Fool Me Once, Shame on you. Fool Me Twice, Shame on Me.....
Performing operation on dead patient is post-mortem, not operation. Yet, most investors and market participants in Indian market are as hopeful as Indian Government has been on taming inflation since 2009. Indian Market (Nifty) is close to all time high (around 6-7% away), however if one looks at market internals market has experienced slow death since 2013 beginning.
Significant Events/News Flow Since June 2012 lows.....
1) US Fed does QE Infinity
2) Indian Govt wakes up and initiates reform measures that market loves in terms of FDI, Diesel price hikes, etc
3) Japan goes for full on currency debasement with 2% inflation target and currency begins its long journey to debasement with sharp fall from 78 to 96.
4) Swiss Stock Market rises close to 50% since June lows (Country with stable currency since floor is fixed in terms of appreciation and close to zero interest rates). Japan Nikkei moves up by close to 47% since Mid Nov, while Yen depreciates close to 23% during same time.
5) US stock market (Dow and Russel 2k) surpasses all time highs with stable $85bn monthly inflow from Fed.
6) DAX and FTSE (Germany and UK) very close to all time highs.
7) Gold/Silver under performs after 12 straight yearly gains.
All of the above should reflect fairly optimistic mood coming into 2013 and if one looks at Nifty mood shouldn't get too sour. However, if one looks at internals of Indian Market, it is simply Ugly. First 2 points namely QE Infinity and Govt wake up measures should have been reflected in prices, however it got reflected only in mood and hope not price. Price behavior of Indian market has been anything but ugly.
Dissecting Market Internals
Indian market always has high hope value primarily because of immense potential the country has and for the same reason it historically trades at premium to most (if not all) emerging markets. Most of the world markets (along with India) formed low on 4th June 2012 and has been on tear since then. Rally from June 2012 till Dec 2012 had all signs of healthy rally and many indeed call June 2012 as significant low. Many even call rally from June 2012 as beginning of bull market. It is always easy to call start of bull market and most difficult to call end to it, since human nature is that of optimist. What has happened since 2013 is anything but bull market. In fact nature of price damage and character of sector out performance indicates something more than bull market correction. I would be try to be bold and call it start of some sort of bear market. Let price do the talking....
Tale of two time frames (June-Dec 2012 - Smell of Bull Market & 2013 - Bull Market was "Made in China")
Healthy bull markets are always led by broad participation which is in turn is reflected in strong performance of small/mid cap indices.
1) Indian Market between June-Dec 2012 had some signs of beginning of bull market with all Indices registering positive double digit returns. However, broader market marginally under performed Nifty during the same time frame.
2) Since 2013 all hopes of bull markets have been smashed with massive under-performance of broader market. Though, Nifty has been marginally down at 0.55%, Small-Mid Cap are down in double digits.
3)Thus, Since June 2012 lows, market move looks more like counter-trend move rather than start of bull market with massive under-performance of broader market.
Quality of Move During Both Time Frame (June-Dec 2012 & 2013)
Nifty Performers June-Dec 2012
1) Top 10 performing stocks during June-Dec 2012 had mix of betas and larger number of sectors namely Banks, Autos, Cement, Cap Goods, etc. Thus, it had all characteristic of healthy move.
2) Conversely, worst performers were IT, Oil & Gas,etc which will eventually be best performers in 2013.
1) Roles were flipped beginning 2013 with best performers in June-Dec 2012 becoming part of worst performers.
2) IT, Pharma and Oil &Gas were best performers. Thus, Defensive Sectors have led Nifty in 2013.
Nifty rising on much narrow breadth in 2013
1) 22 stocks outperformed Nifty in June-Dec 2012 rise, while only 14 stocks out-performed Nifty in 2013. Narrow rise towards all time high is certainly not a healthy move.
2) Again as discussed earlier, move towards new high was led by defensive sectors. This is like heading into battle of new highs with fear.
Conclusions
1) Market nature has completely changed in 2013 with narrow rise, broader market collapse and defensive sectors leading. This is hardly sign of continuation of bull market.
2) Massive under-performance of broader market since June 2012 lows and nature of sector leading in 2013 makes revisit of June 2012 lows likely.
3) Indian market has a very high hope value and an equally low performance value.
4) Such massive under performance at a time when most global markets are hitting all time highs will soon lead to crashing of hope value.
No comments:
Post a Comment