(This article is published last week in Niveza: http://goo.gl/Vb3wxR)
The direction
for the market?
I made a presentation sometime in 2013 to a group of
investors in Pune. It was just a year before the Lok Sabha elections in India
were due. The topic of the presentation was pre-election year performance in
Indian stock market. The presentation covered an analysis of 6 pre Lok Sabha
election years. The analysis considered socio-economic background around each
election year, world economy and political situation and the performance of
Indian stock market during these Lok Sabha elections. My analysis was dot on.
The analysis was telling me that the Indian equity market has never let down
the investors in Lok Sabha election year. See my presentation here: http://www.slideshare.net/ndharmawat/pre-election-yearperformance
The primary reason being hope!!! Each election brings hope,
not only for politicians but more importantly for common people. If you look at
the direction of the market from 2011 to 2013, it was no-where. The market was
looking for change. The election year is the hope for a change. The same hope
energized the market as well and it delivered 25% returns during the period.
Now what next!!!
It has been almost 11 months when the Modi government came
to the power in May 2014. The market waits for 12-15 months’ after a new
government is formed. If it finds that the government is not delivering then it
starts its downhill journey. We are now
at that point where the 12 months is about to get over. This is an important
tipping point. So the pertinent question is - what next?
Let’s understand how the government has fared so far? Let’s
start on the positive notes where it has done well:
-
Transparent auctions in telecom and mining
sectors
-
Launch of some innovative schemes and ideas
o
Jan-Dhan Yojana, a financial inclusion program.
A great move to connect the person on the bottom of the pyramid with the main
stream
o
Make In India. The most important part is cut
down in processes to start a business
o
Swachh Bharat Abhiyan. Another great move to
make people at least aware about cleanliness. This initiative alone could help
us in significantly bringing down household health bill
-
A boost for defence-related manufacturing in
India and insurance sector FDI limit
-
Business first and politics second: Continuation
of Aadhaar is a classic example
-
Displayed a firm stand on various fronts both
domestic and international
-
Visible actions on corruption cases at high
places
On top of it, the government is blessed with the reduction
in crude prices. This has helped it take a bold step of deregulating diesel
pricing.
While the government has taken several good steps and the
hope is not yet shattered, a clear picture on economic reforms is yet to take
shape. So let’s now consider where it needs to improve upon:
-
The speed of work on the ground is yet to be
seen like awarding infrastructure projects
-
Path breaking reforms are missing: GST implementation,
public sector reforms, PS Banks reforms, Land acquisition bill
-
Avoid confrontational politics. The government
is doing that but it needs to be more careful
-
Nothing much has been done to reduce the subsidy
bills/the CAD. Whatever has come down is more due to external circumstances
than our efforts.
-
Should avoid unnecessary political controversies
and control its foot in mouth politicians.
Where it is heading?
This year the market has gone up almost 35%. This also
results in short term gains for many traders and investors. If they have any
short term losses to square off then they use this opportunity during the end
of the financial year. Not surprisingly, the markets came down in the month of
March.
However, the market bounced back in last 3 days. The short
did not survive for long time. It is this kind of strength that is pulling Indian
market to newer highs.
If people believe that the market is at a high risk zone
then they may like to see the PE, Price to Book and Market Cap to GDP ratios
during previous highs and compare it with the current one. I have covered all
these points in one of the articles that I wrote in November 2014 on my blog.
The Sensex was trading at around 28400 and it is still around the same levels.
One can read my article here: http://dharmawat.blogspot.in/2014/11/markets-some-important-data.html
We have room to run and remember this run is a marathon and
not a sprint. We are all set here for golden years ahead if the government
takes even baby steps in the right direction. If it misses big time on the
reforms then we may have trouble. Till then let’s enjoy the party.
I am present on various social media listed below and would
like to get connected with you.
Twitter: @niteen_india
Facebook: https://www.facebook.com/dharmawat
slideshare: www.slideshare.net/ndharmawat/
Facebook: https://www.facebook.com/dharmawat
slideshare: www.slideshare.net/ndharmawat/
About the author: Niteen S Dharmawat is an MBA and cleared
CFA Level 2, CFA Institute USA. He also conducts free investor education
sessions, writes blogs. A firm believer in long-term financial planning, and a
20 years veteran of the stock market, he likes to study the economy, and
individual stocks. He also conducts free investor education sessions for common
investors. Niteen blogs at http://dharmawat.blogspot.in/ and can be reached at niteen.dharmawat@gmail.com
Registration with
SEBI as Research Analyst: The writer is not registered with SEBI under SEBI
(Research Analysts) Regulations, 2014 as Research Analyst. As per the
clarifications provided by SEBI: “Any person who makes recommendation or offers
an opinion concerning securities or public offers only through public media is
not required to obtain registration as research analyst under RA Regulations”.
The article above is not with an intention of any research finding and
recommendations. It is only with the intention to share the views with which
the writer has taken a position.