Nifty at 2009 highs. What next? - The 5 Minute WrapUp by Equitymaster
Investing in India - 5 Minute WrapUp by Equitymaster

Nifty at 2009 highs. What next? 

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In this issue:
» Nifty jumps 60% since the start of the year
» Barton Biggs says global rally will continue
» UPA's 100 day report card has more misses than hits
» Indian finance minister confident of 6% GDP growth
» ...and more!!

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Anyone who's followed the stock markets closely in the current calendar year wouldn't help but quote the famous Virginia Slims tagline, "You've come a long way baby". Indeed, with the global economy in disarray and credit markets frozen, anyone who would have predicted at the start of the year that the Nifty would notch up gains of close to 60% in a span of few months wouldn't have gotten way without a few chortles. But the markets have this nasty tendency of making bold predictions come true and certainly that was the case this time around. A flood of liquidity and the realization that India may not be as badly impacted from the financial crisis plaguing the west led to investors making a beeline for Indian stocks and in the process, leading to an impressive 60% gain on the benchmark Nifty. Whats more, with yesterday's gains, the Nifty has now reached its highest level for the year.

Obviously, the gains of this magnitude cannot persist indefinitely and there are already talks doing the rounds that the markets may have outlived their bullish phase and some near term pain could be in the offing. We are of the belief that timing the markets is a fool's game and hence, an investor wanting to invest at current levels should do so without fearing a near term correction. For given the long-term India story, he may not come out a loser from a 3-5 year perspective. Of course, he should not get disheartened by intermittent dips and instead, look at them as an opportunity to invest more.

Source: CMIE Prowess
Returns between 31st Dec 2008 and 28th Aug 2009

01:01  Chart of the day
Today's chart of the day shows the number of bankruptcy filings in India each year, as per the registers of the BIFR (Board for Industrial & Financial Reconstruction). The chart is a clear indication of the improved strength of small companies in India (most prone to filing bankruptcies), as despite a terrible last year, the count of annual bankruptcies has not increased to levels that was seen in early 2000, when filings had surged during the economic slowdown.

Source: BIFR

If you are wondering how far the current six-month rally in global stocks would go, look no further than Barton Biggs. The man, who has been voted the top global strategist for five consecutive years from 1996 to 2000 by the Institutional Investor magazine, has not stopped being bullish on the rally. In an interview to Bloomberg, Biggs said that the US economy and world economy are clearly emerging from the recession and while the pace of the acceleration may not be clear yet, he suspects that it will be better than what the consensus seems to be expecting. He also sought to dismiss the decline in the Chinese stock market as a healthy correction rather than the end of a big move. Given the man's knack in making big-picture predictions, his comments deserve to be taken seriously.

Well, if there's one man who hasn't taken his comments seriously, it is Dr. Doom, Nouriel Roubini. The economist par excellence who has been foresighted enough in predicting recent economic woes, has seen his predictions fall woefully off the mark since March. As we have highlighted many number of times in our previous wrap-ups, the man has been warning about continued problems in the economy at a time when stock prices have soared. Hence, going along with Roubini would have meant missing out on the biggest rally in the last seventy years! But then, are we right in criticising him when the fact remains that his vocation is that of an economist and not a stock picker. Perhaps not. Hence, if one were to draw a conclusion from this incident, it may read something like this, "If one has to become a good stockpicker, one should stop listening to economists." Instead, check out what the master stock picker Buffett says, "The market will move higher, perhaps substantially so, well before either sentiment or the economy turns up. So if you wait for the robins, spring will be over." Keep this mind and you may not miss a stock market rally anymore in your investing lifetime.

And if you are woman, who wants to know much more about investing than merely knowing not to listen to economists, Equitymaster has launched an exclusive investment guide for you to help you make your independent investment decisions. It's called Rendezvous With Money. Download the free copy now!

That the US Fed has lowered the interest rates to near zero levels is well known, as also is the fact that the country is running a record budget deficit of sorts. But what has transpired for the first time in sixteen years is the fact that it has now become cheaper to borrow in US dollars than the Japanese Yen, the carry trade currency of choice until now. It is indeed a reflection of the times that the currency most of the world liked to acquire so eagerly not until long back is being indiscriminately sold these days to make way for riskier, higher yielding assets. The reason the things have come to such a pass is the massive liquidity infusion that was engineered by the US Fed that led to the US economy being awash with money. But to be fair to the US Fed, it had no other choice but to lower interest rates to near zero levels and resort to massive printing to prevent the nation from plunging into a depression. It would be interesting to see how far the US Fed would allow the dollar to decline before it intervenes. Important to add that US' trading partners, with foremost being China, are also getting nervous about the continued weakness in the US dollar and want the country to take some urgent steps.

