NEWSLETTER DATED: 15-12-2018
INTERNATIONAL SNAPSHOT:
While the World economies took relief when on 1st Dec US and CHINA agreed on a ceasefire in their bitter trade war, suddenly there was arrest of Huawei founder’s daughter in Canada stirring up fears of re-ignition of trade row. The articulator of trade war, United States, has definitely benefited from higher tariff collection however in longer run its only going to harm them, and this is clearly evident from the lower sales forecast by Apple Inc. Trump has also started to realise it & he is been quite vocal now in his tweets, that maybe a deal with China is coming. He better do it because in our opinion, world cannot afford slowdown in the two global economies.
Under such circumstances and with the falling US indices, one thing is sure; FED will go slow on the rate hikes. Best outcome would be a prolong pause after maybe 25 to 50 bps hike; and we assign a very high probability to this. Therefore the upcoming FOMC meet on Dec 18-19 will be very important.
Domestic Snapshot:
The beauty of doing nothing is that you can do it perfectly. Only when you do something its almost impossible to do it without mistakes.
Words used by many known financial market personalities that appear on TV:
Cautiously optimistic
Selectively buy on dips
Bottoms up Approach
Margin of Safety
Intrinsic Value
Value Investing
Sector Agnostic......and Finally
Having said that
What should one infer???
Last fortnight threw lot of surprises
- In a shocking development, the rift between RBI and Government of India ended with the resignation of RBI governor Mr. Urjit Patel. It came just one day prior to the 5 State election results. While lot of them knew that this was coming, the timing was surprising.
- Immediately the next shocker was loss of BJP in all the 5 states. While market had given high probability to such an outcome, we had a hope of victory in MP. Anyways the important question is why than 5% rally post such negative developments? Negative for sure, but in our opinion what markets hates most is uncertainty and that seems to be off for next couple of months now.
In last one month we had been attending a lot of financial events and seminars, and learnt that many fund managers were sceptic about the chance of weak coalition government at the Centre. In our view with the kind of state election results, clearly other than BJP or Congress, the smaller ones like BSP etc had no role at all. So the fear about weak coalition government at the centre is kind of gone. We may have BJP / Congress whomsoever with support, but majority. Also there was growing discontent with the current government that larger public distress and views went unheard especially of the lower strata of the economy and with the current loss this will be taken care is what we guess. So goodies for farmers and medium and small enterprises is coming for sure.
Now with resignation of Urjit Patel the autonomy of RBI is in question. But in the present world a lot of Government in various countries, including USA has been pressuring the FED, though it may not be good, but people gave verdict even before the event i.e. appointment of new RBI governor. Also one must remember that on appointment of Mr. Urjit Patel; most of the people had similar opinion. Mr. Shaktikant Das the new RBI governor has resumed since 12-12-2018 and in our opinion is also a capable person needless to say accommodative figure.
Post the BJP loss in the Rajasthan, MP and Chhattisgarh, the fear is that the present Government may adopt populist measures, mainly to attract farmer’s votes. This may be true and we would have been really worried if that would to happen at 85$ per barrel of brent crude level but at 60-65$ , it seems market will not be very worried if such measures are adopted within the fiscal deficit lakshmanrekha of 3.3%
In-fact one should start looking at agriculture related stocks (we would prefer large caps here.) Though markets have bounced but one must take cognizance of the global markets correction, and history has suggested that we have sooner or later aped the falling US indices.....at best we should stay in range this time.
- CA JAYESH GANDHI
Disclaimer: This is an informative document and opinions expressed in it are our own and not any advice. We are certified investment advisors but not SEBI registered. We are AMFI registered MUTUAL FUNDS DISTRIBUTOR.
