Market Notes 02.06.24
Elections and Beyond. Stocks that Matter.
Disclaimer
Nothing you read here, should be construed as investment advice. I do not know your circumstance and so please treat the below as nothing more than what my thoughts are, which are subject to change without notice. Please do your own work and consult your own financial advisor. We may own positions in all stocks, sectors and indices discussed and can exit them without notice. You will very likely lose money if you use any information in this post without your own due-diligence.
Indian Markets.
There has been a one point agenda as far as the markets have been concerned over the last couple of months: The Election Outcome.
We are in the 49th over now and in a couple of days the match should be over. I do not want to speculate on the exit polls numbers but the market as a whole has been very clearly believing that the current dispensation is going to continue. The exit polls just confirm that.
From a market point of view, 272 or 300 or 350 or 400 is not very different for the overall long term trend. In the short term of course these numbers will have reasonably significant ramifications. Obviously anything below 272 should have ramifications for the long term trends.
The valuations are already fairly rich for the “stocks that matter” and are likely to get richer. Anyone reading this blog for a while will know which stocks or sectors matter to the market right now. I have been harping on it almost in every post for the last year or so. This is a new cycle led by a new group of stocks which are in turn led by what the government has been doing. The sooner one realized it the better.
Why are the valuation only going to get richer?
A lot of money has been on the sidelines and an even bigger amount of money has been in the legacy stocks i.e. private banks and consumption. If the exit poll results “convert” into real results then expect a lot of both of these categories to start flowing into sectors like defence, railways, infrastructure, manufacturing, power, capex, renewables and so on. Call it a full blown FOMO if you will.
Obviously the question is what should we as investors do?
If you are already invested into these sectors, sit on the sidelines - don’t get into FOMO.
If you are not invested in these sectors, take an incremental investing approach - don’t get into FOMO. What is an incremental approach? It is to enter like how you would enter a cold shower, one body part at a time. Get in 20-25% of the desired allocation now and for the rest define some periodicity. If there is a correction in the interim you can front load the investments. However don’t expect a COVID like correction. Those happen once or twice in a decade. A 5-10% correction is often a good time to allocate and these come more often than we think. We just had a couple of them, one in March and one in May.
Unless one is coming in with a three-five year outlook and is not bothered by short to medium term performance, the risk-reward on an immediate basis for getting into these sectors is probably not great, especially if there is euphoria and fomo by other market participants. If there is no euphoria then one can ease into it these opportunities much better.
All of this is true if the exit poll numbers convert on June 4th - the D Day.
Global Markets.
Global markets are what will again rule the roost once the election event is behind us. However unlike before FIIs have not proved to be that important to our markets incrementally, thanks to the robust domestic flows.
The confusion around inflation continues. Fed is either confused itself or is trying to confuse markets. Their commentary is changing every quarter from dovish to not dovish. However i strongly believe that the global markets are better off at 4.5% yield than at 0% yield. Now we know that if a crisis comes Fed has the tools to step in. If a crisis came at 0% yield we would be left on the mercy of the Fed to invent new tools to spur the markets.
US market as a whole is not going anywhere, except for Nvidia. That one stock is just about holding the whole market together. If the AI theme had not come about - the tech stocks would have remained in deep slumber that they went into in 2022. No major new themes are emerging in the US market right now - it remains a wait and watch choppy phase for the US markets, especially big tech.
Earnings Digest.
Disclaimer
Nothing you read here, should be construed as investment advice. I do not know your circumstance and so please treat the below as nothing more than what my thoughts are, which are subject to change without notice. Please do your own work and consult your own financial advisor. We may own positions in all stocks, sectors and indices discussed and can exit them without notice. You will very likely lose money if you use any information in this post without your own due-diligence.
This was a reasonably good quarter in terms of earnings. Not much disappointments but valuations and an extremely good last year meant not much incremental alpha left on the table except in a few cases. Also Q4 is generally one of the most respected quarters by the market as the results are audited and most “adjustments” done in first three quarters are set right in the Q4 numbers.
A partial list of names which caught my eye this quarter:
Jupiter Wagons
GRSE
Kaynes
BBL
HAL
BEL
Balkrishna Industries
Vesuvius
Kirloskar Oil
Uno Minda
Motherson
Texmaco Rail
Of course this is just a partial list. There were many more names which did really well in term of earnings. Like i say every time, these are not recommendations but just examples for you to analyse.
Conclusion.
We are in a new bull market with new sectors leading the market.
The bull market has been progressing since the last couple of years.
The new sectors are driven by government policies.
If the same policies continue, expect the bull market the continue.
Position your portfolios for the same.
If you haven’t yet - don’t get into FOMO. Start with some and add opportunistically whenever opportunities arise. When you define opportunities, don’t be unreasonable.
Let’s hope for the continued growth of our country, our economy and our markets. And of course of the market participants and their portfolios :)
Thank you for reading.
Excellent.. Thanks for your valuable insights.
Very well articulated!