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.
Stockmarkets: The breaking news... - Views on News from Equitymaster
 
 
  • PRINT
  • E-MAIL
  • FEEDBACK
  • A  A  A
  • Sep 5, 2006

    Stockmarkets: The breaking news...

    The stock markets have found their way back to the front pages of pink dailies of late! If the index 'breaks' the 12,600 levels once again, we will most likely see 'breaking news' on business channels. Once again, we will have many experts suggesting that the worst is over (wonder where they were when the going was tough), the "India Story" is on a much stronger foundation and we will have index targets.

    In a recent finance event organized by a premier business school in India, one full day was dedicated towards the topic - 'Emerging markets strike back'. Once again, we had experts highlighting the fact that India will be lot younger five to ten years down the line, corporate India is on a global spree and more importantly, the investment boom will propel India's economic growth into a new trajectory. We agree with these broader themes. But what if 'the US strikes back?' could have been an even more interesting topic of discussion. Compared to six months back, there are fewer topics on US interest rates and its implications on the Indian stock market in the pink dailies. Why? Just because the US Fed did not increase the benchmark interest rates the last time, it is assumed that the rate hike cycle is over.

    In this backdrop, we have the Indian stock markets (including some other emerging markets) bouncing back sharply. Just to put things in perspective, from its peak, the BSE Sensex fell by more than 29% to test sub-9,000 levels in mid-June 2006. Since then, the Sensex has gained almost 34%. Among the sectoral gainers, we have had the banking stocks outperforming the broader market. Midcap stocks, which were out of flavor post the May-June 2006 fall, have also gained sharply. The NSE Nifty is trading around 19 times trailing twelve-month earnings, a tad lower than the multiples at peak (around 22 times trailing).

    So, what has changed in the last three to six months?

    1. Perhaps the most important is the change in outlook towards interest rates. After the US Fed's 'pause' in the last meeting, the benchmark 10-year yields in the US and India has cooled down (the US 10-year yield has come down from over 5.2% to 4.7% currently). Despite the significant rise in house hold debt and very minimal savings, the US Fed seem to have taken a softer stand on this core issue. It remains to be seen how the household debt and current account deficits unwinds in the next two to three years. In India, given that liquidity has been very strong, despite strong demand for money from corporate and retail sectors alike, there are no major 'India-related' factors that are alarming per se.

    2. Perhaps the most important is the change in outlook towards interest rates. After the US Fed's 'pause' in the last meeting, the benchmark 10-year yields in the US and India has cooled down (the US 10-year yield has come down from over 5.2% to 4.7% currently). Despite the significant rise in house hold debt and very minimal savings, the US Fed seem to have taken a softer stand on this core issue. It remains to be seen how the household debt and current account deficits unwinds in the next two to three years. In India, given that liquidity has been very strong, despite strong demand for money from corporate and retail sectors alike, there are no major 'India-related' factors that are alarming per se.

    3. Another key factor is that the performance of India Inc. has come as a surprise to many, including us. Earnings growth, which was expected to slow down (because of higher capital expenditure, significant increase in borrowings, input-related pressures), has been stronger on the contrary. Looking at the manufacturing sector growth and IIP, there is lot of steam left.

    4. Commodity prices, including crude oil, have softened significantly. While estimates of crude prices range from US$ 50 to US$ 60 per barrel (what a sea-change in view), if it materialises, we believe that it is a big plus for the economy and the stock markets. Again, we do not have a view on crude prices. But even if it remains at the current levels, it is manageable (as per the Oil Ministry).

    While these are significant developments, in our view, current valuations are reasonable. We see relatively more value in select mid-cap stocks from a long-term perspective. Again, we suggest investors to have a balanced mix of both large-caps and mid-caps in their portfolio. Perhaps the key learning from the recent stock market crash is that the next time the stock market is 'breaking news', it is the time to sell!

     

     

    Equitymaster requests your view! Post a comment on "Stockmarkets: The breaking news...". 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.

    Will They Haul Off Trump's Statue, Too? (Vivek Kaul's Diary)

    Aug 16, 2017

    All across the country, the old gods become devils. New, gluten-free gods take their places...

    This Company Beat the Business World's 'Three Killer Cs' (The 5 Minute Wrapup)

    Aug 16, 2017

    And what it has in common with beating the stock market too.

    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!

    Let's Hope This Correction Continues (The 5 Minute Wrapup)

    Aug 14, 2017

    Last week's correction is making a number of Super Investor stocks look a lot more attractive...

    More Views on News

    Most Popular

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    Proxy Plays: A Smart Way to Bet on 'Off Limits' Companies(The 5 Minute Wrapup)

    Aug 4, 2017

    The small-cap space is full of small players that are clear proxies to great growth stories and Indian megatrends.

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    Aug 7, 2017

    Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...

    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 17, 2017 09:46 AM

    MARKET STATS