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Archive for May, 2014

Back into Bull Mode

It has been a long time, a really long time. This May, after so many years of either sitting on the sidelines or occasional rangebound trading, I felt like the bull I was during the time of my blooding into the stock market. It was a moment when I reviewed my entire portfolio and felt that in spite of the recent gains there was only one way, up. After years I feel hope; and the market echoes my sentiment.

The reason I am so bullish on the new government is that unlike the previous one which took no decisions, this one is almost sure to be decisive. The previous government either took no decisions or took terrible ones with major scams unearthed quarter after quarter. The sense of relief on its departure itself is so great that I can’t see a resumption of the bear market under any condition. As I expect the government to do positive work with focus on the essential old economy sectors, I feel that we are going to have a secular multi-year bull run. Retail investors should make use of the first dip they get. They are unlikely to get many.

Current market conditions

The Sensex has been rallying for some time. The Sensex has been rallying since Autumn 2013 but as its composition is heavily skewed and is not really a good indication of the market as a whole, I viewed the rise of the Sensex with cynicism. Only now, in May with the sectoral laggards in large cap, midcap and small cap indices finally moving decisively, we can say that we are in a secular bull market. In the past few trading sessions, we have finally seen midcaps and small caps tying with large caps on percentage gains. The market is green across the board. Selling on news happened only to a limited extent on result day with the Sensex paring down gains as the day went on. We are no longer seeing buying on news. We are seeing buying on expectations.

BSE midcap finally cathes up

S&P BSE midcap finally catches up

As is clear from the chart, the Sensex (green line) has considerably outperformed the BSE midcap and it is only in May that the midcaps have begun to outperform.

Around 10th of May, when I was wondering whether to book profits before the elections, a look at non IT, pharma, FMCG,auto and financial part of the portfolio clearly demonstrated that the profits existed only in those sectors that I just excluded. Elsewhere, multi-year losses were only being partially recuperated.  The stocks in manufacturing, energy, infrastructure, engineering, metals were finally looking alive but they did not seem like star athletes. That has now changed with the rise of these stocks being meteoric in the last few sessions.

A Pause?

However, the market’s movement in the afternoon today (26th May) suggests a pause or partial rollback of the action. The Sensex ended flat but in the green but prominent midcap indices were all down. This is more significant considering the fact that these indices were significantly up in the morning. Many stocks reversed 5% upmoves to end 5% down. This is a likely signal for the profit taking that many of us bulls have been waiting for. We may still see the change of leadership baton to the large caps which could take the rally further but it is more likely that we will see the Sensex and Nifty consolidate or move downwards. Even if the large caps do make a move, it is not going to be a large one. The bull market needs either a price correction or a sideways consolidation phase in order to create strong support levels for stocks to rally from.

 

Todays's steep afternoon drop

Todays’s steep afternoon drop

2014: The Year BJP Became a National Party And The Gandhi Empire Crumbled

A Watershed

Yesterday, on 16th May, I became aware that I was witnessing history unfolding before my eyes. Over time, people will realize the importance of this day even more than in the heated moment of today as this revolutionary result gets silhouetted against an entire skyline of similar election verdicts. The story is more remarkable than mere statistics.

Statistically, this is the first time that a single party has won a majority in Parliament in 30 years. It is the first time that the erstwhile single largest party has been reduced to double digits.

Hindu Party to National party

The BJP has been known as  one of two prominent national parties for some time but its detractors and opponents always smirked at the ‘national’. Though it raised national issues,the ideological baggage of ‘Hindutva’ and the fact that this was the only major difference the common voter saw in this ‘party with a difference’ ensured it was mainly a party with support base and cadre belonging to the Hindi heartland. Its domain was the north and the west of the country with an almost total reliance on alliance partners for any seats elsewhere. This automatically meant it could only come to power only with the aid of other parties and thus made it a weaker power. It was heavily reliant on only a few traditionally strong states on its quest for power. The Congress, on the other hand, due to its legacy had a national appeal and so, always polled at least a minimum number of votes everywhere.

