The markets continue to resemble a sew saw ride. Infy's results did bring some cheer but now the NASDAQ effect seems to have eaten into the Euphoria. Markets after moving north for five consecutive sessions headed south yesterday.
A very interesting thing to note was that the futures, all this while, are trading at a significant discount to the spot. This could be interpreted as a discomfort about the current index levels and expectations of a correction. Infact, yesterday at close the October futures were trading at a cost of carry of negative 94%. While the spot closed at 970 the futures were quoting only 954.
Thus, it is more than likely that the index will head south but the question is how low? Now that the impact of the September 11th events have become more or less clear and it has been established that most probably the world is not coming to an end, the downside to the markets should be somewhere to the pre-September 12th levels. On the September 11th the BSE had closed at 3,150. The tragedy in the US took place into at about 6:30 PM IST. Since, the 21st of September the Sensex has been move north very steadily. From 2,600 the Sensex touched a high of 3,050 gains of almost 17.3% in a month.
Not only were this gains due to nerves calming, CMC's divestment also had significant role to play. The key gainers over a month in the BSE 'A' group features Hindustan Zinc, CMC, BPCL, MTNL and VSNL. Also a very interesting observation is that the erstwhile momentum stocks too have figure prominently. We wonder were attractive valuations were the only driver for these stocks?
And who made the most of this? The FIIs for the first 18 days of October have pumped in Rs 6.5 bn (US$ 137 m). However, the Indian Mutual Funds seem to be still shaky and have confined themselves to the debt markets. The mutual funds were net sellers for the 17 days in October having sold equity worth Rs 4.6 bn, while buying debt worth Rs 7.7 bn.
With very positive numbers coming out for the quarter ended September 30th and sales for CVs and two wheelers showing a healthy growth the environment does not seem all that bleak. Thus, sentiment is definitely improving. However, with the political situation so volatile in the Middle East and in our very own neighborhood, there will be an upper cap. Thus, keeping the markets range bound.
For the short term the psychological unnerving from the tragic events will take some time to calm. The governments will limit the movement of goods and people. Consequently, the economic activity will be hurt. However, like time and again, people will eventually get back to living normally and that includes opening letters and flying. The markets once again will find sector to romance with and soar.
However, numbers that have concerned us are that housing loan disbursals are up 30% in the first half of the current fiscal, personal loan disbursements are up 70% to 100% and auto loans are up by 15% to 20%. With such uncertainty in the near term please be very careful about getting in debt. If possible delay the decision till things are less fluid. And what is most frightening is that the personal loans that are obnoxiously expensive have show the strongest growth. These loans should be ideally used in case of an emergency and strictly not for getting money to buy stocks. Stocks don't have returns guaranteed but loans do have fixed costs to be serviced, irrespective of the economic environment.