http://www.moneycontrol.com/india/news/market-outlook/bulls-vs-bears-the-slugfest-continues/390768
Column: Market-O-Logy
Bulls vs Bears: The Slugfest Continues
*“Earth provides enough to satisfy every man's need, but not every man's
greed.”
-
Mahatma Gandhi*
*By Haresh Soneji, CNBC-TV18*
Alright, we all know the good news. The Sensex closed above 10000 levels for
the week. That calls for a big cheer for the Bulls – hip hip hurray. A
sudden trend reversal since Mar 9, saw the benchmark indices surging 20%
plus in these few trading sessions. This is really big, especially in gloomy
times that the world seems to be living in off-late. A marked sentiment
improvement is the biggest surprise takeaway from this rally. The other
surprise element is the global surge. The world over benchmark equity
indices have moved 20% odd on the upside. Does this truly indicate that the
worst is over for equity markets the world over? Is the liquidity crises
over?
Call it short squeeze or whatever you may want to – a rally is a rally is a
rally – Bull market or otherwise. Yes, it’s a traders market and if you’re
against the tide, you will be caught swimming naked. The hard wired Bulls
are winning and are quick to capitalize. Over the previous few days, I have
seen sell side reports projecting Sensex anywhere from 12,500-18500 for
CY09; read technical comments about Wave 5 that will last for 15 years. That
old bear euphemism, yeah!
Yes, the Bulls deserve it. The market was over-sold and this spurt is
definite turn from over-pessimism. The other interesting sign is the FII
participation. In India, a sustainable rally is backed by FII participation.
In May ’08, when the Sensex surged some 15%, FIIs were net sellers. The
rally was quickly sold into. This time round however, FIIs are switching
fast from debt to equity. Since Mar 9 till Friday, FIIs net bought India
equities worth Rs 2,400 cr and offloaded debt worth Rs 3,900 cr. Domestic
institutions have been buying too. Since Mar 9 till Friday, MFs bought Rs
5,000 cr Indian equities and over Rs 10,000 cr worth Indian debt. If
domestic institutions such as LIC, GIC are included, the figures would be
much higher. So, this rally has legs, no doubt.
But, let’s start from the very beginning of the current rally. The
expectation of detailed Obama plan to save US (read The World) provided a
kick start to global equity spurt. This laid a strong foundation. Then there
were local stimulus that fueled the rally. In India, it may be the
pre-election rally, March end NAV boosting impact, or plain vanilla better
than expected Q4 numbers. Bulls are quick to shout the worst is over. In
fact, a few of them even call this 20% plus surge as a structural shift and
what we have seen is just the beginning. I beg to disagree. We are riding a
bear, not a bull.
So, there must be skepticism in every rally we see. Here’s the
justification. Every government will try undoubtedly to save itself from the
financial mess. The US is no doubt trying to do the same. US Secretary of
Treasury, Timothy Geithner has finally detailed out a plan in place. It’s a
market plan. No wonder the market cheers it. Will it work is a question
worth trillions of dollars? Here’s one opinion. Going by Keynesian theory,
it’s most likely to not succeed. In simple terms, US is creating another
financial bubble. But, a brave fight has been put up. That’s led to some
hope in the market. How far will this take the equity market?
The other rational to not get so bullish is uncertainty continues to
prevail. There is no visibility two quarters from now. Most experts will
vouch this fact. Third, there could be some profit booking once the NAV
propping is over. That’s two more trading sessions from these levels. Next,
the point to ponder on is Dec to March historically are the best months for
equity returns. These months have returned flat growth. Will the months
ahead see bounce? Fifth, valuations continue to remain expensive, especially
as there is no uncertainty. Sixth, the recession the world over continues.
If the US action fails, it may enter depression. There is no saving from
there.
Naturally all arguments against the Bulls will sound weak at this point in
time. A rally backed by sentiments overpowers fundamentals. Nobody wants to
listen to the valuation crap. Is this irrational exuberance all over again?
I pray to be wrong.
*Disclosure: The author is not permitted to trade and/or invest into the
equity market directly or indirectly, apart from investing (long only) in
mutual fund products. His equity exposure is only to the extent of ESOPs
granted by the employer.*
--
Best Regards,
Haresh Soneji
+++++++++++++++++++++
END PIECE - CRY PLEDGE
"Before anything else, I'm an Indian. And so is this little child. The
rights I enjoy as a citizen of this free country are hers too. She has a
right to be free. She has a right to be happy. But I'm going to fight for
her because she has the right to be a child. I'm going to fight for her
every single day, every single moment. With my skills. With my resources.
With my heart. I'm going to fight for her because I can. And she can't."
+++++++++++++++++++++
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