Markets remain sideways for now . Indian market is looking towards the expiry and support from short covering .
Also the Indian equity market will be watching the following :
The other asian markets remains weak with automobile and commodity sectors being the worst performers .
The VW episode is just not about one automobile company ! Other companies may also get affected as more losses incurred .
We may also expect stricter emission checks across borders . This is turn will affect other automobile companies across the supply chain .
For Indian equity markets with the F & O behind us the market may try to form a base for recovery .
Markets see major sell off .India is not an island and will not remain isolated from the global selloff.
The Asian markets on Tuesday started on a strong note , however there a sell off in the Indian market at late afternoon once the European markets opened gap down .
We expected the markets to remain stable in absence of any news flow from the international markets . However the news from German carmaker Volkswagen made the market crash .Volkswagen has announced that it will make a provision of $7.3 billion in the third quarter following the revelations that it had misled authorities over the emissions of its diesel cars. This lead to a major sell off in the european markets which also affected the Indian markets.
The party lead by Fed's inaction was short lived and the market is trying to price is bad news from Germany . Some of the questions that has been raised by this episode are as follows :
Back in India on a smaller scale Amtek Auto defaulted on 800 crore bond payment . Amtek Auto is one of the most leveraged company in the automobile sector. The banks in India has an exposure of close to 8000 crore on Ametek and its group companies. . Indian banking has a huge exposure to the auto components sector . Amtek Auto was rated highly by the credit rating companies even a few months back . Does our credit rating systems has some flaws that stops them from foreseeing such problems or .
does it point towards conflict of interest.
This problem is much beyond Amtek group . We will see sell off and derating of many highly leveraged companies in days to come . Many of these companies has poor corporate governance and huge intergroup transactions. It will be a good idea to take profits / book losses and move out of all such companies to protect your portfolio.
The commonalities in the above mentioned incidents are that both relate to the automobile sector , and both indicates some lapses from concerned authorities.
China date keeps pointing to a much widespread and deeper slowdown than initially anticipated , The market is yet to price in this .
On INR VS USD , INR will continue to weaken in line with other Asian Currencies . India is not an island and will not remain isolated from the global selloff.
As expected and explained in our Friday newsletter the celebration on Fed not acting on rates can only be short lived . US markets have corrected sharply , and we can expect to see serious profit taking in Asian markets.
Now half of the market expect the Fed to act by December !!
Out of all these the good news is in Greece Tsipras looks set to come back to power. At least its gives some stability on Greece reforms . However he may need support from some right wing independents !!
In India the next big thing to watch out for is RBI move on interest rates.
Till then happy trading !
With no major news from from the international market , Asian markets are expected to stabilize . India NIFTY may recover some of the recent losses buoyed by the expected interest rate cut by RBI . Sectors to watch out for are the Banks and other inter rate sensitive sectors . Cement sector may provide some medium term opportunities .
Fed's decision to leave interest rates unchanged will be interpreted as weakness in the outlook for the US and the global economies . Also market has moved up in the past few days in anticipation of some action.
With nothing to look forward to except for the China housing data markets to see profit taking and correction going forward.
For now risk is on as equity markets moved up yesterday . Market is trying to factor in any good news and clarity expected from Fed.
Asian markets are expected to continue its upward journey for now.
However for small investors it will be a good idea to book profits and join the party once news from Fed comes
Indian rupee may stabilize at current levels and will start the next directional movement based on Fed move.
Markets are good at pricing in news .. when they know it has happened or there is certainty of it happening . The problem starts with uncertainty. Higher uncertainty leads to higher volatility and thus higher risk.
The least the Fed can do is to give a clear direction of things to come. Whatever the Fed decides will surprise a part of the market . However clarity will help the market to price it in and move on .
Then market can take a closer look at China and try to grapple with its growth data.
As discussed yesterday, the market is watching carefully the Fed. This will continue to be the key guiding factor for the market this week .
In India the CPI numbers came below the expectations . The core inflation has also come down , which is good news.for the markets Though some of this improvements has got to do with the higher base effect this news will help the central bank to reduce interest rates without worrying about inflation .
In case the Fed comes and confirms it will not raise interest rates for now in view of the slowdown in China .... we will see the market moving up in the short term.
To put things in perspective these are the major events to watch out for :
As the market seems to be in a dilemma , volatility continues to be high . Things to watch out for :
We will come out with our stock ideas from today . Friday evening we will post the stock ideas to enable readers the weekend to think over and decide.
Markets has recovered from their lows backed by :
1) Short covering
2) Value buying by the FI and Mutual Funds
The rally may continue into today with a firmer opening . However we have to watch the market trend for a few more days before we can rejoice .
As already discussed these are good levels to start building a portfolio independent of the market volatility .
