Monday, September 28, 2015

Is A Rate Hike Diabolical?

Reams have been written before today regarding the consequences of an increase in interest rate by the Fed.Although that has been kept in abeyance with the global situation, refugee crisis, China currency devaluation all playing their part, the tone of the meeting suggests a hike in rates in the USA sooner rather than later.

It may be as early as October 2015 or may be spread over November and December which begets the question,is an increase in rates actually such a disaster for emerging markets?

Well,for those with shaky currencies or too tight controls and dipping growth,read China,it may very much encourage a flight of capital.

Which brings us to India.The USDINR holding the 66-67 level gives a sense of stability amidst all the turmoil witnessed recently.The fall in crude is another huge positive.If the monsoon gives aparting kick to the central Indian plains then we can safely assume that rate hike or not the domestic consumption engine will pick up.

Secondly,does a move of 25bps and a rate of .5% tempt FIIs in a big enough manner that they stampede back to invest in US assets?

In fact an increase in rates by the Fed might prove providential for India.

(a)Asset prices in India which have gone up higher than fundamental levels will correct and begin a virtous  cycle that will encourage new buyers

(b)Monetary authorities have elbow room to maneuver in case of a new crisis,when rates near zero then there are not many tools for the Government policy to work

(c)A higher interest rate prompts internal savings,although consumption is necessary to kickstart growth,savings is an important part of National capital availability

Yes there will be a correction in stock markets in emerging countries including ours when rates rise but is that necessarily such a bad thing.The prices aligning with quarterly profits will see value emerge in the better managed companies.

Tuesday, September 8, 2015

Lessons From a Rollercoaster Market

The 24th of August 2015 will simply be called ‘Manic Monday’.Not since the fall of Lehman Bros and the subprime crisis of 2008 have markets seemed so roiled,edgy and ready to slip into chaos with the slightest breeze of bad news.

Records were set for biggest intraday reversal by the Dow,largest daily move and recovery,emerging markets currencies folded almost to levels last seem 7-8 years ago.Was there a method to the madness?Was it a one day blip in world markets?

We should not dismiss the events of that day and week as a mere sideshow.The fundamentals of markets across the World are without doubt fragile if not weak.Centrals Banks from the US to Japan have printed or are continuing to print currencies to prop up economies that leave them bereft of fundamentals.

This is leading to an exodus every time the data points come in weaker than expected and be it retail,HNI or FII investors rush to exit holdings leading to a vicious cycle that is not leaving even the companies with solid financials and a 3-5% cut in prices has now become common.50 out of the 50 nifty stocks were in the red on that Monday.

With the increasing presence of HFT and algo trading there is real fear that the Exchange systems are in danger of getting overwhelmed when the herd tries to stampede out all at the same time,although Indian exchange mechanisms have been robust so far.

Chinese authorities attempts to curb volatility in their markets seem to have left them exhausted,their ammunition almost spent.Curbing selling side,rate cuts,devaluating currency.What next?The palpable lack of trust by investors in such measures has not been reassuring.

You the investor needs to ask yourself if you have the trading capacity to swallow such volatile markets,enough liquidity to buy the value that will emerge in fundamentally sound companies an most importantly having the raw courage to hold on even when the value dips 15-20% from your buy value?

Go ahead only if you answer in the affirmative to all the above questions!Wishing you luck on the ‘Market’ rollercoaster!!

With the Fed set to take a decision on rate hike next week the markets will live on the edge despite many saying that a hike is already factored into the price.

India looks like its in the process of bottoming out and will look to domestic numbers from the second half of September.