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Charts & Analysis

Market Roundup – Is the Glass Half Empty or Half Full

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We are moving into the final phases of the elections but our benchmark index seems unmoved by all the commotion saying just 5% away from its all-time high. Volatility has picked up a bit with India VIX breaking above its highs of the last few years.

Stocks are as most know a vastly different story.  If 200 day moving average is looked at as the split between bull and bear, 77% of the market is in bear territory. Even if we move the needle longer – 4 year average (200 Weeks approximately), 68% of markets are below that average too.

Market Roundup - Is the Glass Half Empty or Half Full

Yet, all is not lost, 65% of stocks are still trading above where they used to trade in May 2014. But this is of little solace since other than a very few stocks, most haven’t even generated returns that these days you could get by having a Kotak or IDFC Savings Account.

While election results could be a make or break, it’s doubtful that the incumbent government losing very badly. Very few elections have resulted in long term declines – but that is also because of the fact that in most of the previous elections, market was markedly cheaper than its today.

The first year of most government is a period where major schemes are announced and spending upgraded giving a fillip even if it’s a government that may not last the 5 years. But if stocks aren’t cheap, do markets fall for such tricks?

The bigger issue that is just over the horizon though would be how the Trade Talks pan out between US and China. This has a much higher significance than even Elections for any deadlock or break-down can spend the US economy and with it much of the world markets into a tailspin. Remember, the 2008 financial crisis was of a bubble in housing in US – much of the world had no such issues and yet, global growth went down.

It’s difficult to forecast how things will pan out, but the end doesn’t seem to be as near as most expect. Elections for the post of the President of United States will be held in 2020 and that gives Donald Trump around 18 months to maximize his achievements if he hopes to win. But will Xi bend the Knee?

Coming back to India, markets seem to have become cheap going by price, going by valuations, it is still well above where we were going into this rally in 2013. Look at the Median PE Ratio of all companies that reported profits. Bull run started in 2013. We are more than 2x from our starting point and historically not the best place to anticipate a fresh bull run.

Market Roundup - Is the Glass Half Empty or Half Full

 

Results of companies are slowly coming out for financial year end 2019 and there isn’t much of mojo with many actually disappointing the street. March IIP data contracted by 0.1% compared to a 0.1% growth one saw for February 2019.

While 2004 to 2008 was driven by investments, the 2013 to 2018 rally was driven by Consumption. Private and Public Investments have fallen drastically while Consumption seems to be hitting a wall as well. What will drive the next phase of growth?

Bull markets are born on pessimism, grown on scepticism, mature on optimism, and die on euphoria said John Templeton. Data of the past showcases that while are well past the phase of optimism, we aren’t in a phase of pessimism either.

Mutual Fund inflows have been a savior for the markets for a while now. But with reducing commissions, would it lead to a move away from Mutual Funds when it comes to Savings is a question that is yet to be asked.

India’s largest employer is the construction sector but the slow train crash that one has seen in the real estate sector has meant diminishing opportunities for the unskilled. While some of these are made up by the new age employers such as Uber – Ola and the food delivery business, the employment is mostly limited to the large cities and even here, it’s a dip in the ocean. A slowing global growth won’t help things either.

If January 2018 is to be taken as the end of the bull-run that started in 2013, we are way too early – both time wise and price wise to being a new bull market regardless of how the elections phase up. But I wonder, am I being too pessimist – is the Glass half full.