Scam a Day - Sainik

The last two weeks were really unforgettable in more ways than one, what with one scam a day burning the pockets of hapless investors.

The frontline indices tanked nearly 10 percent, albeit in strange sort of way, the drop was par for the course. As detailed in my previous posts, the period in and around Diwali always produces a drop of 10 -12 percent, so it no big deal in the normal course of events. If it is just normal that is.

If we go by history, the period between now and mid -January is the most bullish period and the mainline indices at times have gone up by 15 percent too. This is the positive scenario.

Now for the not so positive scenario. Very rarely does "bad news" erupt during this period. Even when it erupts - like the Dubai problem last year - the markets take it in their stride and bounce back.

Even the rumblings of the Maytas - Satyam issue in December 2008 - was put on the back burner for a few weeks and the market only sold off only in early January 2009. The last such significantly negative news which did affect the markets was in 2001 - when in December, the Indian Parliament was attacked.

What is on the horizon this time around?

At the global level, the European crisis just refuses to go away and is increasing in intensity every passing day. At the time of writing this, I am getting news that Ireland has finally been bailed out. This makes it two bankrupt economies in the Euro zone. Will this have the domino effect on the other countries?

The markets have already moved on to the next potential targets: Portugal and Spain. While Portugal is a relatively small economy , the elephant in the room is Spain. Another new country added to the "sick" country list : Belgium.

The euro is very weak against the US dollar having broken through key supports just like a hot knife through butter. To think that the key to a bull case for the stock markets is a weak dollar.

Closer home , the CBI raid on LIC Housing Finance and other institutions has all the potential to bring out the can of worms.While the analysts are putting a brave face on the extent of the rot, it would be nice to look at it in the perspective of "There is never a single cockroach".

This can indeed be a "game changer" because of the battering of India's image and the consequent de-rating of PE multiples.

While history is in favor of the bulls, the current environment will make even the bravest bull cross his fingers.

Too Many Sweets can Cause Indigestion - Sainik

The week gone by was really very important considering the fluctuations in all asset markets not seen in the past 25 weeks. The volatility started in the precious metal markets and spread like wildfire to equity and bond markets, and by the end of the week, had affected the hitherto rock solid commodity markets.

To cap it all, possibility of sovereign default by Ireland roiled the currency markets. Over the weekend, Ireland will be in talks with EU to tide over its liquidity problems, and the next few weeks are likely to be very crucial for world markets across all asset classes.

As far as Indian markets are concerned, the expected correction did materialize, and is likely to continue for some more time. The period November 15–January 15 has traditionally been very profitable for indices and frontline stocks. Will history repeat itself? Only time will tell.

Even after the correction of last week, mainline indices were trading higher than they were at the beginning of the month. Thus it should not be worrying if weakness persists for some more time. Eyebrows should be raised only if Nifty starts trading below 5950.

The scrips, to watch would be SBI, Infosys, Tata Motors, ACC, L&T and TCS. These have been the leaders in this rally and they will give a clue to the market’s direction.

Today, Satyam unveils its quarterly results. While the institutions are bearish, insiders are bullish. Will be intriguing to watch who wins?

Whatever you do, hope it is profitable.

All-time Highs on Diwali - Sainik

Last week was truly historical. Both the Sensex and Nifty hit all-time highs, and that too on Diwali day. The Coal India listing has brought great cheer to everyone around. Hopefully the retail investor too will be happy.

On this auspicious day, everyone was concerned that the retail investor was the only one who had not joined the party yet. It is certainly a strange phenomenon that this is a rally where the domestic investors have been net sellers throughout the year. This has never happened before.

I wonder why. Nobody seems to have the answer, not only here, even in the US, the retail investor has been on the net selling side. The same goes with the corporate insiders too.

Well, the market teaches us new things all the time. Not looking back at the week gone by, the RBI raised the interest rates as expected but market reaction was muted. No selloff, no euphoria, at least on the day it was announced.

The most remarkable decision was that of the US Federal Reserve in which it justified that the rise in the US stock markets meant that their decisions were on the right track.

It is pertinent to point out that every one in authority, including former Fed chiefs–Greenspan and Volcker–have been very critical of the Fed's Quantitative Easing (QE).

Criticism has also come from countries as diverse as Germany to China and through a very subtle rebuke from our own RBI governor too. Yet, Bernanke went ahead and did what he wanted to do, and for the first time ever, he went to the press to justify why he had done so.

All the giants of the financial world are very scared of this decision. The immediate impact being higher asset prices, which would make everyone who owns the underlying assets very happy, however what about the long-term implications? Already there are a growing number of voices fearing the inevitable. Bernanke is supposed to be fighting deflation and in the process he might have created a new monster: Hyperinflation. Time will tell whether Bernanke is a hero or a villain.

Closer home, this week would be very interesting.

The strategy would be to buy into weakness during the latter part of the week and early part of next week. The period November-January has traditionally been very profitable for the Indian markets.

The areas which one may want to concentrate would be oil and gas and pharma. Of course, banks and autos could be bought but one should be very choosy. Small private sector banks should be a part of one’s portfolio.

In commodities, gold and silver look very attractive, probably more attractive than stocks at this point of time.

In currencies, Dollar has the best chance to strengthen this time around.

Whatever you do, hope it is profitable.