LISTLESS ON DALAL STREET - THE 'TRIGGERS' AHEAD

By Ruma Dubey

The market is listless and lackluster. The moods are kind of somber and the frenzy seen even till yesterday is missing. FIIs seem to have got into a shell today, with a hands-off kind of attitude; obviously waiting to minutely see the minutes of the Fed meet. The Fed meet is scheduled for tonight and the minutes of the same will be released tomorrow. The FIIs, DIIs, mutual funds, HNIs, corporate bodies and retail investors if any still around, are waiting for news on QE tapering. More than the Americans, it is actually those in the emerging markets who are anxious about the Fed meet.

Many feel that under the present circumstances, markets are not a good idea any more. There is so much uncertainty and volatility, one does not know the direction of the market. And with so much confusion in mind, many feel that it is best to remain in the sidelines as an onlooker.  Another growing perception is the change in the definition of ‘long term’. Earlier people bought stocks and forgot all about it for a few years. But today, the perception of long term is less than two years. How can uncertainty in present circumstance change the measure of time?

Thus today, the markets are taking the much needed breather. But the big question is – what are the triggers for the market in the coming days?

Well, as we mentioned early on, the immediate trigger is the Fed meet tonight and the minutes to be released tomorrow night. It is unlikely that any timeline will be announced now but we can be certain that tapering will not happen in 2013 and in 2014, we are looking at around March. The Fed does have a task chalked out – if it goes for tapering, it needs to do that without stoking interest rates. And that would be a tightrope to walk on. So the meet will a ho-hum kind of affair and the market could get back to business.

In the month of November, currently the only positive thing to look forward to be could be the foreign banking guidelines from the RBI. The Governor, Mr.Rajan had stated that this was scheduled to be issued by mid-November and we are past that mark. Thus these guidelines, if they do come any time now, could trigger off a fantastic run, mostly in small and mid cap banking stocks.

Then there is isn’t much to really look forward to in November. Of course, there is the GDP number expected on 29^th November for Q3FY13. The previous number had come in at 4.4% and expectations remain muted. Anything around 4.3 % will not disturb the markets much but if there is a steep fall, markets too could tumble.

The last month of the year, December as such is very volatile and there is a lot expected.  FIIs and hedge funds follow a calendar year and December is the month when allocations for next year are designed and accordingly weightage reduced or increased. It is also the time when bonuses are paid based on the fund performance. Thus we could see profit taking.

There is a lot of economic data also expected. It will first start on the 1^st of December when automobile companies will announce their monthly sales figure for November. As it had been a festive month, if sales had indeed improved, auto stocks could rise, stoking rise in other related stocks.  On 2^nd December, HSBC will release its November PMI numbers for manufacturing and 4^th December, it will release the services PMI.

Then all focus will be on the election results. The results of state assembly elections in Madhya Pradesh, Rajasthan, Chhattisgarh, Mizoram and Delhi will be declared on December 8. And these results will be widely anticipated as it is expected to give some insight into the possible outcome of General elections which will be held in March-April, 2014. If UPA gets decimated in December, the markets will celebrate- that’s the mood of the people as of now.

Once this is out of the way, all attention will be back on macro economic factors. On 10^th December, we will get the trade figures – import, export and the trade deficit for the month of November.

On 12^th December we will get the IIP for Oct’13 and CPI inflation numbers Nov’13. This will be followed up with WPI numbers on 16^th December. Based on all these numbers, we could start expecting the RBI Credit Policy, which is scheduled for 18^th December. A rate hike, at this juncture seems inevitable and that could set the mood as the year draws to an end.

So what trigger does one follow? The best strategy - pay no attention to day-to-day happenings.  Equities as an asset class always tracks earnings growth. Thus if the earnings have grown by around 15%, the returns on stocks should also be around the same level.  At present, most of the earnings are out and the expectations remain muted and hence the PE valuations will only go down further. In these times, be stock specific. As our editor, Mr.SP Tulsian advises, best to put 50-75% of your money in quality frontliners like HDFC, Asian Paints, United Spirits, Pidilite, Century Textiles, GSK Health, Cairn India, and the rest you can invest in a basket of FDs and of course PPF. Take at look at our Stock Recommendation section to build a strong long term portfolio.