An update on the markets and way forward


The Indian stock markets are behaving exactly the way markets do and the sensex  is now around 27 811 after going down to 26425 which was around 12% down after hitting an all time high of 30,000. There are lot of things happening around us, both economically and politically. In this situation, what should one be doing.  I would like to highlight the fear factors which are looming at large.
a. The fear of interest rate hike by US authorities (FED) is a Domicile’s sword and markets are reacting to every news around this. It is expected that the markets would come down if the FED increases the rates, on FIIs move their capital invested in emerging markets, including India.
b. Greece is another worry as default on payments is staring at them and the talks between the lenders and the Government is inconclusive. There is a remote possibility of Greece exit. This is another fear in the market which may bring the downfall of the market especially in India.
c. The People’s Bank of China has reduced the interest rates of lending to 4.85% ( by 25 basis points and the deposit rates to 2% as the economy is slumping to its lowest growth in 7 years.  This move is to attract more capital and increase consumption in the country.
d. Though RBI has reduced the interest rates thrice this year so far, the translation has not been satisfactory and the bank credit growth is yet to take off. Also the cost of deposit is a big challenge to the banks, as they have now post office instruments giving better interest rates than banks. As a result, cost of funds is increasing to the banks.
e. Though Monsoon has played well so far in this month, its travel in the next month is anticipated to note the pick up of demand in rural India.
f. RBI Governor, has been cautioning the world around the monetary policies adopted by central banks world over and a fear of a depression like the 1930s.  This is a deterrent to a positive sentiment
g. The expectations of a future rate cuts this are doubtful and is largely dependent on the inflation trajectory and Monsoon spread.
h. The expectations of Modi’s government has met a reality bump in the eyes of the investors and general public
i. The ability of the government to pass important bills is raising concerns and especially the GST bill and Land Acquisition bill, in the Rajya sabha is a concern.
j. The recent political storms involving Sushma, Vasundra Raje, LK ADvani, RAj Purohit has landed BJP in big trouble and the ensuing Monsoon session is expected to stormy and is sure to put the BJP on the back foot. This will be making the progress of the Monsoon session stormy and the passage of the bills a questionable one.
k. The recent reports published by RBI indicates that the NPAs ( Non performng assets, bad loans) are not like to come down, but will be current levels and will raise higher for Public sector banks.  These bad loans do not account for the restructured load and technically the bad loans are higher.
Is this is all negative? Should one stay away from the market?
There are more positives to the list cited above and they are
a.  The IIP ( index for industrial production is up and indicates that manufacturing is slowly increasing.  A positive news for the economy and reduction in unemployment.
b. The advance tax paid by the companies  SBI, Relaince and host of private banks is more for quarter ended June 15.  This is an indication, that the profitability is improving
c. The direct tax collections is up in the first two months of this fiscal and is a good news.  This is will be a good news for fiscal deficit management where the target this year is 3.9% of GDP
d. The Monsoon has been above normal so far and has advanced to the north and keeping its date which is very good news.
e. RBI after making the last interest rate cut, had indicated that the future cuts depends on the government action to Monsoon shortfall, if any, the trajectory of inflation. However the REpo rate is comfortably above inflation more than 1 to 1.5% and hence there is scope of further reduction at least 25 basis points this fiscal. This has been supported by Research Agencies like Barclays and CLSA
d. The fear of Greece exit is unlikely to affect the Indian economy as the trade with the country is negligible and also the impact of Greece as a Global economy is unlikely to affect globally. ALso it is to be noted in the age of high inflation in Greece, there is hardly any demand currently. Only thing that can happen is good for global if Greece recovers and the demand is unlikely to Go down much from the current levels.
e, RBI has been building a reasonable buffer of Forex and is at an all time high of over 360 billion. This has been consciously done to absorb the shock of hike in FED interest fall out.
f. Though NPAs are a big concern, this is a reality and hence to choose right stocks is an important one at this point of time.
g. The Government is now increasing its spending as per the announcements. Railways pumping more money. Many NHAI projects ( Road projects) are being cleared. Even LIC is supporting governments initiatives in this regard.
h. The government is going ahead with its Divestment strategy and is likely to reach the target.
i. The price of Crude is under control and is unlikely to cross 70 US dollars and hence to that extent inflation is expected to be under control.
j. The worry on inflation could be due to Monsoon shortfall. Please remember that in Feb- March 2015, when the crops where affected due to unseasonal rains, the Government managed the supply side very well and contained the inflation very well. Otherwise one upward spiral could have happened on inflation much earlier.
k. The political storm involving BJP leaders is bound to make noise and I am sure, the Government would over come this.
l. Most importantly, the reecent survey shows that India is a favoured destination for investment and all the recent investor meets have suggested investors are bullish on India with a time horizon of 3 to 5 years.
Also note that every fall has ensured that the markets have risen up and surpassed the previous highs. The Fall in 2008 from 21000 to 8000 has only made it to rise up again and cross 30k.
What you should do?
Identify good potential stocks.
Accumulate at every dip.
Have a time horizon of 3 to 5 years.
with the tightening on nooze around black money, the real estate is in trouble.
With Government allowing trusts and EPFOs to invest in stock markets
The market is bound to go up.  Stay invested and reap rich dividends.
I enclose with this list to stocks, which you may consider.
For any clarifications, please feel free to contact me

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