmark indices are dangerously treading at critical psychological levels on the down side. What was looking like the beginning of a new leg up has suddenly reversed and that too with a force so overbearing that it looks like the bears will maul the bulls beyond recognition. 

It all began with Dr Rajan misreading the colonial arrogance. This man has remained the key to India’s fiscal prudence for over a quarter now. Up against the monster of inflation he has been very smart at maneuvering the monetary policy in a way that had so far dodged the most complex moves even of the likes of the US Federal Reserve. Remember, he rescheduled the date of the monetary policy meet breaking away from tradition and holding it a day after the US Fed held its meeting. Taking cues from the actions of the Fed, which had then shied away from tapering its bond buying, he had hiked interest rates utilizing the leg room he got to tackle inflation. 

Up next, he went one day ahead of the Fed to maintain a status quo, looking as if he knew that the Fed would announce a taper that same very evening. He was bang on target the second time too, but failed to be lucky the third time. Interest rates were hiked bringing inflation back in focus. But hiking interest rates on the domestic side did not actually trouble the markets. The reason for this was an assurance that the central banker was done with rate hikes at least for some time now. The assumed peaking of the interest rate cycle actually did good for the markets. What really hit the markets was the Fed decision to hike its taper by bringing down its monthly purchase of bonds by another USD 10 billion. 

Given the present economic circumstances globally, there is a need for a synchronized effort from all central bankers and policy makers to ensure that economies come out of the troubled spot and keep growing. The Feds action smacks of colonial arrogance and we shouldn’t be liking it. At the slightest hint of growth in the US, the Fed without even thinking twice has tapered its bond buying for the second time in a matter of a little more than two months. The impact of a taper could be far worse than what the pinstriped policy makers probably believe it would be. The RBI Governor has already placed on record his displeasure at the Fed’s action, but the damage is already done. 

The biggest impact of the Feds decision to additionally taper off another USD 10 billion in bond buying, has come heavily on the psyche of the foreign institutional investors. Read in conjunction with other macro pieces of data that have appeared over the past one week or so it has led to a bloodbath on the streets. 

This so called flight to quality of the US dollar in the light of the taper is a little perplexing. Institutional investors are assumed to have a long term view on the secular growth story of emerging markets and particularly India. And, if that is really so, there should ideally be no reason for FIIs to panic and run away with their dollars at such breakneck speeds. Leverage seems to be acting out there. 

Another significant turn of events came when economic data points revealed a worrisome picture on the manufacturing side. China was the biggest of these worries. Whether you accept it or not, it remains a fact that any slowdown in Chinese manufacturing reflects a global slowdown in consumption and hence overall economic activity. This too has exacerbated the overall market sentiment. 

In the Indian context, corporate results for the December quarter of 2013 have shaped up more or less in line with expectations. There have been no major surprises on either side and that was anyways priced in by the market for long. As far as the macro picture is concerned, it is currently more dependent on the political thought process than anything else. That is what will act as a major differentiator and create the right environment for the markets to seek their future direction. All hopes now rest on that very critical factor of a decisive and strong leadership to take over the reins of the economy. 

The state of the markets is a combination of all of the above that I have touched upon. The Cover Story hence seeks to answer the most vital question in the present circumstances; will the market regain their confidence and move up any soon? Our research team takes you through the detailed circumstances that are presently engulfing them, in a bid to clear the fog and help you take some real investment decisions.

Apart from that the regular features will give you some very clear investible ideas. The Choice Scrip this fortnight is Britannia Industries, the confectioner who has fancied every Indian household in one way or the other for ages. The stock of this company offers a good investment opportunity for the prospects that come along the fundamental strengths of the company. On the Low Price front we have power trader PTC India. With the economy all set to turn corners, this company will be a big beneficiary of the demand that will come as a follow through of the demand for higher power from all quarters. 

Our team spoke to the management of Jubilant Foodworks and is of the opinion that the company is best placed to ride the demographic change that India is going through. Read about the factors that will help you be a part of the profitable path that the company is all set to tread. 

Let me end with the usual request of seeking feedback from your side on the contents and quality of the new, revamped and rejuvenated Dalal Street Investment Journal. Do mail us on comment@dsij.in as your feedback is the most important element for our improvement.