Addressing 3 investor
questions post drop in markets
„3
rd Largest 1day market fall in 4 years: what now?
The market had its 3rd largest 1 day fall in 4 years falling 4% largely on fears that
India would impose capital controls on repatriation of money by FIIs. We think this
is unlikely since the policy makers realize the negative impact this would have on
flows into the country. So is this a buying opportunity? Tactically most of our
indicators show that it is better to wait for a further correction or some signs of
stability in the currency before buying India.
#1: Is India oversold? Not yet but approaching there
„ The market has fallen 4% on Friday. But a large part of it was reversal of the
gains of the previous few days. Overall, for the week the market fell only 1%.
„ Our analysis of past major falls indicates a mixed trend. Only in 54% of the
instances have markets given a positive return over next 1 month.
„ Based on our fund manager survey, sentiment on India is at a lower end of
last 12 month trend but not yet at extreme bearishness levels.
„ Technical indicators including RSI, 200 DMA are getting close to but are not
yet at over-sold levels.
#2: What will improve sentiment on India? The currency
„ The single biggest factor making investors nervous on India is the currency. A
stabilization of the currency would make us as well as investors more positive
on India. While the Govt has taken a series of steps to stabilize the currency,
it has not worked partly due to nervousness on the Fed tapering. Even after
the start of these measures, India is the 3rd worst performing currency
amongst EMs.
„ Based on past history, the markets give an average return of near 11% over
3 months once currency stabilizes. Given the negative sentiment in India
currently, we see a possibility of something similar this time too. An increase
in fx reserves by raising fx bonds accompanied by low trade deficit data could
help stabilize the currency over next few weeks.
#3: Do we continue to buy the high quality, outperformers?
„ While we are getting tempted to nibble at some of the under-performers in the
banking space, near term we continue to stick to stocks in the pharma, IT and
telecom space. Hero Honda is our non-consensus pick.
Top Buys: Lupin, Idea, Hero Honda, TCS
��
questions post drop in markets
„3
rd Largest 1day market fall in 4 years: what now?
The market had its 3rd largest 1 day fall in 4 years falling 4% largely on fears that
India would impose capital controls on repatriation of money by FIIs. We think this
is unlikely since the policy makers realize the negative impact this would have on
flows into the country. So is this a buying opportunity? Tactically most of our
indicators show that it is better to wait for a further correction or some signs of
stability in the currency before buying India.
#1: Is India oversold? Not yet but approaching there
„ The market has fallen 4% on Friday. But a large part of it was reversal of the
gains of the previous few days. Overall, for the week the market fell only 1%.
„ Our analysis of past major falls indicates a mixed trend. Only in 54% of the
instances have markets given a positive return over next 1 month.
„ Based on our fund manager survey, sentiment on India is at a lower end of
last 12 month trend but not yet at extreme bearishness levels.
„ Technical indicators including RSI, 200 DMA are getting close to but are not
yet at over-sold levels.
#2: What will improve sentiment on India? The currency
„ The single biggest factor making investors nervous on India is the currency. A
stabilization of the currency would make us as well as investors more positive
on India. While the Govt has taken a series of steps to stabilize the currency,
it has not worked partly due to nervousness on the Fed tapering. Even after
the start of these measures, India is the 3rd worst performing currency
amongst EMs.
„ Based on past history, the markets give an average return of near 11% over
3 months once currency stabilizes. Given the negative sentiment in India
currently, we see a possibility of something similar this time too. An increase
in fx reserves by raising fx bonds accompanied by low trade deficit data could
help stabilize the currency over next few weeks.
#3: Do we continue to buy the high quality, outperformers?
„ While we are getting tempted to nibble at some of the under-performers in the
banking space, near term we continue to stick to stocks in the pharma, IT and
telecom space. Hero Honda is our non-consensus pick.
Top Buys: Lupin, Idea, Hero Honda, TCS
No comments:
Post a Comment