What’s our market view?
Since our last mail, markets have witnessed a ferocious fall and a stronger rebound. We use the term rebound as markets have moved up significantly despite weak economy and muted earnings performance. While liquidity has been the primary reason for sharp run-up in Indian and global stock markets, market participants have started attributing it to under-valuation, possibility of resolution of Euro-zone crisis, reversal of interest rate cycle, policy action, etc. It may sound ridiculous to some and very logical to others, we believe that markets don’t offer a great risk-reward at this juncture. What we are seeing could probably be the bottoming out process or a typical bear market rally.
Which sectors/ themes do we like?
For India, deadlocks in the mining sector, high government borrowing and high inflation continues to plague economy. We will see a meaningful recovery in economy and corporate earnings only when commodities and interest rates start cooling down. Historically, markets bottom out much before the real economy bottoms out. Thus, even if we have bottomed out, stocks will take a pause at current levels and resume uptrend only if earnings catch up. Buying stocks in sectors such as metals, auto, banking, realty and infrastructure space is surely a risky proposition at current levels.
P.S: Equity as an asset class in extremely rewarding in the long term, however only individuals who can bear interim volatility should invest in stocks. Kindly consult your investment advisor before acting on advice provided here.