Sep 28, 2002|
Waiting for Diwali break
It was another dull week on the bourses, as investors preferred to wait on the sidelines till any compelling trigger for action emerges. Sentiment at start of the week was impacted by the Akshardham temple attack and fears of a possible communal backlash. Also, U.S markets continue to spiral down, capping any revival in global equity sentiment.
With a month left to Diwali, the general perception among investors is that markets tend to perform better in run upto the festival. We thought to highlight a study conducted last November to determine whether there is a 'Diwali effect'.
Taking Diwali day as 'day 0', the preceding one and two month point-to-point return does not seem to show a trend of markets tending to offer superior returns during the concerned period. In fact, more often than not, one would have lost money on the long strategy. In the last 11 years, markets declined on 7 and 8 occasions over the respective window periods. Considering the probability of decline selling index futures, buying index put options or writing an index call option could yield better returns.
*All returns are point to point
||Preceding 1 mth
||Preceding 2 mth
||Subsequent 1 mth
That said, the feel good factor in run upto Diwali does not seem to be rubbing off onto the market. Therefore, the 'buy before Diwali' strategy does not hold good. On the other hand, a theory for the poor market performance during the window periods could be that investors -- and people in general -- prefer to stay liquid. Being an auspicious time of the year, one tends to undertake big-ticket purchases -- consumer durables, automobiles -- during this period. Consequently, funds are likely to be withdrawn from the stock market and invested in 'real assets' leading to the negative returns.
While selling may have already been exhausted prior to the run upto Diwali, there is not much compelling reason for buoyancy in sentiment. Over the past months, markets have repititively been hit by bad news. First was the deferring of oil sector privatisation followed by deferring of raising foreign direct investment (FDI) limit in the aviation, telecom and insurance sector. S&P, the international credit rating agency, downgraded India's domestic currency soverign debt to junk status. As per reports, India has dropped out of the ten most attractive destinations for FDI. Compounding the pessimism, GDP growth rate of the country has been revised downwards for FY03 by few agencies. International Monetary Fund has revised GDP growth to 5% from 5.5%. Domestic economy monitoring agency, National Council of Applied Economic Research (NCAER), revised growth rates down to 4.8% from 5.5% earlier. Adding to the concerns, the elections in Jammu & Kashmir could vitiate geo-politcal environment in the region. Gujarat continues to smother, and run up to elections in January '03 could witness similar events of this week to foment communal sentiments.
Having said that, market valuations -- BSE Sensex -- remain attractive at lows of 12.3x trailing 12 month earnings. As per reports, a fair multiple for the S&P 500 (U.S) is believed to be 15x earnings. Considering the growth potential of India, market aggregates could attract higher valuations of 20x earnings. The lower valuations, however, could be a market signaling that while potential exists, triggers to unlock the potential are consistently missing. One waits in hope...
More Views on News
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.
Aug 21, 2017
Most Indians who cannot find jobs, look at becoming self-employed.
Aug 21, 2017
PersonalFN explains the chief factor pushing gold prices up of late.
Aug 21, 2017
One of the hallmarks of successful investing is to look out for companies that have a unique and enduring moat.
Aug 19, 2017
Ever heard of Lindy Effect? Find out how you can use it to pick timeless stocks.
More Views on News
Aug 10, 2017
Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.
Aug 8, 2017
'Yes, it looks like a bubble. And, yes, it's like buying a lottery ticket. But there's something happening that has never happened before. It's an evolutionary leap in money itself.'
Aug 8, 2017
Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...
Aug 12, 2017
The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.
Aug 10, 2017
Bitcoin hits an all-time high, is there more upside left?
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: email@example.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407