RupyaGyan

Weekly Market Update 23 to 27 Dec 2013

2013-12-29T10:26:00.000+05:30

The last week of 2013 was a feel good week all-in-all. The markets continued with their positivity with interspersed downswings only on the back of profit-booking. As the year draws to a close, everybody is looking forward to a new year with a sense of certainty that the worst may possibly be over.

The effect of RBI not hiking the interest rates this time around, continued this week also and the markets responded well. There was a visible sense of ease in the economic circles as the RBI clarified that although RBI wants to tame inflation, it will not do so at the risk of over-tightening monetary policy in a weak economy. It remains to be seen what the monetary policy review due on January 28th will bring forth. There is some expectation that the effects of good monsoons may give clear indication of easing inflation and consequently the RBI may continue to take a softer stand.

But there is still a month to go for these developments to take place. For now, the feel good factor rules. The first week of the new year may continue to see some positive activity, though muted, in the markets as no negative developments are foreseen.

The developments to watch out for are the Auto data from SIAM which is not expected to be any better than the last time around and also the HSBC PMI data which is also due for release.

This is RupyaGyan logging out 2013 on a good note and with a promise to bring better news and stocks related content in 2014.

Track #RGMarketUpdate on Twitter and Facebook for regular earnings reports and sector trends.

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2013-12-24T12:06:00.000+05:30

After the state election results were out the Nifty and Sensex reached historic highs (Nifty closed at 6363 after intraday high of 6414 and Sensex closed at 21326 after intraday high of 21483 ) bringing a sense of euphoria in market-watchers but for the seasoned investors, this was just another non-descript day in the market, quick to fade away into distant memory.

Why such extreme reactions? What is the correct mood to have? That of jubilation or that of indifference. We need to understand the indications and limitations of indices more clearly so as to form a correct opinion in the face of market swings.

The Benchmark Indices :

The benchmark indices (Sensex and Nifty) constitue of individual stocks of leading companies representing various sectors and having different weightages. The weightage depends on the free-float market cap of the companies (Price * No. of Tradable Stocks).
If index stock or sector having higher weightage gathers momentum, it will carry the whole index with it in the direction of the stock/sector. The higher the weightage, the greater the swing.
Following is the weightage of some sectors in Nifty as an example :

As on 13th December the weightage of IT the Nifty is 11.16%. FMCG is carrying a weightage of 8.68% and Pharma sector is carrying a weightage of 3%.
Banking sector alone carries a weightage 21% but presently the valuations in this sector are low.

It is a consequence of the present economic situation that the three sectors (IT, Pharma and FMCG) are able to attract investor preference in the low economic cycle. Consequently each of these sectors is having very high valuations due to their consistent performance and growth.
Even if the other constituents of the index do not participate, still the momentum of these three highly priced sectors are enough to create a considerable swing. Such swings do not always reflect the current economic situation but rather are a reflection of a polarized market.

Limitations of Benchmark Indices :

The present gains of the index are based on a polarized market which does not reflect all the constituent sectors as the participation in any rally is not broad based. If the basis of your investments is the signal from the benchmark indices, then, in the present case, it is futile simply because the indices are not truly reflecting the underlying economy and moreover the stock that you have chosen maybe reacting to different fundamentals than that of the index.

When an economic revival starts, its effect is felt across sectors and results in a true bull-run with the participation of all the sectors in the benchmark indices. The signal from the index then will be a true indication of the underlying economy but any investor waiting till that time will have already missed the bus to gain from individual stocks across the sectors.

Just to get the facts right, in the period from 2006 - 2011 Sensex grew by a CAGR of 12%. In the same period RIL grew with a price CAGR of 21%, TCS grew by a price CAGR of 20%, SBI grew by a price CAGR of 25% and L&T grew by a price CAGR of 22%. It is clearly seen how the topmost companies have easily outperformed the index.

Be a Long-Term Investor - A Class Apart :

When there is an economic downturn, it affects all. Even the best of the companies will feel some lull in activities. But good companies will always have their inherent fundamentals intact, only to bounce back with a revival in the economy. If certain stocks/sectors are not attracting valuations presently, it is because, in the present scenario those sectors are not attractive to big institutional investors which have their own well-calculated time-frames which are not always relevant to retail investors.

The stocks/sectors presently undervalued are not in any way lesser in potential. They are just not attractive at present. This undervaluation presents a great opportunity for any investor looking for good picks with a lesser downside risk and good safety margin. When the economic cycle turns the other sectors will also attract higher valuations owing to the inherent worth of the stocks/sectors.

Finally it is important to remember the following special traits of a long-term investor :

Long-term investors base their decisions on a good knowledge and understanding of what they are doing and why.
As a seasoned investor, expect reasonable returns and not miracles.
Understand that the economic cycles are an inevitability. This awareness will keep you grounded and also present a different set of opportunities in an economic low point and at an economic high point.
Acknowledge the fact that investing in equities requires a certain knowledge and access to data which may not always be available readily. So, it is prudent to take the help of a financial advisor or someone who is a specialist.

For the long-term investor, the indices are only one of the many points of reference on which to base a decision. The holy grail for any seasoned investor should be the fundamentals of the individual stock or company in which they are investing. It is for this reason that superficial euphoria or short-term panic does not affect a seasoned investor. For them it is all just part of the game!

This post was originally published in The Indian Republic at the following link : Click Here.

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Weekly Market Update - 16 to 20 Dec 2013

2013-12-23T09:25:00.000+05:30

The markets started last week on a low note with the hangover of the high CPI which was further aided by the 14-month high WPI figures. It was expected with certainty that the RBI will go for another bout of rate-hikes and this kept the mood in the markets down. But with the RBI keeping a status quo on the interest rates which lifted the moods. This also helped somewhat when the US Fed finally reduced its bond buying signalling the start of the QE taper program.

The highlights of the past week are :

WPI rises to 7.52%. 14-month high.
RBI keeps status quo on the interest rates.
US Fed reduces monthly bond buying program by $10bn. Keeps interest rates low.

Close on the heels of the high CPI figures the WPI figures too shot to a 14-month high figure of 7.52%. Understandably the markets were on a low after such high figures were reported because it was felt that there is no choice left but to rise the interest rates once more in an effort to curb inflation.

But the RBI governor surprised everybody by keeping the interest rates unchanged on 18th December. However, there was a cautionary note that if the prices don’t ease then the interest rates may be raised. It seems that the RBI is confident that the good monsoons will show their beneficial effects and the prices will come down. Also, it is banking on the fact that the core inflation was steady at 2.6%. Also, by keeping the rates unchanged, the RBI has given a breathing time for the industry to improve and grow. The unchanged rates also signify that the economy has reached a state where we can adopt a wait and watch approach for however short a term.

The other development that was the highlight of the past week was that the US Fed finally reduced its monthly bond buying to $10bn signifying the much anticipated QE taper. But, in order to keep it light on the economy, it has decided to keep interest rates at a low for now.

Where the markets reacted to the RBI policy with much relief, at the same time the reaction to the QE taper was more cautious. The next week will bring in the full bearing of the QE taper and there is wide expectation that the effect will not be very negative. It is understood that though the taper may bring in some minor difficulties, the fact that the US Fed has decided to taper really signifies that the US economy is recovering and hence it is now not necessary to pump in easy money to support the economy.

As the year draws to a close we can expect the markets to have some more relief rallies as two of the most anticipated events of the month have in-fact brought in some sense of decisiveness into the market participants.

Track #RGMarketUpdate on Twitter and Facebook for regular earnings reports and sector trends.

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