Hi
Finally, one much hyped event is over. Fed has done it for 17th time by raising it by 0.25% as anticipated. It has softened its stance on inflation but left wide open the possibility of further increases.
Next policy statement will come in July third week whne he gives evidence before congressional panel. Then In August and finally September.
The outflow of money from U.S. equity funds has stopped, according to Charles Biderman of TrimTrabs Investment Research. In the week ended June 20th outflows totaled $4.5 billion, but by the end of the following week, inflows and outflows had equaled out, he said.
"If today's rally continues through Friday, we would expect healthy inflows to return in July," he added.
"We have the potential to rally from our current oversold position," said Morgan Stanley technical analyst Mark Newton. "I'm more optimistic for the next month or two than I am for later in the year."
This means they have pulled out money from EMs. What happens if EMs also surges. Will the money come back???
So this has not really gone away. Prices were unsustainable so it found a vent to re;ease the pressure.
Now the pressure will be shifted to three factors at least
1. Performance and guidance by the companies and comments of analysts.
2.Stand of Bank of Japan on raising rates so that global liquidity is tightened. That will reduce hot money chasing risky profit.At least it will sober the inflating sensex and expectation of across the board rise of stock prices will be moderated.
3. Moonsoon, oil prices and reforms.
Dow and Nasdaq couldn,t contain the joy of happening what was known since may 2006 and much hyped up. Of course if you give much spirit even sober dow will dance forgetting its past and the present reality.
India is certain to respond with wild abandon though I would wish it to show a mature response. A moderate rise.
Is today a time to buy? No
Market will
go into consolidation mode for now and it will
respond to domestic issues such as Monsoon forecast, oil prices and its impact on economy, pace of reforms , psu disinvestment, reduction in fiscal deficit. People should be watching for any signs of slackening growth and higher inflation, increasing balance of payment gap(Export- import-debt servicing etc).
Just a thought crossed my mind after Mittal won arcelor and GOI decided to disinvest 5% of coal india Ltd. May be one day in next five year we will see sail being handed over to private management like Mittal or Ticso(after a bitter fight) as Mittal wants to focus on India and china now. The two Good emerging markets.Any comments for and against is welcome.I have a feeling that is may be a foregone conclusion.Secondly , If mittal comes for acquisition spree in India then steel industry might see consolidation with mergers and acquisitions.
Second aspect is that
GOI seems to allow FIIs to indulge in pure speculation at the cost of Indian investors. Such distress stories floating in the country would not do any good for increasing the market depth.
We should redefine the priorities and concentrate more on FDI rather than FII.
Dtata in this regard is disturbing and can not be wished away. We have 75:25 ::FII:FDI ratio while china has just opposite.
FDI is a long term commitment and FII especially Hedge fund is till the first hour of the party. Second hour of the party is the exodus leading to such a fall.
I think now investors know the bottomline for indices.2632. Further any stcok whcih has fallen below its fundamentals and is grwoth leader or industry leader in a growing sector is a good candidate for watch list. If you have such stocks which are good, it may be worth averaging on a long term basis. Let me remid you that in all this brouhaha FII,s net sellout was limited to 4%. If you consider that as part of normal operation then the reaction to it was due to global factors and swiftness of withdrawal( any intelligent person would do to either book partial profit or protect profit and invest at lower rates.) FII net buy has decreased by anothe 200 crs thus June is around 600 crs net buy for FII. Today they may sell andother four hundred crs net or may be all or remaining net of sale and purchase. Now market will be able to absorb as many would rush to enter again for the fear of being left out.
Be patient. It is the time to watch and wait. You buy when market is down.Don't just give in to euphoric sentiments or depressive moods.
Pankaj