I am confused..

I am confused on the equity markets. A week back I had a view that market should fall and then I read an article in economist which says that US policy is to have lower interest rate till growth resumes, then I thought I might be wrong.. Today, market just crashed and it was scary to see some large caps correcting more than 5%. I really dont know what is happening.

Market is moving in a very narrow range... despite that, if one would have bought any decent stock since the election results, he would be sitting on a loss. So, logically, if no body is making money, FIIs have been selling, then why the market is not falling...

the technical charts have been showing a typical distribution pattern, similar to the one that was seen from Dec 2007 to mid Jan 2008.. i hope we are not in that kind of a fall..

I have been sitting on debt since April (the time when for the first time, i had some cash since my MBA) and not able to convince myself to shift to equities. my wife keeps on reminding me of the opportunity loss.. i thought of shifting some yesterday, primarily being tired of sitting out ... then i told myself, markets have habit of tiring an investor and if he does get tired and invests as a result, he is bound to loose. so i somehow convinced myself to wait for some more time.

Also, it is still difficult to imagine how one of the worst recessions in modern era could be over by just shifting private debt to public debt.. how even after doing valuation of a stock on record numbers of 2008 , stock are still reasonably expensive but the market is not falling.

I would rather wait..

Budget 2009 and equity market

I hear people saying a correction is imminent post Budget as market has moved ahead of fundamentals. Similar set of people were making 3rd front assertions before election results. Then there are people ike RJ, who say that we are in a new bull run. I really dont know whom to believe. But one thing is for sure, we will always have people who will be on either side at any point of time.

My view is that given the announcement made by various ministers in the last few weeks and focus of the government clearly on implementation, it is likely that we could have a budget much better than expected. Government could lay a road map for financial sector reforms, disinvestment, borrowings for the year, food security etc. If this is the case, market could go up instead of falling.

Appointment of Nandan Nilekani and its impact on India

Nandan Nilekani appointment is not a small event. It shows the willingness of the Indian government to rope in expertise available in the private sector and maket it work for public good. The model has been there in the US for long, but India has tried this only once earlier (where Rajiv Gandhi got Sam Pitroda).

In my view, this is the real reform that India needs apart from what is widely talked about in the media. We need willingness to execute on time and then ability to get the resources from wherever needed.

This is a big positive for Congress which is showing willingness to get things done.

an interesting article

Yesterday i wrote that why equities would fall and investor should put money in fixed deposit.

pl read the article following the link:
http://www.economist.com/businessfinance/displaystory.cfm?story_id=13856176
according to this, i might be wrong.

Where should an investor put money today...

Equities have not given any positive return in the last one month.
Debt funds are negative since Jan 09...
Commodities are also falling...
So, where can investor put in money right now?

We are in uncertain zone..the risky assets had significant run up in the last few months on the expectations of a global recovery. It is still expectation and the numbers have to still show up. In the last one month, the momentum build from Mar 09 to May 09 on the recovery theme is faltering with a downward bias.

On top of it, the rain god has not been kind. Mansoon is late and sub optimal. On top of it, as per reports in the paper today, government has completed 16% of the projected fiscal deficit for 2009-10 in April itself..

The basic premise of the recovery is that lower interest rates and government spending will spur consumption and help in reviving the economy. If government borrows more, resulting in higher interest rates, the basic assumption on which recovery theme has been built, may not hold. Private consumption and investment may not revive back and growth expectation may falter.

So given the uncertainty, a fixed deposit with a bank or cash funds may be the best option in the short term.

Why Indian equities should fall..

Indian market has given almost 20% more than other emerging markets in the last one year. Can this continue, the answer is no.

The primary reason being that investor in both the markets is same. He puts money in other emerging markets and in India also. So, if India becomes expensive, he will put in others.

Indian 10 year yield is trading at 7% while earning yeild of stock market, E/P of India is closer to 6.5%. This means Indian equities, in general, are expensive than Indian bonds. Since stocks are riskier than bonds, stock yield should be higher than earning yield.

Though P/E of sensex is at 16 times but individual stocks are trading at in excess of 20 times, which is way expensive.

Last but not the least, investor's could be betting hugely on the budget and quarterly earnings. They could be in for disappointment.