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Sunday, March 13, 2011

The state of the stock market – a broker’s views

I cornered my erudite stock broker friend just after he had finished his morning round of golf, and asked him about the current state of the stock market. Here, in no particular order, is the gist of his uncensored views during a freewheeling discussion:-

1. The Sensex is very likely to test its recent low of 17300. It may even go down to 16000, but the probability is low.

2. The market is likely to trade in a range for another 3 months, or even longer. With high oil prices further messing up India’s fiscal deficit, markets won’t be able to move much higher.

3. The second half of the year should be ‘technically’ better. That is when the ‘big players’ have decided to sit down together with the Udayan Mukherjees of the business channels to decide (and announce) where they are going to push up the stock market.

4. Oil prices won’t come down any time soon. The turmoil in the Middle East and North Africa will be fomented by the USA for two main reasons. The first is their insatiable desire to corner oil resources, which was the main reason for their invasion of Iraq. Every one knew that there were no ‘weapons of mass destruction’ in Saddam Hussein’s armoury.

The second reason is the dismal state of the US economy. All the dollar printing hasn’t improved anything. The US economy thrives after wars. A Republican president would have used the Tunisia and Egypt uprisings as excuses to send troops. The Democrat president is pussy-footing around. But he will soon have no choice but to start a war by sending in the US marines. There is already talk of enforcing a no-fly zone in Libya.

5. The talk of ‘valuation difference’ between developed and emerging markets being the reason for the recent correction is all hogwash. Valuation differences were there a year back, when FIIs were pouring money into emerging markets.

6. The export lobby has been moaning and groaning about the rupee appreciation against the dollar hurting the country’s exports. There is not a peep from the import lobby because none exists. The government is the biggest importer. They should ignore the exporters and let the rupee appreciate against the dollar. That is the only way to cushion the rising cost of oil imports. Imports far exceed exports anyway.

7. There is no greed and fear in the Indian stock market. There is only more greed and less greed. Nothing else explains the paltry cash volumes compared to the huge F&O volumes of trade every day.

8. Small individual investors in the more evolved and sophisticated US market invest mainly through mutual funds. In India, any one who has Rs 5000 to spare wants to invest in equity shares. Since he doesn’t have enough money to buy even 10 TISCO shares, he goes out and buys 15000 shares of Cals Refineries. How smart is that?!

Part of the blame lies with us brokers, who want investors to regularly buy and sell stocks, because our livelihoods depend on that. But, small investors will be far better off investing regularly in an index fund or a balanced fund.

5 comments:

LovelyGuy said...

Good read. I agree with lots of points he mentioned. (Apart from Oil although)

Thanks

LovelyGuy

Nasir Khambatta said...

Subhankar, I realised that I enjoyed your non-technical posts more than the technical analysis ones.

Another marvellous post. Thank you!

K said...

Subhankar,

You have been pounding the desk on FII selling due to valuation difference between developed and emerging economies and redeploying the capital back on developed economies.

Has that notion changed after the conversation with broker?

Subhankar said...

@LovelyGuy: Thanks, Spandan.

I don't agree with all the broker's views either. But oil prices may remain high for a different reason. Nuclear power may take a back seat due to the Japan problems. That is likely to create a greater demand for oil.

@Nasir: Appreciate the feedback, Nasir.

I don't deserve any credit for this post because the point of view you enjoyed was not mine.

@K: Several FIIs have gone on record that relative valuations caused them to sell in emerging markets and redeploy in developed markets. So it is a fact, and not a notion.

I merely presented the broker's contrary point of view.

adseo said...

In this time Indian stock market move to much higher.All items are highly price.I agree to all about your points.