Fortnightly Market View: Stand Aside

Sometimes it’s good to do nothing, especially when the bulls charge ahead mindlessly

In the previous issue, I had suggested that a medium-term top on the Sensex is in place. I have been saying—for a while now—that a short-term top and also a medium-term top would be around 18,300 on the Sensex. Around that level, time and price were coinciding to create possible selling pressures. The bulls had been steadily pushing ahead for a long time, buying the dips, but were unable to break the 18,300 barrier; it was time for the market to take a pause. But markets are unpredictable; they do what they want to and so, often, we have to be open to being wrong.

With this in mind, I had suggested scenario-B. I had said that if the Sensex crosses 18,300, we are in for an extended rally right up to 19,000 driven by global liquidity that would defy all logic. On Thursday, 19th August, the Sensex jumped over 18,300 and never looked back. We have entered scenario-B when markets push ahead; never mind the fundamentals.

From a low of 15,960 it hit on 25th May, the Sensex has rallied by 2,500 points already. This is a long stretch of rally and is unusual at this stage of a bull market. It has been three months of rally without any meaningful correction after 15 months of price rise between March 2009 and May 2010. The market usually goes through a violent and substantial correction towards the end of such a long and continuous rally. We have seen this in 2004, 2006 and and in 2007. So, I suggest don’t jump in; even though there is every possibility of the Sensex running away towards 19,000. There is simply no need to take part in the rally at this stage. Certainly not in the large-cap, blue-chip stocks which are not cheap. There are many cheap small stocks which we try to identify and write about in our Street Beat section. But blue-chips are expensive.

Indeed, the June-quarter results of a large number of companies show that many are suffering from a slowdown. Institutional investors have decided to ignore this in the hope that the June quarter was an aberration and growth would be robust over the next three quarters. It may be; but this growth is already priced in. There is no surprise left. The surprise would be if growth falters.

As I said the last time: the market may go up further but prudence dictates that you book profits now. I repeat: if it does go up still further, risk would have only increased for meagre returns. That still holds. In the previous issue, I had suggested that medium-term trend was down. I was too early and wrong. We are changing this to neutral. The long-term trend, of course, remains up.

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COMMENTS

sanjay chudgar

7 years ago

very nice article
i m really convinced with the authors conclusions

IRDA fines LIC, HDFC Standard for missing rural obligation

New Delhi: The Insurance Regulatory & Development Authority (IRDA) has imposed a penalty of Rs5 lakh each on two life insurers — state-run Life Insurance Corporation (LIC) and HDFC Life Insurance — for failing to meet rural and social sector obligation in 2008-09, reports PTI.

IRDA has imposed a fine on LIC and HDFC Standard Life Insurance for non-compliance under the rural sector target during 2008-09, finance minister Pranab Mukherjee told the Lok Sabha.

Against the target of 25%, LIC missed it by a whisker and could only underwrite 24.27% of policies in the rural sector, he said.

At the same time, HDFC Standard Life achieved just 12.85% against the target of 19%, he said.

"As per the Insurance Regulatory and Development Authority (Obligation of Insurers to Rural or Social Sectors) Regulations, 2002 as amended in 2007, insurance companies are required to achieve the prescribed percentage of their policies in case of life insurers and of premium income in case of non-life insurers in the rural sector in the respective year of their operations in India," he said.

To another question, minister of state for finance Namo Narain Meena said the public sector general insurance companies have been incurring health insurance claims in excess of premium received and after factoring in acquisition costs, which are around 10%, and the management expenses which are over 25%, the combined ratio that is the total expenses for health portfolio exceed 140% of the premium income.

In an effort to rationalise the health insurance portfolio and provide health care at an affordable cost and at the same time help the insurer control increasing cost of health care, the public sector general insurance companies have initiated the process to create a Preferred Provider Network (PPN) of hospitals in fours cities, he said.

Theses cities include Delhi, Mumbai, Chennai and Bangalore. At present the PPN includes a network of 449 hospitals (Delhi-163, Mumbai-121, Chennai-84 and Bangalore 81) and more hospitals are joining the network, he added.

Replying to another question, Mr Meena said the airline industry has been pointing out to the government the constraints that are being faced by them.

The Indian Banks' Association (IBA) has taken up the matter with the Reserve Bank of India (RBI), he said.

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Govt proposes to introduce DIN from July next year

New Delhi: The government proposes to allot an identification number, which would be quoted on every income-tax (I-T) related communication, from July one next year, reports PTI.

"The government proposes to allot the Document Identification Number (DIN)...an income tax authority is required to allot a computer generated DIN on or after 1 July, 2011, before issue of every notice, order, letter or any correspondence to any other income tax authority or assessee," minister of state for finance S S Palanimanickam informed the Lok Sabha in a written reply.

It also provides that every document, letter, correspondence received by an income tax authority or on behalf of such an authority should be accepted only after allotting and quoting of a computer-generated DIN.

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