The market has gone up so high that we will now need oxygen!”
Somehow, that is how one feels when we see the markets hitting new highs every single day – it leaves one gasping for breath! Compared to a bear market, this bullish run is a good problem to have but nevertheless, it is a problem.
For the cautious, this daily relentless surge causes anxiety as one is not able to really put a finger on the real reason for this euphoria. Every day, an over 200 points jump is good but too much of everything, even the good, can be harmful. This is not a pessimistic view but a cautious look at the reason for the markets happiness.
What exactly are we celebrating? The economic slowdown is a proven thing; inflation is up- you can blame it on onions but it is up nevertheless. Problem of unemployment remains and the tax collections have actually gone down. Fiscal deficit can choke us and despite all this – the Govt, instead of focusing on the economy and lifting the moods of the people is focused on issues which have no bearing on the economy or the employment opportunities.
Those in the market say that the indices are looking ahead into FY21 and that is what is causing the bull run. They see that the amicable end to the US-China tariff war will now boost the global economy. This in turn, they say will benefit India. Then they give the logic of companies turning in better profits in Q2FY20 but what they forget to mention is that it is mainly thanks to the lower tax rates. Thus global factors and increased liquidity is stated to the main reason.
Many are seeing green shoots in some sectors – increases volumes in Maruti sales for Nov has led many conclude that the worst is over for the auto sector and it will soon start showing green shoots. Bank of America-Merrill Lynch upgrading Maruti to a ‘buy’ and hiking its target price was an indicator of this same optimism. But could that be reason enough?
There is no doubt that Q3 will see more pain and we have not seen the worst of the GDP growth trajectory yet. Till the end of FY20, by which we mean Q3 and Q4, we will continue to see pain. Nomura in fact expects GDP in Q4 to slip to 4.3%.
So are the markets celebrating FY21 growth hopes? Most likely. For many who say that the FIIs are back in droves – in this month, they were net sellers to the tune of Rs.1751 crore till 17th Dec. What this indicates is that FIIs are booking profits as they invest – the current precipitous high perch of the market means most are sitting on a rich mountain of profits and booking gains makes perfect sense.
What we are seeing today is growth in selective stocks only – a non inclusive growth creating major inequalities. The current upward rally can be due to expected improvement in growth but somehow, yeh baat hajam nahi hue; it seems more manipulated than a surge led by improvement in key economic indicators.
The bottomline –some days wildly up and the other day, sharply down. Don’t dance to the tunes of the FIIs and Sensex. Better to stock up on quality stocks like always, with only the long term perspective in mind. Mind you – even if a long term investor, take stock of your inventory. If you are sitting on a pretty gain, book partial profits and use the money to pay off your car loan or do your house repair or pay for your child’s tuition fees. And if you have loss making stocks, sell them now so that you can use the loss to offset your gains.
Thus even if long term investor, don’t ignore the market; celebrate the bullrun but with a lot of cautiousness.