Right at the onset, the UPA Government announced an ambitious agenda of development plans that were to be decisively put into action within its first 100 days in office. Those 100 days get over today. A Mint report enumerates the promises made by the government, and how much the UPA has been able to deliver on each of those promises. It shows that out of a categorical 23 promises made, 8 of them have had no progress or initiation at all. On the positive side, some of the major ones on which some progress has been made so far are - to develop a 'brain gain' policy to attract talent from all over the world to 14 proposed 'innovation universities' in India, a road map for judicial reforms and a monitoring unit in the Prime Minister's office to monitor important programmes and report on their status publicly.

While this success rate of delivering on promises seems to be better than the yesteryears, we must say that there is still scope for improvement. And with the hopes that the markets have pinned on speedy reforms by the government, any disappoint could lead easily to a languishing stockmarket.

India may be facing a drought but Finance Minister (FM) Pranab Mukherjee is buoyant about the Indian economy growing above 6% in the current fiscal. Interestingly, the view floating around has painted a more realistic picture of GDP growth being a little under 6%. In light of the weak monsoons, which have hampered crop production it does seem that the FM is a tad too optimistic. At the same time, industrial production has started showing signs of picking up. Therefore, we believe that if the 6% plus growth has to be achieved, the manufacturing sector will have to lead the effort as not much can be expected from the agricultural sector at present. From a longer term perspective, the FM has reiterated that the reforms process would continue and that divestments would also be a part of the agenda.

Strong global cues led most of the Asian markets to end the week on a strong note. In fact, the Indian markets led the pack of gainers, with the BSE-Sensex recording a weekly gain of 4.5%. According to Bloomberg, gains in Asian stocks were seen on the back of higher than estimated profits and US economic reports, which improved confidence that the global economy is strengthening.

Coming to the performance of sectoral indices in India, buying activity was witnessed in stocks across sectors as all the indices ended with positive weekly gains. The pack was however led by the realty space, as the BSE-Realty Index ended higher by about 11%.

Note: Country names are representative of their benchmark stock indices;
Source: Yahoo Finance, Kitco, CNNfn

04:50  Weekend investing mantra
"It has become fashionable at public companies to describe almost every compensation plan as aligning the interests of management with those of shareholders. In our book, alignment means being a partner in both directions, not just on the upside. Many "alignment" plans flunk this basic test, being artful forms of heads I win, tails you lose." - Warren Buffett
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9 Responses to "Nifty at 2009 highs. What next?"


Oct 9, 2009




Aug 30, 2009

The current P to E ratio of DOW jones is 53. This does not look like real recovery in US. As a matter of fact. As a matter of fact the P/E of Dow jones has worsened as compared to the worse of this crisis. Expect a deep correction before the fundamentals really start kicking in.. It will definitely have an effect on indian markets.



Aug 29, 2009

It would be good idea if a list of promises made by the GOI is made available. We can then write to PMOs office asking whats happening.
mr Singh has capability, but will his colleagues support him?



Aug 29, 2009

1. An eye opening article especially for retail/newly entered small investors. Datas provided are a true indicator/evidence for move of index.

2. Impact of ow monsoon on our GDP/mrket may kindly be covered in the ensuing articles.



Aug 29, 2009

Dear Equitymaster,
Thanks a lot for your initiatives to provide all the relevant news which have a tremendous bearing on the stock markets in a nutshell and systematic manner.


R R Bhat

Aug 29, 2009

Dear Investor,
This is the right time to invest. Don't see TV. Those guys when they wanted to buy shares, says market is going down, nifty may touch 3900 and so and so.When they wanted to sell, they will say nifty or sensex is going to touch another 20 to 25% up from the current level. Beware of those opportunists.

But one thing to keep in mind while investing...... as far as possible invest in such a stock which is reasonably sound and is of Rs. 10 face value. In coming days, after turn around story,value of those shares will surly go up.



Aug 29, 2009

excellent& concrete shaped discussion.very useful for retail investors.. give some addon on rel rnrl current drama..


ajay bajaj

Aug 29, 2009

next target 6000


Amar Sharma

Aug 29, 2009

A very comprehensive article covering most of the information about the current economic situation. Also with relevant data to support the information provided. A must read for retail / small investors who are willing to jump into the markets.

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