I remember watching a group discussion on Diwali's eve on CNBC. The topic was the 'Future of Indian stock markets' and the participants were 3 eminent investors/analysts- Rakesh Jhunjhunwala (The All Time Bull), Shankar Sharma (Bear since ages) and Sameer Arora (a practical hedge fund manager).
The discussion was just after the day on which Nifty touched its last 2-3 years low of around 2250 and the global market mood was really gloomy. The earnings scenario was bleak (which still is), the commodities had crashed, inflation was just easing out, loads of other macro economic problems.
Given the bleak backdrop also Mr. Jhunjhunwala was very very bullish and was saying that India is an amazing long term story and the valuations are at historic low levels and so its a 100% buy situation. On the other hand the famous bear Mr. Sharma was of the view that nothing is going right and the index will touch 1800,1500 and the stock market is not the place to invest or earn, but to go for full fledged shorting.
But the third view of Mr. Arora was a realistic one. He said that the problem is liquidity. He said that its a known fact that the valuations are cheap, but where is the cash (liquidity) to buy things at this cheap valuations. He was of the view that the markets will only recover (or give temporary short term rallies). Its like u know that a BMW top model costs over a crore and someone is saying that pay me Rs 10 lakh cash and the car is yours. But Can u still buy that...? The answer for many would be no despite the fact the valuations are cheap as the person does not have the cash.
Thus I strongly agree to Mr. Arora's view. What has happened to global financial markets over the last 1.5 months is that too much of liquidity is chasing the beaten down stocks and as a result the Nifty Index has risen by over 45% in the last 1.5 months when the Bloomberg consensus earnings estimate growth for the Nifty constituent stocks for FY10 is not more than 15% and the consensus expected GDP growth is only around 5-5.5%.
The situation is really going crazy. Three months back a news for Chrysler filing bankruptcy could have taken markets to new lows and today with the same news the experts are saying that whatever is happening is happening for its betterment. Swine flu did created some jitters last week, however even the flu got a panacea-The Liquid cash ready to buy that dip.
The BSE IT Index rallied more than 8.7% yesterday, when none of the IT companies have guided for more than 4-5% earnings growth for FY10, and given the fact that most of them are trading well above 14-15 times their FY10 earnings (so valuations were also not cheap).
Thus all I would say as I have said earlier that once the euphoria starts creeping in, once the CNBC starts having new polls all having questions saying what is the next upside level. The downside is definitely inevitable but the only question which remains is its timing. It may be after the Thursday's bank stress test result, or after 16th May when the election results come out.
I remember a famous quote "The steeper the rise, the faster the fall"
No comments:
Post a Comment