Thursday 31 October 2013

Indian Market - Direct Play on Fed's Loose Monetary Policy....

In Markets - Being early is as good as being wrong...
O Ashuji....

Indian market is pure beta play on Fed's Loose Monetary Policy. I will not get into how bad things are in real economy nor will try to understand how marginally things can only improve from here. This subject is better left to Financial Comedians (experts on CNBC) who will have views both ways depending on the market levels. Basic Crux is Indian market is direct beta play of loose monetary policy.

Indian Market - Direct Play on Fed's Loose Monetary Policy....

1) Huge Dichotomy between perceived quality stocks (IT, Pharma, FMCG) and cyclicals (Banks, Capital Goods, Metals, etc). There has been endless debates about how polarized the market has been but when capital floats around the world and India has to receive its share, such outcome is very "rational". Indian retail mood is making lower tops with each all time highs. (On lighter side - that's huge divergence). Indian market will be vulnerable to whims of Ben Bernanke till broader market improves (broader market is sign of improving local financial conditions)

2) With hint of tightening (aka tapering) Indian currency was the worst performing currency (June-Mid Sep) and stock markets (particularly banks) collapsed. When Ben woke up from tightening dream, Indian market and currency bounced back sharply since Mid-Sep 2013. Both episodes were clear signs of how Indian market is slave to global capital.

3) It is really sad state of affairs when Finance Minister of country has to interpret Fed's Language after each Fed Meeting (One can frequently see FM's comments post FOMC) and Prime Minister talks about Fed Tapering in Parliament. All this is just the outcome of over reliance on dollars.

Be extremely careful about new highs and euphoria in markets (though must say sentiments have been making lower tops). Market lacks character of being stable and is extremely vulnerable. Bull markets start with far lower swings in prices than what we have seen in last 3-4 months and broader market participation is far higher. 


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