What lies ahead in Stock Markets (9th Feb)

These days stock markets are giving sleepless nights to many including me. When the post lehman crisis stock market run never looked comfortable, it all boiled to selling India centric story to boost up the markets.. No doubts, India remains a high growth market in long term.. However what remains to be seen is how India stock market matures as fast as possible so that people heed to something called valuations. Even at current valuations certain companies dont justify its prices, both undervalued and overpriced categories.. In the past, FIIs were successful to move Indian stock markets as per their wish selling some story or the other. However, unlike 2008 this time Indian Investors have done far more better to outsmart FIIs. This is a classic example that Indians cant be duped everytime and Indians have learnt a lot from 2008 crisis.

The recent sell off in stock market is attributed to high near term inflation that will erode profit margins of companies. No doubt, the reasoning is correct.. However we may have to watch whether this expected inflation do match the economic projections.

Well, if u ask me, stock markets should reflect the true sense of how businesses are doing in India. And remember businesses drive stock prices and not the other way round. So ultimately it boils down to how businesses will do in future determines stock market direction in near future.

So how will businesses do in next 3 months. What are all the current problems that businesses are facing. Lets analyse that. The first problem is rising input costs for most businesses. What is fueling these input costs. Liquidity has almost become tight in the market.. Domestic Demand also seems to be subsiding. So next quarter, we should see input costs subsiding but not bottoming out.This will make a case for partial recovery in stock market. However if world economic growth remains robust, i dont see input costs subsiding and hence putting more pressure of its rise (at this point the probability for this seems to be high for next 3 months). The second problem is employee costs. Employee costs will be permanent owing to its downward stickiness. Hence those costs are here to stay unless economic growth is negative and there is panic in terms of unemployment. The other part of operating costs will stay untouched or may go up a little. Interest costs are bound to rise as long as short term rates are higher.

So on a whole, next three months, costs will go up and hence any increase in prices due to this will severely impact demand as liquidity will also dry up. So we see a scenario where demand moderating, costs increasing, and prices stablizing. Now all my eyes are on how US market and the world economy will perform. That is a big trigger for the Indian Stock Markets. Till then we have to sit with uncertain times.

RBI policy action.. How i read it!! (26th Jan 2010)

Well the anticipated wait is over.. RBI and its policy action.. No surprises is what the newspapers read.. But what many failed to notice is the attitude of RBI about India's domestic problems, raising fiscal, Current account deficits and inflation. The message is clear, the government is not doing justice in keeping these measures in check. And ultimately blaming UPA government, if not partially but entirely about the India's ballooning problems. The policies are reckless and corruptions are at their highs. All this makes a case for Mr. Singh to step down from or convince Sonia ji/coalition parties that the problems are serious and need some tough decisions to be made. The second option seems to be unlikely considering that Mr. Singh is soft spoken bureacrat who all his life was faithful to Congress. Hence to restore his value system, his stepping down is essential.

Now not digressing from the topic, the next most awaited event is Budget. I am not expecting that any growth centric, anti-poverty, anti-corrupt and more anti things nature policies will be laid down. The expectations would be rolling back of stimulus partially and implement policies that are election centric. Congress neither have enough coffer to spend nor risk their own private coffer to get empty. But yes, they may stretch fiscal deficit by borrowing more and put more debt to Indian Citizens. Of course that is the price we have to pay for electing this sort of coalition government who needs to satisfy every other Indian.

So what should we do in this kind of environment of short term gains and long term pains. Nothing but to keep pain killers in place. Amen.