Investment Note, Nov 2013


The New Index highs actually seems like the early phase of a new Bull Run

This is an environment where the Indian economy looks sluggish, interest rates and inflation are not coming down. At the same time, the indices are up to the new highs.

Poll: The recent Diwali surge to highs did take people by surprise. A Poll was conducted on this website with the question: As on Oct 8th, with  Sensex at 19,998 and Nifty 5,931, will the Indices rise or fall by Diwali? The results:

A Poll conducted by JainMatrix Investments

A Poll conducted by JainMatrix Investments

In fact the Sensex rose by over 6% to highs by Diwali, before the recent profit booking related fall. It looks like a lot of people got it right, but I noticed that in the first 2 weeks, the mood was very bearish, before recovering.

Outlook: The current surge is driven by the FIIs who seem to prefer India at this stage. In addition, the second half of the year looks better because of:

  1. Effect of good rainfall this year
  2. Stability in banking sector and interest rates, due to RBI actions
  3. Recent Rupee stability against the USD
  4. The Q2FY14 results have been fairly good and held up well.
  5. Certainly the new high of Sensex and Nifty have been achieved at fair valuations, with the Price Earnings of the Nifty stocks at 17.8 times, below a 10 year average of 18.7 times. (NSE data)

As a leading indicator, the market may be telling us not just that it is happy about Diwali, but that the year ahead looks better.

Going forward, the outlook for the exports (particularly IT software), banking and domestic consumption sectors are good. Infrastructure may show a slow recovery.

JainMatrix Investments is pleased to present paying subscribers the Nov update on the JainMatrix Large Cap Portfolio 2013. And the Dec update of the Mid/Small Cap Portfolio 2013. 

While in the near term post Diwali there may be some profit booking, we expect stability and recovery of Indices post that. The Mid and Small cap shares have also exhibited some recovery from beaten down levels. The Indian Retail investor is still wary and yet to enter the market in a big way. This may be an early phase of a bull run.

Risks: The risk factors that we need to watch out for are:

  1. Rising inflation. RBI is quite focussed on this, but how long before we see improvement is unknown.
  2. Fed taper of quantitative easing program, and consequent ‘hot money’ movement back to USA.
  3. Election year populist measures and government fiscal slippages.
  4. Elections start in Nov-Dec 2013 as 5 states of  Chhattisgarh, MP, Mizoram, Rajasthan and Delhi go to Polls. These can be a preview to the 2014 National and other State elections. All these can affect investor sentiment.

The JainMatrix Large Cap Portfolio 2013 captures some of these variables and suggests a long term investment portfolio. The Mid/Small Cap Portfolio 2013 looks at more stock specific investment opportunities.  



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