Will the Sensex cross 23,000 by Diwali 2013? - The 5 Minute WrapUp by Equitymaster
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Will the Sensex cross 23,000 by Diwali 2013? 

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In this issue:
» Online trading still lags in India
» What Rajiv Gandhi Equity Scheme means for you?
» Why diesel price hike will increase your mobile bills?
» Will we see a war in Asia?
» ...and more!


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00:00
 
The US Presidential Elections are just a week prior to Diwali this year. The incumbent government is doing all it can to retain its political power. Unfortunately, that often comes at the cost of economics. The latest evidence is the third round of quantitative easing that the US Federal Reserve announced recently.

The European Central Bank (ECB) has also announced an open-ended bond buying program. If you don't understand this sophisticated mumbo-jumbo, just consider that the major central banks are going to print a hell lot of money. In order to protect their exports, several other countries would also be forced to devalue their currencies. What will this lead to? A flood of cheap money in the global financial system! A common argument goes that a lot of this liquidity will find its way into emerging markets like India.

India's next biggest political event is now less than two years away. We're referring to the 2014 general elections. Moreover, several state elections are scheduled over the next couple of years. Here too, political agenda has encompassed the entire economic landscape. Why has the Manmohan Singh government suddenly started making a lot of noise? The recent economic reforms may be welcome, but they are not as significant and radical as the news media have presented. The stock markets already seem to be discounting a series of further reforms. A country starved of reforms seems to be thrilled with any tiny bits of initiatives.

It is clear that in both domestic as well as global economy, political agenda is at the forefront. Most initiatives relating to the economy are an attempt at improving sentiment and luring the vote bank. Going back to the headline: Will the Sensex cross 23,000 by Diwali 2013?

Recently, a lot of brokerages have raised their estimates for Indian stock markets. What is our view? There is no denying that a flood of liquidity and changing investor sentiments could send the Indian share markets rallying to new highs. But such a rally would be driven by politics and not economics. Moreover, the fundamentals of the global and domestic economy have not really improved. In fact, they have worsened. Any major shocks could send the markets topsy-turvy.

Let us ask you one question. If you were buying a business, would you base your decision on political or global events? Certainly not, right? Our stock investing philosophy is no different. In our view, guessing the direction of the markets based on events is not just futile, but also a big risk.

So, what should one do? Go back to the basics of value investing. Ignore how liquidity and sentiments will drive stock prices. Focus of value and earnings. Eventually, that is what will create real shareholder wealth. Just keep looking for great businesses that are available at a good bargain.

Do you think the Indian stock markets will cross 23,000 by Diwali 2013? Share your views or you can also comment on our Facebook page / Google+ page

01:30  Chart of the day
 
The two major stock exchanges in India, the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) approved online trading in 2000. Several bank-backed and standalone broking firms were quick to start the new trading platform. There has been a significant growth in terms of the number of client additions. As of August 31, 2012, about 11 lakh individuals had actively traded through the internet. However, the aggregate value of online trades has not shown much growth. From about Rs 22.8 bn in 2007, the average daily turnover on the NSE has grown by only 17% to Rs 26.6 bn as of August 2012. As it turns out, online trading accounts for only 11% of the trades in the cash market. In developed markets, the same accounts for nearly 50%.

Data source: Outlook Money
*till August


01:55
 
It is a known fact that Indian households are gross under invested in financial assets. However, the Rajiv Gandhi Equity Scheme (RGES) that was announced in the latest Union Budget is expected to change that. The scheme is primarily aimed at boosting investments in the securities market. First time retail investors with an annual income less than Rs 10 lakh will get tax benefits for investing up to Rs 50,000 in the capital markets. Budget 2012 had allowed the tax benefits for investments in stocks. The scheme recently approved by Finance Minister Chidambaram has also brought exchange traded funds (ETFs) and mutual funds (MFs) under its fold. The move attempts to address two motives for the government. One, garner funds for disinvestment in PSUs. Two, dissuade investment in gold that has been creating current account deficit problems. We believe investors should pay heed to neither of these motives. Neither should fiscal benefits lure you to buy PSU stocks that are fundamentally a misfit for your portfolio. Nor should you strike off gold from your investment list. For given the liquidity scenario in global markets, the yellow metal will continue to remain an inflation hedge. Other than that, fiscal benefits or not, investing in solid stocks for the long term must be a part of every Indian investor's strategy.

