INDIAN STOCK MARKET.
The market in November turned upwards for an intermediate rally that carried the BSE Index above 4000 points. Select stocks moved up. The market buzz was that some promoters were mopping up the shares as current cheap valuations offered an ideal time to hike their stakes using the creeping acquisition route. However the rally was not able to pierce through the declining averages, as there is only range trading
Some fund managers who had professed a vigorous buying program when caught unawares by the last big dip have not really followed up on their words.
A leading daily’s supplement posted the headline ‘A spurt in the bellwether old economy stocks signals an end to the Bear phase'. But it does not carry conviction.
Some have said that markets will continue to be range bound between 3600-4200 levels. The lower end of that range being near the area of the last dip is as far as they wish to see.
Despite the economy being far away from the recovery mode when cement companies revised their sale price to pass on increased energy cost, cement stocks rose. Because there is wishful thinking that the economy will lap up the inventory. Oil Stocks are strong though they will shoulder higher dues by the government. Pharma stocks are being pushed up way beyond their true worth. Because it is becoming more difficult to hype up technology, media and other ‘momentum’ stocks.
Having ignored stocks with sound financials all along now there is talk of ‘value based investing’. All these could be signs of marketmen trying to hold up a falling market.
The ‘C’ Wave of the Bear market is still on .Our prognosis for the wave as presented in the November issue is reproduced.
‘Other potential termination points fall within a range of 2750 and 3279 points on the BSE Index. The lower end of this range also satisfies a wave guideline in being near the terminal area of the preceding sideways corrective 4th wave established in Dec 98 i.e. at 2742 points. Hence a retracement down to that level is a strong possibility.’
We should remain 100% invested in Cash at least till the BSE Index dips to the 3279 point level.
Indian Economy – In Bad Shape.
Bearish signs straddle the economic scene.
The NCAER October review of the economy revised the GDP projections down to 5.8%. In mid-October, the Finance Minister had noted with a great deal of confidence that the slowdown in industrial production would pick up in the rest of the fiscal. He maintained GDP growth at year-end would end at 6.8% if not the projected 7%. In less than a month’s time he admitted in an innocuous function that the real GDP growth is likely to be around 5.8%. NCAER further reported that the Business Confidence Index (BCI) has declined by 14.6% for the second quarter the second largest decline in the last 4 years.
An ASSOCHAM paper on the ‘Macro-Economic Scenario’ showed bleak prospects for the acceleration in industrial growth during the second half of the current fiscal year. It quoted a slackening demand for consumer non-durable goods .
As per the CSO capital goods sector achieved negative 1.1 % growth this year vrs 9.7% previous year..
This year the monsoon is 8% below the long-term average. Agricultural sector output is likely to decrease by 1.4 % while Industrial output by 2%.
We are in the grip of a serious power crisis according to the Union Finance Minister.He said besides the cost of power the inefficiencies in the power sector is high.
FDI (Foreign Direct Investment) estimates released by the Dept of Industrial Policy and Promotion show current year has surpassed those of the previous full year. But Reserve Bank of India who is the sole authority regulating the flows into the country, says it is far less. So official figures cannot be relied upon.
The Union Minister for Petroleum and Gas has said the recent hike in the petroleum product prices was calculated with the Brent crude price of $30 per barrel and the rupee exchange rate of 46 per dollar. But both these factors have gone out of hand since. When the real impact is known later it may be bad news. According to a report by HSBC the burgeoning oil prices and lower FII inflows is likely to take the rupee dollar exchange rate to 47.5. Foreign investors’ real gains may be less.
Farm sector mismanagement continues.While poverty stalks the rural mass,there is overflow of rotting foodgrains in govt warehouses. Despite 10 successive years of monsoon rains availability of per capita foodgrains per day has declined in recent years. There is no public investment in agricultural sector including irrigation or institutional support.
The Finance Minister has spoken of containing the fiscal deficit .Yet the govt paid 350 crores to buy sub standard grains to appease Punjab farmers. And further rolled back the petroleum prices to appease a woman politician. They are actually hoping to raise money by selling the PSU stocks. What if it fails?
The deficits of central and state govts are funded by Banks’ subscriptions to their Bonds.According to a former E.D. of IMF, ‘Nationalised Banks have neither the capacity nor the willingness to assess the credit worthiness of the Governments and their agencies but continued to subscribe to their Bonds .If Banks were aware of the financial health of these institutions and the failure of some States to honor their guarantees will they subscribe to their Bonds?’
India’s external debt - March 98-$84.32Billion, Dec99 - $99 Billion. The recent borrowing by SBI from overseas Indians would make it $105 Bilion.The short term debt is near the figure that was in 1991 when India was on the verge of bankruptcy .The amount borrowed from NRIs, FIIs, and short term debt, all withdrawable on demand is equal to 80% of foreign reserves. Domestic public debt has also risen considerably.
Even as the inflationary rate surged to 7.55%, the returns on short-term maturity remain below 7%.So interest rates cannot certainly come down.
As per AT Kearney’s foreign direct confidence rating has slipped from ‘5’ in yr. 98 to ‘11’ at yr. 99 end.
With so many bearish signs popping up regularly, it is amazing that some market experts made haste to pronounce in October that all the negatives have been fully discounted.
We don’t believe they have been. And we hope they never will be. Because if they were, then the BSE Index would be near 1000 and not 4000.
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