It was a truncated week where the two holidays alternated with trading days and kept the market movement in check. Global cues however were very strong and though on a net basis markets were flat as far as the SENSEX and NIFTY were concerned the midcap and smallcap stocks seemed to have had a great time. In any case the benchmark indices made yet another lifetime highs and it seems to be becoming a practice with them.
Politics make strange bedfellows and one comment from NCP when they offered outside support to the BJP in Maharashtra to form the government has not only rattled the Shiv Sena but seems to have made the party nervous and worried. The statements coming from their top brass are illogical, flip-flop and depict the nervousness and their state of mind. It’s important to note that not only did they not read the mood of the people of this state but they got their posturing wrong. The net result was that a 25 year old alliance which was dominated by the Shiv Sena in the state and bordered on unreasonable demands and blackmailing somehow trundled along with bickering. This time around it snapped and the tide was turned.
The BJP won double the seats that Shiv Sena won and any alliance now would be with the understanding that the junior partner is now the senior partner and that big brother has to play second fiddle. This fact of life is not only difficult to accept but almost impossible to digest. The current flip-flop on a virtually hourly basis is portraying the party in poor light and is doing immense and unrepairable damage to the reputation and morale of the party. It would not be surprising going forward if we see people leaving this party because of lack of leadership.
The cabinet expansion in Delhi has highlighted two things with performance being given weightage over everything else. The appointment of Suresh Prabhu and bringing Manohar Parikkar the Goa CM as the defence minister shows that the current government means business. It wants people with a track record and performance to be given the right to govern and take charge of key ministries. Secondly the PM has also given first time MP’s and young politicians a chance to prove their mettle and the appointment of such people sends positive vibes amongst the young.
Coming back to the markets one finds people talking and discussing that valuations have run up ahead of time and that the market is expensive. They are correct in what they say but the rally of 2014 consists of two parts. The first is the rally from September 2013 onwards driven by improvement in sentiment because economic factors have bottomed out. The GDP has bottomed out, inflation has peaked out and the major concern of the elections are over. There is a stable government with a mandate to rule for five years and a single party majority after 30 years. The second part of the rally is on FII’s who believe the India growth story have invested 37 billion dollars in the current calendar year in Indian markets in equity and debt. That is some assertion of their belief that India and more importantly Modi will deliver. My point therefore is that if the investor is bullish and convinced and is putting his foot where is mouth is, how can you be bearish and counter him. If you don’t agree fair enough but for the sake of your money don’t short this market.
Global crude oil price and gold have been correcting sharply and both these commodities are great news for India. It’s a matter of time before there should be some reduction in customs duty on gold which is currently ruling at 10%. While the price and the reduction in duty would increase the purchase of gold, it would more than offset the increased smuggling and revenue loss.
Markets are well poised to continue remaining in strong bull hands. While a correction would be more than welcome as there are a number of people waiting to enter if the market falls, the correction seems elusive. Irrespective of the correction coming or not, the true test for the markets would be corporate India’s performance in the October-December quarter and the governments litmus test would be the Union budget in February 2015. This is a make or break budget for India.
In conclusion the feeling, momentum and inflows all point to a healthy and vibrant market. Think positive and participate in the rally.
