Market short term outlook:-The markets may plunge further in monday in the morning as credit risk is increasing in the US.On thursday Thornburg Mortgage, a little known lender outside the US, could not meet $28 million margin call from JPMorgan Chase.The stock fell badly,which set off a cat among the financial pigeons, sending the Dow and nasdaq down.Its completely panic selling which has emegerd after a long gap of time.Everybody is rushing to exit stocks to opt them again at lower levels.All said and done valuations have become very attractive and scrip suggested by me on my previous notes offers a brilliant oppurtuinty to buy them at this mouth watering levels.
Technical point of view:-By closing at 15975 on friday, the Sensex had broken the closing low of 16457 seen on February 11. Though the Sensex is still higher than the intraday level of 15332 seen on January 22, 2007, it is the lowest closing since 20th September 2007. More important than the 15332,the sensex closed below 16100 on friday.It broke the trend line that the Sensex has honoured since 2003.
Banking sector analysis in a nutshell:-The answering of a question asked in Rajya Sabha on ICICI Bank, the countrys second largest lender, drove home the point that even if you are not dabbling in the US sub-prime debt, you can still be singed, with whats happening with the US economy. Therefore, it is more disturbing. Whats happened with ICICI can happen with other banks too with international exposure. As a result, some of the banks are likely to be painted with tainted brush for some time till they come out clean.Avoid the banking stocks for the moment.
Lets look at how india may shape up in the coming years:-Global paucity of real investment growth for geo-political reasons will continue to lead to liquidity reflating all asset classes. Thus, capital will continue to seek real growth and entrepreneurship in countries like India. The following secular undercurrents will help India override cyclical pressures.
Domestic natural gas:Gas supply could increase ~2.5x by '10 and shave off ~$5-10 billion from the import bill.Software exports could fetch ~$9 billion in '08, easing the pressure on current account deficit.The capital account may remain robust with strong FDI, ECBs, and NRI deposits. Complete transformation of India-scape '09+: Initiatives for infrastructure creation are morphing the larger economic environment. There is a build-up in infrastructure with changes in installed capacity, which will not only boost industry's efficiency, but also provide a global scale of operations.
Consumption story: According to a McKinsey report, household disposable incomes will treble and aggregate consumption will quadruple over the next two decades, making India one of the largest consumer markets in the world. Income growth at 80% will be the biggest consumption driver for India. But companies will have to become more volume-driven to offset competition.
Marginal producers may under-perform in a challenging environment. So, increasing M&A opportunities are likely. The real challenge for India Inc lies in the fact that companies will have to shift from merely managing scalability to managing the global industry environment itself.
So,even while the environment remains challenging in the near term, growth necessitates end of domestic tightening cycle, and secular trends continue to override cyclical concerns.