So far as the stock market acts as a barometer of the economy its correction and subsequent reaction of the Government reflects the following :
Having said that , it was apparent that CHINESE STOCK market has lost its touch with reality . The signs of the huge manufacturing machinery of China slowing down was all across the place .
However it was expected that China will have a soft landing which was well planned , without any contagion effect on other markets .
When it became apparent that the landing will not be that soft investors started to panic,
However China has deep reserves and strong central control . They may not grow at the same pace as in the past , but they will continue to grow and prosper .
Unless the contagion spreads to other markets and situation worsens , things are under control . We have to keep a close watch on China economy for clues of the future direction .
A deluge of data from China will be released this week . The world will be closely watching this data , with the hope that it's not that bad . The Job report from USA that has been released the weekend is below expectations .
As the market corrects further due this global turmoil , it will be a good opportunity to start building a portfolio.
We have started the new section on "Investment Ideas' where we will discuss different stock specific ideas .
The markers continue its downwards journey with no end in sight . China's foreign reserves are fast depleting . This has cast doubts on the ability of Chinese government to continue its intervention in the market .
China already has excess production capacity built of the past decade. In case of demand slowdown in China companies will be forced to dump their products in the international market .
In order to protect Indian producers and exporters India will have to allow its currency to weaken further .
Thus Indian Rupee looks all set for 68 for now. For FII the falling stock market , and weakening rupee is a double whammy , eroding their returns .
For now for small investors stay in cash and wait for the opportunity will be the right strategy . For those who are already invested it will depend on specific stocks they hold , entry point etc.
Write to us with your specific stock queries and we will try to address them in our newsletter.
The Investors of equity market are optimists. Pessimists and non believers invest in Fixed Deposit and Gold. They keep a self help kit with a torch light , essential medicines , a bottle of drinking water , some canned food just below their bed . Well tsunamis do happen ... 9/11 happened , Lehman Brothers happened .
For once forget about the ' out of the blue ' incidents . How did everyone fail to estimate the housing bubble in US. After all on hindsight it looked so obvious. Moody's was rating those assets consistently as the best investments .
Having decided that we are optimists we have to decide whether we are traders or investors . At least we have to decide whether a particular share we purchase today is for trading or investment .
One of my close relatives is a 'trader' in equity market . He purchases good stocks , then sells them off as they go up by 15 - 20 % and purchases other stocks. I think its a good strategy . However the day the market corrects 20 % he freezes into inaction. He becomes a long term investor . So you see the problem .
US Fed wants to increase interest rates . EU wants to continue with QE after September if need be . China has slowed down and is devaluing its currency to buy growth . A perfect storm ?
But do we stop investing or trading . NO.
There is this story . And like all stories has beautiful men and women in lead roles :
One Mr Tom was standing in front of the sea at Pattaya staring at the waves . Ms Lilly saw him and asked him what are you doing ? Mr Tom said I want to take a bath, but I am waiting for the sea to quieten down ... So you get it ...
Give it a thought and share your experience .
Have a great weekend !!
The emerging markets have seen major selloff in the past few days with no end in sight . The slowdown in China is keeping everyone on the edge.
Indian market is at the 13 month low.
The positives for the Indian economy are :
1) Structural reforms that will help in the long term growth
2) Indian service sector to benefit from the revival in growth in USA
3) Low commodity prices ( Oil , Coal ) where India is a net importer
4) Slowdown in China will drive investments to India
However India is not an isolated market , and thus the global factors and emerging market sell off will keep affecting India.
We have to be prepared for increased level of volatility across the financial markets. Oil is again on its downturn , equity markets are crumbling and forex market is looking vulnerable. The four most important factors for the market in the near terms are :
1) Fed interest rate hike
2) China : extent of the slowdown
3) The situation in Greece in particular and EU in general
4) Commodity prices mainly Oil and its impact on the MEA economies.
For India apart from the global factors we need to watch for the following :
1) Pace of reforms
2) Interest rate reduction
3) Growing NPA levels of the banks
Rupee as stated before may weaken to 68/69 levels .
What will be your strategy to gain from this increased volatility ?
Now that it looks unlikely that the Fed will start increasing the interest rate from September , the market has to keep a close watch on the data from US.
In general we are back to those days where ' Good news from the US economy will be bad news for the equity markets' . Is the market factoring in the rate hike ?? It looks like not yet ... The market is ' Enjoying the sunshine while it lasts ' .
India may reduce interest rates as inflation comes down. However with global rates expected to go up this will not be a directional change for Indian rates . Indian rupee looks weak in the medium term and may cross 68 against the USD sooner than expected.
Once the rate hike starts the market will have to live with the fact that there has to be a cost for risk capital . It will also force industries to use capital more prudently .
Stay clear from highly leveraged companies and look for shelter in companies with strong balance sheet.
The commodity sector will face another selloff unless China comes to its rescue. Can China afford a severe economic slowdown, what will be the political impact of the same ?