| This indicator shows that a 30% fall is coming If historical trends are any indication, then the current stock market rally that started in March 2009, has perhaps run up too much and too fast. 07 Jan 2010 chart of the day helps put this in proper light. If one were to consider stock market rallies on the Sensex since 1993, then no other rally has run up so much in such a short time as the current rally. It should be noted that a rally is defined as a move of 20% or more without being interrupted by a correction of 20%. Thus, if the current rally has to find a place along the trend line in the chart, the stock markets will have to undergo some degree of correction in the short term. It should be noted that a correction of 30% from the current levels should place the current rally nicely along the trend line. Alternatively, if the markets go nowhere for the next 7-8 months, the current rally will again tend to fall in line with the trend line. Either ways, this is not good news for stock market investors wanting to invest at the current juncture. However, investors take this chart as a gospel truth at their own risk! It is just a technical study after all and has completely ignored fundamentals. Speaking of fundamentals, if the correction does indeed happen in the short term, it will be a good opportunity for long term investors to invest and hence, capitalize on the long term India growth story.
It is well known that the argument before we entered 2010 was whether we are staring at a deflation or an inflation caused by money printing by central banks. Barely a few days into 2010 and we are getting some sort of signals from the way copper prices are behaving. However, a short-term movement in copper prices could also be because of some other factors. Thus, we may have to wait for the trend to sustain itself for some more time. However, the buzz around rising inflation is getting hard to dismiss. In India too, investors seem to be warming up to commodity producing companies. Quite a few steelmakers have seen their prices spike in the past few trading sessions. Same is the case with producers of non-ferrous metals. Are we seeing sector leadership changing hands here? Well, only time will tell.
In an interview with Mint, Mr. Munjal has raised concerns over rising prices of key inputs like steel and rubber. But he clarifies that this does not come as a surprise to the company. As he says, "We knew that commodity prices had bottomed out and they had to head up. But I don't believe they will go through the kinds of level they had gone through earlier." Our view on commodity prices remains positive for the next few years. With more than 2 billion people from China and India aspiring to live life like an average American, demand may not be a problem for years to come. Furthermore, the recent financial crisis has meant that companies have been wary of investing in new capacities, thus constraining supply in the medium term. Thus, when the demand moves up and supply fails to keep pace, there is only one direction the prices can go. And that is - up. Consuming companies like Hero Honda might not want this to happen anyways!
The survey covered 19 different consumer technologies, including smart phones, high-definition television sets and computers. Global consumer electronics companies are seeing the immense growth potential that emerging markets like India hold. Little wonder then that they want to set shop in the country. And the buoyancy means that domestic players also get the opportunity to do brisk business. So agricultural production may have been hampered. Food prices may have risen. But that has not deterred the average Indian from splurging on consumer durables.
Mr. Biggs wonders if such a situation can arise in the developed world too. Can the US, Europe or Japan face social unrest stemming from economic collapse? After all, there have been such situations earlier. However, never has it been so difficult to implement the rule of law in these countries as now. He believes there is still a 1 in 10 chance of a complete chaos in countries like the US. Interestingly, if that were to happen the best option would be to own a farm. Away from the large cities. And stock it with lots of food supplies and even some ammunition. It sounds surprising isn't it? Perhaps it's a reflection of the public mood there. Of course, here is India we seem to viewing a completely different horizon.
Patience & politeness are a reflection of a person's inner strength.  A S R Pratap |
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