Utilities remain useful

GUEST COLUMN

The overall market may be going down but Utilities appear to buck the trend.

Triggers like everything else is make believe. Markets don't need triggers to fall or rise- it is simply their characteristic to move up and down. It is only us, using triggers to just justify those turns.

We have talked about this on numerous occasions in the past. This school of thought however stands contrary to the randomness of market. Nassim Taleb's randomness also works on a pattern and characteristic that after a certain point of time volatility spikes, conventionally limited by two standard deviation bands set by Bollinger.

Challenging Taleb on his forecasting theory does not need an academic treatise or a tome of examples.

Because what you know or don't know is not really important, and unexpected events have nothing to do with markets or asset prices. We have seen enough to decisively tell that events that ought to have brought about severe correction in the past have not had the same effect, and vice versa. Events don't create markets, markets create events.

What happened over the past few days in the global markets had no clear trigger -- the triggers people attribute are at best illusive. The US credit fears are being blamed for the Sensex fall. How low or high can these fears take our markets is something that one may not hazard a guess on.

But here, in comes the chartist. One could see the extremes happening on Shanghai, Brazil, Dow, India, Nikkei, FTSE, DAX and various other markets around the world just by drawing Channels and looking at the complete price histories and may be adjusting the price scale from a normal to a log scale. It was as easy as that, and as easy as drawing a psychological trend line.

What from here? Well, though we got our anticipated July turn, broad market may still take a while to come down together. The picture still seems sectoral to us with the Utility sector a clear outperformer for the months ahead.

Our utility stock pick Reliance Energy mentioned in 'Lighting up' moved up 35 per cent from Jun 25. And the alternative energy and utility sector consisting of stocks like Neyveli Lignite, CESC, BF Utilities Wind, Suzlon etc. should just prove how stocks move up on a relative basis despite the market risk and the so-called randomness.

Mukul Pal, The author is CEO, Orpheus CAPITALS, a Global Alternative Research Company