The week gone by saw bulls being mauled and massacred on Dalal Street. Whether it was on account of monsoon being delayed or expected to be weaker, or Greece default it was mayhem on the streets. The markets lost 3.8% with the BSESENSEX down 1,060points and NIFTY 320 points. The broader markets lost similar and so poor were the gainers that just one sector registered gains in the form of BSE Capital Goods which was up 0.04%.
What mauled the bulls? Monsoon, the commentary of Raghuram Rajan post he cutting repo rates by 25 basis points, the impending Greece default or the fact that there is speculation on what the FED would do in its meeting due on the 9th and 10th of June. I believe it’s a combination of almost all these factors and that the results from corporate India have been poor in all respects. The turnaround signs from the economy do not seem to have percolated to industry as yet.
If that was not enough the jingle with which I grew up through college and later on “2 minutes Maggi Noodles” saw the administration clamp down on the product. To be fair it appears that the management was very slow in reacting to the adverse news and took undue time to make their first press meet and address the issue. Possibly a brand which is over 35 years old has taken a severe beating and a lot of time would be needed to address the issue. The markets saw the share price of Nestle drop by a sharp Rs 860 or 12.54% to Rs 5,997.
The positive indicator from the market perspective is that valuations in March15 seemed to be well ahead of the curve and Indian markets were looking overtly expensive. With that correction happening where markets have fallen from peak levels of 30k plus on the SENSEX and 9.1K on NIFTY losing 11% in the process, all the froth is off the valuations. Even considering the fact that earnings were by and large disappointing and analysts were using 2 year forward projected earnings as in FY17 and FY18 to justify valuations, all is now well. We are back to reasonable valuations and the upside being talked about for yearend figure varies from 30k to 32k. Take whatever you like as being the correct number I for one being less optimistic as I am talking publicly believe that even getting back to the previous high means a gain of 13.35%. Great considering we have six months left in the current calendar year.
The PM was in Bangladesh on a two day visit and many issues built up ever since Bangladesh was liberated in 1971 were discussed and some resolved. Travel between West Bengal and the North East has become easier as Bangladesh would allow people to pass through their territory.
Markets would keenly await what action the FED takes at the end of its two day meet on Wednesday on raising interest rates. The broad consensus is that there would be no change and this could be a big fillip for the markets on Thursday or earlier.
Performance of oil marketing companies have been good and there seems to be more steam left in them as in the current quarter they are likely to reverse their sharp inventory losses of the previous quarters and also previous year. This will directly reflect on their GRM’s.
The monsoon has hit the coast of Kerala over the weekend and last evening we had some rain in the island city of Mumbai. The first full shower for Mumbai is awaited and maybe that would signal a significant change in trend in the market as well. Enjoy the rains as and when they happen.