02:38
 
The recent increase in diesel prices has met with a lot criticism. The government has tried to justify it as a necessary step. But every industry has complained about it. And not to forget the common man! The hike will just make his already tough life even more miserable. Let alone groceries and vegetables, the diesel price hike will also lead to a higher mobile bill. Due to the power scarcity in the country, most telecom towers are operated using diesel generators. So if the price of diesel goes up, the fuel costs for running these towers go up. This means higher operating expenses for the telecom companies which are already operating on extremely narrow margins. Therefore they have no choice but to increase their mobile tariffs. Companies like Idea Cellular and Reliance Communications have already rolled out a tariff hike in some of their circles. The other operators are most likely to follow suit.

03:08
 
Despite a series of controversial reforms undertaken recently the government is unfazed. It has decided to continue with its growth supportive steps ignoring any political ramifications. In that regard, it has formally approved a cut in the tax rate on interest paid to overseas lenders. The proposal to cut the tax rate was already made in the Union Budget. But the formal announcement came on Friday. It may be noted that the withholding tax on foreign borrowings has been reduced to 5% from the earlier figure of 20%. The tax holiday period will range from July 2012 to June 2015. A cut in the tax rate will attract more debt refinancing via External Commercial Borrowings (ECBs). This will attract capital into the country. It will also reduce interest rates as the tax benefits get passed on to the local borrowers. The move will be particularly beneficial to the companies from the infrastructure sector because they borrow heavily from the overseas markets.

03:40
 
There are various reasons why wars happen. One of them is of course when a rising power wants to assert his new found status to the world. Against this backdrop it will not be difficult to predict that in current times, the finger of suspicion is more likely to be pointed towards China than perhaps any other nation. And the dragon nation is certainly living up to its billing. Apparently, a small maritime dispute has erupted between China and its arch rival Japan. The bone of contention is a small group of uninhabited islands over which both China and Japan are claiming their ownership. Thankfully though, the dispute so far has not escalated beyond riots in a few cities.

The two countries have a lot of economic interest at stake to do something silly. But if history is any indication, the policymakers on both sides just can't afford to get complacent. No one can tell when petty issues of this kind turn into a full blown crisis. Thus, efforts have to be made to totally avoid them in the first place. And this is where China's role is more important than any of its neighbours we believe. It will have to take the lead in assuring the world that it indeed wants to rise peacefully and means no harm to anyone. Only then can the whole of Asia and the world at large can breathe easy.

04:25
 
Global stock markets witnessed mixed performance this week. Investor concerns were further fuelled by bleak data pertaining to growth in China, Europe and the US. In the US, the week was marked by negligible moves on the back of weak employment numbers.

The Indian equity markets were up on hopes of more policy reforms by the Union Government. The formal notification by the Government on allowing FDI in multi-brand retail and aviation improved investor sentiments. The markets rallied on the last day of the week (by 2.2%) and ended the week higher by 1.6%.

Amongst the other markets, China (down by 4.6%) was the biggest loser followed by France and Brazil which fell by 1.4% and 1.3%, respectively. The others ended the week almost on a flat note.

Data Source: Yahoo Finance


04:45  Weekend Investing Mantra
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    10 Responses to "Will the Sensex cross 23,000 by Diwali 2013?"

    Biranchi N Panda

    Sep 29, 2012

    Rally may continue till USA elections are over.Nifty may see levels of 6200 by this diwali.2013 may be the worst year for market.So be a little careful before investing your hard earned money in market.If someone is invested from lower levels then its time to keep booking profits at every rise in market.

    Best wishes,
    Biranchi Narayan Panda

    Like (1)

    RK77

    Sep 29, 2012

    The info on diesel operated Cellphone Towers explains why my Reliance Cell has repeated call drops, connectivity problems. It is learnt that they have switched off ACs to conserve expenditure on running them leading to poor connectivity as the equipment gets heated up. Waiting for winter to arrive - Reliance Com. Do Idea users face similar problems, I wonder?

    Like (1)

    ganeshan

    Sep 27, 2012

    it is bound to, for the simple reason that Rahul is slated for the prime ministership. The governmentwill ensure that the markets rally.

    Like (2)

    lambodar borah

    Sep 25, 2012

    No doubt at all that Sensex will cross 23,000 by Diwali 2013.

    Like (2)

    fernswin

    Sep 23, 2012

    The days of prediction are over. With the political scene in a turmoil what predictions can be made? Who knows where Mr. Singh's Govt will be and who will be in the Govt. then. Only time will tell and predictions can go far astray as even astrologers are now bogus like all authorities are.So like our great P.M. silence is golden.
    If it happens, it happens. If not no regrets as no predictions would have been made to be sorry about.

    Like (2)

    sunilkumar tejwani

    Sep 23, 2012

    I give no more than 19500-19700 on the B S E index and that also the rally driven by sheer liquidity and some political announcement by M/S P.C. and M.S.
    Eventually markets have to go back to basics. The European and American financial mess and recession can not be wished away.
    Liquidity can only drive the stock prices up in the short term, but can not create economic progress or for the matter cure the recession. The fake liquidity (paper currencies printed at executive fiat; without having requisite gold reserve)provided by the E C B and the U.S fed lands up in Commodity and Stock markets across the world creating speculative rise in the asset prices without any fundamentals to back.

