An excuse to sell!

A second default by Argentina in 13 years led to a sell-off in US markets over night and a 400 points cut in the Sensex! The rupee depreciated to a level of 61.18 down 63 paisa from its earlier closing and the Nifty dipped below 7600 and recovered marginally to close at 7602 down 118 points.  Global concerns once again take centre stage in the minds of investors!

At the time of the first default in 2001 Argentina’s unemployment reached more than 20%, what followed was extreme upheaval, the government stopped payment on more than $100 billion in debt, the world’s largest sovereign default!  Post this the country went into its worst recession in history.  Now 13 years later things are not as bad, economists predict that there will be pressure on the country to get out of this quickly.  The biggest impact is being felt by Hedge funds who hold Argentine debt but there is a global impact as well.  US markets have been trading at 17 times their earnings over the past 12 years higher than their ten year average and this sell-off in the US markets will only help restore the equilibrium.  Things are still fluid in Argentine, banks are still discussing with the owners of the Argentine debt, there are efforts underway to buy the defaulted debt, paving the way for a resumption of payments.

But there are other problems facing markets.  The situation in Russia and how the sanctions against them could hurt global economy are also playing on investors’ minds.  Sanctions against Russia will have implications that will hurt business across… a case in point is Adidas, the shares traded down 15% and Lufthansa which was down 7%.

The sooner than expected Fed tapering in October is also being viewed with trepidation against the back-drop of concerns in the European territory.

For Indian markets the implication of WTO not reaching a deal are yet to be quantified.  The World Trade Organisation deal to standardize custom rules would have been the first global trade reform in two decades but was blocked by India’s demands for concessions on agricultural stockpiling.  The deal according to some estimates would add $1 trillion and 21 million jobs to the world economy,

Thus the first day of the August series was provided with an excuse to sell!  The FII flows have been negative for the past couple of days.  Markets rallied to a new high on 25th July 2014, and there seems to a feeling of a slight fatigue setting in.  First quarter numbers have been a mixed bag.  For several sectors especially capital goods and infra the run up in stock prices seems to be way ahead of earnings.  Mid cap IT has been surprisingly weak. Banks have been good by and large, and several individual mid-cap stocks have put in a good performance. Autos have clearly demonstrated that the good sales numbers are here to stay.  So there are green shoots but some disappointments as well.

RBI policy early next week is also awaited, it will be the first after the new government was sworn in.

There seems to be some amount of shifting and adjusting happening across stocks.  It is no longer an easy market to trade.  Whether it is large caps or mid caps direction seems a little all over the place, prices have run up and profit booking is making predicting future direction a little unclear.

It is one of those times when you need to take stock of what you have and where you want to be.  Sensex is trading at that 17.8 PE level which is very much in the range, and still not reflecting a bull market PE, but not at a level where you could go and buy with absolute confidence.

My advice is to ride it, keep the stock list ready, wait for falls and watch the levels and get ready to add stocks.  The market is giving you a window to invest, use it!  A couple of quarters down the year things could change positively for a lot of sectors.  After such a big run-up some amount of profit booking and correction is warranted, don’t let it scare you though.  Keep the faith and invest in good ideas and stocks!

 

 

 

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