Is the rally fizzling out? - Straight from the Hip by J Mulraj
Investing in India - Straight from the Hip by J Mulraj
Is the rally fizzling out? A  A  A

3 OCTOBER 2009

The rally appears to be losing steam, and the market may well make a temporary peak in the coming fortnight. It would then provide an opportunity to buy in a dip. Last week, fed by large foreign inflows, the BSE-Sensex climbed 441 points, to end the week at 17134 whilst the NSE-Nifty gained 124 to end at 5083. RIL was the biggest contributor to the 441 point gain in the sensex, providing 129 of them. NTPC's appeal to disallow modification by RIL of its appeal was rejected by the Supreme Court, and sent back to Mumbai HC for a review. Gas as a resource is too valuable to await its exploitation by such delays and one hopes for the sake of the country that it does not get entangled in time consuming legal webs.

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Global markets seem to have peaked at least for the nonce. Monetary authorities worldwide, including in India, are caught between a rock and a hard place. They have pumped in huge amounts of money, through both monetary and fiscal stimuli, in order to stabilise their economies, especially those of the developed world where fancy new derivative products led to awful investment decisions. This pumping in of money has restored a semblance of confidence, but money being money, a lot of it has also gone into asset classes. The authorities thus have to gauge whether to continue with the easy money policy, since the economic recovery hasn't yet taken root (witness higher job losses in September in the US) or whether to start turning the liquidity tap off before asset bubbles create a future problem.

RBI has earned kudos for preventing the entry of fancy derivative products into India and thus staving off the effect of the global financial crisis on India. It is now seeking to look ahead of the curve and, in a bid to prevent an asset bubble in real estate, is thinking of increasing the risk weightage of this sector. This could result in home loans being costlier by upto 2 %. It has also hinted at a rollback of its accommodative monetary policy stance (which means, in English, that money may get tighter).

In corporate developments, the acquisition by Bharti Airtel of South Africa's MTN fell through on the question of dual listing. The South African Government insisted on it but the Indian Government could not allow it since India has to take other steps before full capital convertibility comes in. Bharti would have to wait for another opportunity to create a global telecom giant. Hopefully this may push our Government into serious thinking to lay out a road map for full convertibility. The Government would, however, first have to get its fiscal house in order. One of the best ways is to speed up resolution of the Ambani gas dispute because that would save it of huge amounts of fertiliser and petroleum subsidies.

Financial Technologies India Limited is planning to raise Rs 1500 crores, through various options including GDR, ADR or FCCB. It has set up 10 exchanges, including 5 in India (MCX the most prominent one) and 5 abroad, preparing for the time when, alongwith economic growth, the financial markets would shift eastwards. GAIL is planning to invest Rs 13,000 crores in pipelines in the next 3 years. Grasim is to hive off its cement business to Ultra Tech and is looking at different ways in which the payment could be made. It could either be by way of the latter's stock to the former, which would make Grasim liable to pay capital gains on the business, or by way of stock to shareholders of Grasim, which would be exempt. Ultratech would, after the takeover of the business, become India's largest producer with a capacity of 42 million tonnes.

After the pilots of Jet Airways went on mass sick leave (uphuism for strike) it was Air India pilots who followed. The strike was called off after Ministerial intervention. It is amusing to see that full service airline pilots, better paid, are striking, but not the low cost ones.

Global indices such as Dow, Footsie, Nikkei and S&P seem to have temporarily peaked. The $ index has inched upwards and people like Marc Faber opine that the $ has fallen far enough for the moment and would rise. A rise in the $ would stanch the FII inflows through carry trades in which investors take advantage of interest rate differentials to borrow in the US $ and invest in markets like India. Hence caution is warranted.

As the adage goes, he who fights and runs away shall live to fight another day!

J Mulraj is a stock market columnist and observer of long standing. His weekly column on stock markets has run for over 27 years. An MBA from IIM Calcutta, he has been a member of the BSE. He is Conference Head - India, for Euromoney. A keen observer of events and trends, he writes in a lucid yet readable style and takes up issues on behalf of the individual investor. Nothing pleases him more than a reader who confesses having no interest in stock markets yet being a reader of his columns. His other interests include reading, both fiction and non-fiction, bridge, snooker and chess.

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6 Responses to "Is the rally fizzling out?"
namdeo kumbhar
Oct 10, 2009
Only the recomendations which have created wealth has been illustrated.

What about the recoomendations where invenstors have destoyed their wealth?

are there no such cases?

pl explain if any
Ms.Anjana Ait
Oct 5, 2009
Nice article...but it would be nicer if spell-checks are done to avoid mis-spelling euphemism! Like 
Oct 4, 2009
Dear Jawahir,

Earlier I found your articles exhaustive and not as lucid as claimed 'lucid yet readable style'. However, I am happy to say that there seems to be improvement in your language and your content these days. I believe you take negative feedback seriously. All the best and we investors look out more of your interesting articles.

Prejish Nair
Babji Bathula
Oct 3, 2009
I am a subcriber for equity master since 3 years. Honestly I did not see much value in your research reports, and I could not understand your reports. I am an individual long term investor with 26% CAR since 19 years. Always you quote Warren Buffet name and try to timing the market , which is against to Buffet investment strategy. May be I am litle bit rude, now a days even a day trader also quotes Warren Buffet.

In my opinion what ever may the index , it does n't matter . If you are a real long term investor,and investing in the businesses, don't worry about the market movements.

I have a doubt , who want's to track the market movements , they never understand the real value of the companies and businesses.

May be my comment is little bit rude . I believe one quote from Peter Lynch "Most of the times analysts are wrong, use your common sense" . In March 2009 all the great analysts are writing about 6000 sensex. I subcribe couple of news letters just for information. One analyst called me in March 2009 and advised to sell my entire portfolio because sensex is ging to hit 6000. In my opinion every body is panic , it is time to buy , smple reason good businesses are available for cheap.

My last statement " Don't to try to timing the market. Invest in businesses"


L Govindarajan
Oct 3, 2009
Straight from the Hip has never taken a clear cut stand on anything.
Full of noise & gas,but no substance.
Oct 3, 2009
"euphemism", not "uphuism".

For instance, when you say "caution is warranted", do you really mean "sell and get out", but do not want to be caught on the wrong foot (what if the market rallies to 21K, you think)?

At this level, the market is clearly going beyond fair values. I am divesting fast, and am at 62% cash on my portfolio, intending to go to 99% as soon as I can. Even if the rally goes on to 18-19-20K, I can sit out the remaining rise. No need to be greedy, no reason to lose my hard-earned returns (20.3% CAR over 9 years after income tax, STT and brokerage).
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