    Like (2)

    Agnel Pereira

    Sep 23, 2012

    If the Indian stock market is currently driven up by political reasons, then come 2014, it will crash for the same reasons. So, you may be right - it may peak by Diwali 2013 and will start its downward slide. Why? Because, by then the economic reasons will come out in the open (that the P/E has skyrocketed, the economy is not recovering, the earnings are down, the debt losses for the banks are huge etc etc) accompanied by a very dangerous scenario of further fragmented Indian political scenario.
    Despite whatever this government is going to do to revive its fortunes, it has already dug a deep grave for itself. The anti-incumbency factor, which did not bite it the last time around, is certain to hit this time. The lack of confidence and internal fighting in the main opposition and the prime ministerial aspirations of people like Mulayam Yadav or a Mamata Banerjee will make it further worse, with a high likelihood of more political parties forming part of a third front without the two main political parties (Cong, BJP) leading the coalition. It could be back to the days of mid 1990s - the era of Gujrals, Devegowdas etc. There will be more political melodrama, more circus in the offing, come 2014. Hope I am proved wrong.
    So, anyone wants to make money in the Indian markets, do that by Diwali 2013! After that, it could be a diwali in the negative sense (bankruptcy).

    Like (2)

    shaheen mohmad ashraf

    Sep 23, 2012

    no not at all, market shall continue remain as it is, no matter how much money FII will bring ,infact any slight negativ news from west shall send BSE or NSE tumbbling like a stone from hiiltop.Current market or immediat future market is only for investors not for traders

    Like (2)

    R. Bakshi

    Sep 22, 2012

    Crossing 22,000 is more likely. If however, in the unlikely event of the ruling party getting a 2/3 majority in 2014, it can cross even 30,000! If however it gets a clear majority, I would say it would cross 25,000 after the election results are announced.
    R.Bakshi

    Like (1)

    SHIRAZALI KABIRDIN

    Sep 22, 2012

    I BEING A NRI, HAVE A LOT OF FAITH AND TRUST IN THE BRIGHT FUTURE OF INDIA. I AM VERY POSITIVE THAT THE SENSEX WILL CROSS 21,000 POINTS PLUS DURING DIWALI AND IN ADDITION THE INDIAN RUPEES WILL SURELY GET BACK STRONGER - EXPECTED TO BE RS.40=/42= TO US$1= IN LESS THAN 2 YEARS TIME. THOSE FOREIGNERS WHO WAS ENCASHED AND INVESTED THEIR US DOLLARS @ RS.55= WILL BE LAUGHING ALL THE WAY TO THE BANK.
    INDIA PERFORMANCE IS OUTSTANDING COMPARED TO OTHER ASIAN COUNTRIES. IN THE NEXT 10 - 15 YEARS, THE CURRENCIES OF INDIA, RUSSIA & CHINA WILL BE THE MOST RESPECTED AND TOP 3 CURRENCIES OF THE WORLD. INDIA BEING A SHINING DEMOCRATIC COUNTRY IS HIGHLY KNOWN FOR PRODUCING SKILLED & PROFESSIONALS WHO TODAY HOLD TOP EXECUTIVE POSITIONS IN SEVERAL COUNTRIES INCLUDING USA, UK, CANADA, BESIDES MANY MORE. INDIA CONTRIBUTIONS AND VAST KNOWLEDGE IN SEVERAL TECHNOLOGIES ARE WELL APPRECIATED AND RESPECTED. INDIA RESEARCH AND EXPANSION IN VARIOUS FIELDS INCLUDING SCIENCES, MEDICINES, SPACE PROGRAM, INDUSTRIES, ENGINEERING, AGRICULTURE, INFRASTRUCTURES ETC ARE ALL WELL-KNOWN TO THE WORLD. BESIDES TOURISM, INDIA WILL NOW FIND MORE INVESTORS FROM THE WESTERN COUNTRIES AFTER THE CURRENT GOVERNMENT CHANGES ITS POLICIES AND LURE MORE FOREIGN INVESTORS WITH INCENTIVES AND SUGGESTIONS TO VENTURE INTO PARTNERSHIP WITH LOCAL INDIANS BUSINESSMEN IN VARIOUS FIELDS WHICH HAVE A LOT OF ROOM TO EXPAND AND CREATE MORE JOBS, EXPORTS AND MORE TAXES.

    WITH BEST WISHES AND BRIGHT FUTURE TO ALL INDIANS!!

    Like (2)
      
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