 "Why markets should not worry about elections")
One way of judging the strength of the market or a stock is how it reacts to news. If the stock or market moves lower in spite of good news, it suggests weakness, as few people are willing to buy on the news. A mood of pessimism prevails, which fails to be encouraged by the recent change of event which the news highlights.
Similarly in case a market moves high despite bad news, it is a sign of strength. Indian and global markets continue to display this strength. The expectation was that government will announce an IIP number of 0.6 per cent, but the actual figure turned out to be -2.1 per cent. Though there is a clear sign of slowing and will affect the GDP going forward, markets moved higher, completely ignoring the data point. A series of similarly disappointing numbers have been ignored by the market as it continued to move ahead.
The rise in market today however, has been mainly on IT counters due to the strong performance of Infosys and Reliance Industries, which finally got a clearance to hike its gas price. But even capital goods stocks and banks have done well despite the poor IIP figures, signifying the overall strength in the market.
Tapering fears are behind us for the time being, but cannot completely brushed away. Similarly there are other headwinds like the present results season and the biggest of them all -- the Indian elections. Apart from the banking sector, few surprises can be expected in the results which are expected to show average growth. As for elections, the rise of Aam Aadmi Party has added another angle to the uncertainty. This, market pundits say, is the only event that can disturb the strong flow of money in the country.
Over the last four years FIIs pumped in more money than they did in the previous nine years and much higher than the boom period of 2005-08. Looking at it differently, FIIs pumped in the most amount of money at a time when governance was at its worst. Why should elections results stop them from investing further? Clearly governance is not an issue for them.
Corporate India has continued to perform well finding new markets and launching new products despite lower demand in the domestic market. Sensex has touched the 21,000 mark in the previous two occasions in the last six years, but its valuation is the cheapest among presently.
US tapering might be a big issue as far as money flows to emerging market is concerned, but then the Japanese and European government have opened their taps. And even in the US, though quantitative easing may have slowed, money is still available on the tap at near zero rates. Indian markets are still far away from bubble valuations and can keep on attracting money.
The last few days of this ‘non-performing government’ has perhaps been the most productive. The message to the new government is clear: a focus on the economy is necessary to sustain at the centre. This, in turn, is further good news for the market.
As far as the money flow is strong all concerns will be washed away. To borrow a quote from Warren Buffet – ‘Only when the tide goes out will we discover who is swimming naked.’
Similarly in case a market moves high despite bad news, it is a sign of strength. Indian and global markets continue to display this strength. The expectation was that government will announce an IIP number of 0.6 per cent, but the actual figure turned out to be -2.1 per cent. Though there is a clear sign of slowing and will affect the GDP going forward, markets moved higher, completely ignoring the data point. A series of similarly disappointing numbers have been ignored by the market as it continued to move ahead.
The rise in market today however, has been mainly on IT counters due to the strong performance of Infosys and Reliance Industries, which finally got a clearance to hike its gas price. But even capital goods stocks and banks have done well despite the poor IIP figures, signifying the overall strength in the market.
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However, there are few winners in this market. Most of the buying over the last few years has been done by FIIs, with retail and domestic institutions being net sellers over the period. In the last four years, FIIs have pumped in Rs 3,71,342 crore in Indian equity markets. FII holdings in Indian stocks are at record high, nearing the maximum permissible limit in some counters.
Tapering fears are behind us for the time being, but cannot completely brushed away. Similarly there are other headwinds like the present results season and the biggest of them all -- the Indian elections. Apart from the banking sector, few surprises can be expected in the results which are expected to show average growth. As for elections, the rise of Aam Aadmi Party has added another angle to the uncertainty. This, market pundits say, is the only event that can disturb the strong flow of money in the country.
Over the last four years FIIs pumped in more money than they did in the previous nine years and much higher than the boom period of 2005-08. Looking at it differently, FIIs pumped in the most amount of money at a time when governance was at its worst. Why should elections results stop them from investing further? Clearly governance is not an issue for them.
Corporate India has continued to perform well finding new markets and launching new products despite lower demand in the domestic market. Sensex has touched the 21,000 mark in the previous two occasions in the last six years, but its valuation is the cheapest among presently.
US tapering might be a big issue as far as money flows to emerging market is concerned, but then the Japanese and European government have opened their taps. And even in the US, though quantitative easing may have slowed, money is still available on the tap at near zero rates. Indian markets are still far away from bubble valuations and can keep on attracting money.
The last few days of this ‘non-performing government’ has perhaps been the most productive. The message to the new government is clear: a focus on the economy is necessary to sustain at the centre. This, in turn, is further good news for the market.
As far as the money flow is strong all concerns will be washed away. To borrow a quote from Warren Buffet – ‘Only when the tide goes out will we discover who is swimming naked.’