X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Local cues - Views on News from Equitymaster
 
 
  • PRINT
  • E-MAIL
  • FEEDBACK
  • A  A  A
  • Apr 3, 2007

    Local cues

    For too long now, every view on the stock market (including, we must confess, ours) has been peppered with that very intelligent-sounding phrase "global cues". Riding the increased appetite to absorb and take risks from large pools of short-term money, India - like many emerging markets - enjoyed the centre-stage of world attention. And with more attention came more flows and more flows resulted in higher stock prices which again led to more attention which again led to higher flow....the cycle gained momentum. But now, maybe global cues have lost ground to local cues.

    The first evidence of this was on February 27. Global markets declined but India lost a little less as the market hung onto the expectations that the February 28 budget would give some good news (click here for our views on the budget). Well, it did not. For much of March the markets have been playing this tug-of-war between the impact of global news and local news. The RBI's weekend assault on inflation with another increase in interest rates has, as we see it, settled that fight. Like a mother-in-law controlling the kitchen the RBI has made it clear that it is the master of all that lies in Indian domain. The blonde, Bond-like women may come and do a few numbers on the Indian screen and sizzle and razzle with their global moves but, when push comes to shove, the script is written at home. The score says it all.

    So far this year, global markets are up some +2% in USD terms, many emerging markets are up +7% (China is on its own trajectory and up +20% since January) and India is down -7% in USD terms (-10% in local Indian Rupees). So, is India now moving to its own beat? For a while, we would guess. And we would also guess that the next buzz word in the press will be "de-coupling" as in when a link has been broken. And this is a very subtle - and important - change.

    The FIIs will still buy and sell Indian shares (click here to see the FII activity) but what they buy and sell - and how much - will be determined by what they perceive is happening within India. Or what they are told by their guides (the research analysts in the broking outfits) in India. So the quality of information fed to them will determine their actions. The audience (the FII) is sceptical and will need convincing. The momentum of returns since January is not in India's favour.

    In the past, the FIIs told the research analysts who visited them that they were looking for India exposure so the broking analysts drummed up enough "buy" ideas and the shopping list was created. Here the audience (the FII) had already decided to spend money on the Indian stock exchanges, what to spend it on was the only problem. As the Indian stock markets notched up solid gains, the FII wanted more India in their portfolio. The momentum of India was drawing in more positive "global cues".

    So while this sell-off in India continues, it will hit many great stocks too. When these global cues turn, they turn vicious - and indiscriminate. The hedge fund manager in Hong Kong, London, or USA has very little time to understand the nuances of the difference between an HDFC, HDFC Bank, and ICICI Bank (we do, click here to see our research reports) or between a Bajaj, Tata Motors, or Maruti. Now is the time to keep your balance for while local cues will now rule the day (and the Indices), local knowledge can outperform.

    A few months ago the Finance Minister was telling the Chairman of PSU banks that they could not increase interest rates. Now, when Reserve Bank of India (RBI) increases the interest rates, the Finance Minister is supportive of the measure. Yes, dear folks, elections are around the corner. The perception is that an over-heated economy has led to high inflation and less votes. So the votes need to be won. Therefore, the thought process amongst the politicians is, bring inflation down and get more votes. So they welcome the higher interest rates.

    Which suits the RBI fine. Like a good policeman the RBI has been warning banks to go slow on the way they give loans. And what did the banks do? Did they heed this "moral suasion"? No siree, they were too busy trying to impress the FII stock buyers with impressive growth numbers. So they hired or contracted a zillion call-centre folks to call us on our mobiles and give us loans to buy cars for which we have no roads to drive on, lend me money to buy my fourth house, and even take a vacation without paying for it. Risk assessment probably took a back-seat to those great credit-growth numbers that look great on power points.

    So, after many failed efforts at "moral suasion" the RBI stepped in and like the mother-in-law reminded the wide-eyed honeymooners, that there is one boss, and only one. And to double the impact of its power, the RBI has struck on weekends. While the bank chiefs were totaling up their new loans and number of customers they have added in the past week, came the message: RBI raises rates. The rave-party celebrations are over. The moral forces have stepped in.

    For now, the politicians and the RBI have the same objective: control demand and reign in prices. That is the lethal combination of the mother-in-law and the father-in-law controlling the new daughter-in-law. And, sadly, she cannot even move out to her own home - mortgage rates just got a lot more expensive.

     

     

    Equitymaster requests your view! Post a comment on "Local cues". Click here!

      
     

    More Views on News

    How to Ride Alongside India's Best Fund Managers (The 5 Minute Wrapup)

    Jun 10, 2017

    Forty Indian investing gurus, as worthy of imitation as the legendary Peter Lynch, can help you get rich in the stock market.

    5 Attributes Of Lord Ganesha You Can Apply To Your Personal Finance (Outside View)

    Aug 24, 2017

    With Lord Ganesha's attributes and teachings, awaken your inner-self and inculcate these financial habits for a sound future.

    Why Shopping Online This Festive Season Makes Better Sense (Outside View)

    Aug 24, 2017

    Online shopping if done sensibly can help you save money and carries many other advantages.

    Mr Trump Has Been Broken (Vivek Kaul's Diary)

    Aug 24, 2017

    Kelly, Mattis, McMaster, Cohn, and Mnuchin are in charge. But these Pentagon bureaucrats and Wall Street hustlers may be worse than a loose-cannon president.

    Were You Lured By Mr Market's Bait? (The 5 Minute Wrapup)

    Aug 23, 2017

    Mr Market lured investors into believing they'd bitten into a crash. Did you take the bait?

    More Views on News

    Most Popular

    This Small Cap Can Drive Chinese Players Out of India (and Make a Fortune in the Process)(The 5 Minute Wrapup)

    Aug 17, 2017

    A small-cap Indian company with high-return potential and blue-chip-like stability is set to supplant the Chinese players in this niche segment.

    Dear PM Modi, India is Already Land of Self-Employed, and It Ain't Working(Vivek Kaul's Diary)

    Aug 21, 2017

    Most Indians who cannot find jobs, look at becoming self-employed.

    It's the Best Time to Buy IT Stocks(Daily Profit Hunter)

    Aug 16, 2017

    The IT Sector could be in an uptrend till February 2019. Are you prepared to ride the trend?

    Think Twice Before You Keep Money In A Savings Bank Account(Outside View)

    Aug 22, 2017

    Post demonetisation, a cut in bank savings deposits rates was in the offing.

    5 Steps To Become Financially Independent(Outside View)

    Aug 16, 2017

    Ensure your financial Independence, and pledge to start the journey towards financial freedom today!

    More
    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407
     

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms

    S&P BSE SENSEX


    Aug 24, 2017 02:57 PM

    MARKET STATS