How, incredibly this has changed in this election! For the first time, it has won seats and polled votes everywhere in the country. From 18.8% to 31% it has made a massive jump. It has polled respectable votes in almost every Indian state including the South, North-east, East, far north on its own.  From Andaman & Nicobar to Assam and Arunachal Pradesh to Jammu and Kashmir to Tamil Nadu and Andhra Pradesh in the South, the BJP has conquered new lands. For example, it won no seats in Kerala or Meghalaya or Manipur but had significant voteshares in these places.  (You can find details on the Election Commission’s website http://eciresults.nic.in/ It is surprisingly fast and informative ). This has historically never been the case.  Modi-wave or not, there has been an anti-Congress wave and undoubtedly this is testimony to the fact that the BJP has built up a cadre base in places where it did not exist earlier. Modi’s brilliant exposure of Gujarat’s development over the past decade has paid off and made him a development friendly figure whom people could identify their aspirations with.

I do wish though that Modi had talked more about sadbhavana regarding minorities in this election campaign. This has undermined the moral strength of his victor.

The End of The Gandhi Empire

I believe that if a history textbook were written 200 years later, the period from 1947 onwards would be treated as the Gandhi era(like the Gupta era or the Mughal era), a period when the country was ruled almost uninterruptedly by a single family with only sporadic challenges to its throne. Almost every university, welfare scheme, road, development project has the family name stamped across it. That imperial rule only now is truly threatened. Congress faces the threat of of major attrition to other political formations. Rahul Gandhi faces the risk of being treated by history similarly as the later Mauryas or the later Mughals, successors to the throne whom squandered their natural inheritance to the throne because they were lesser men than their ancestors.

An emphatic comeback by him is only possible through good performance in Congress ruled states like good performance in BJP ruled states helped the BJP romp home. The Congress’ traditional votebank that deserted it this time will come back to it only if something changes in the Congress. Otherwise, even if the the BJP government does terribly, they will still not gain from anti-incumbency. To use a military analogy from the First World war, the trench lines have been broken permanently.

Retreat into Annihilation

By reducing the Congress to 44 seats, less than a half century, BJP may think that it has decimated it. However, just like the BJP has taken so many years to gain support in new areas, the Congress will also take time to totally cede control of areas lost. The battle may be won by the enemy retreating but instead of celebrating, if the victorious army can pursue the retreating columns, it can turn a retreat into a rout and truly obliterate the enemy. The BJP has such an opportunity now. It has been voted into power by a populace truly believing in it. Not all the people who voted for Modi (the swing voters) really know what Modi is for, they only believe that he is better than the UPA government and concentrates on development.  They voted for him because he was better than a vacuum. Taking a leaf out of the textbooks of their incumbent governments in M.P, Gujarat and Chhatisgarh, the BJP has to ensure that the people vote for it as first choice next time because they like them and not because they dislike someone else. They will also,very importantly, need to win the faith of the Muslims and other minorities. That is still the only blip in their status as a national party but it is a major blip.

Narendra Modi has an enviable opportunity to deliver on his promises without the typical compromises and arm-twisting that happens in coalition politics. This also means that he has a tall order in front of him. He will have no excuse whatsoever for poor performance.

Challenges to This Beacon of Hope

The entire country is not like Gujarat which would always do reasonably well irrespective of government because of the irrepressible business acumen of the Gujarati. The country needs decisions to be taken fast, policies to be enacted faster, and implementation move from paper to the ground. It needs to increase efficiency and plug loopholes in the system. The utter collapse of manufacturing, power, mining, infrastructure, realty, engineering, capital goods by this disaster of a UPA government led to a systematic destruction of the capital markets, something which we have still not fully recovered for even on the bourses notwithstanding the sharp but narrow index rallies in recent times. (I shall write more about that in another piece. ) The country has to once again become an investment destination.

Perhaps an apt picture of the current state of destruction of the economy

I truly believe that India will do better in the coming decade because there could be nothing worse that the Congress rule of the past 5 years. It is an unprecedented nadir perpetrated by rulers who have shamelessly  stripped the country to its bones in its plunder. It is time to clothe the skeleton with flesh once again.

 Disclaimer: I do not blindly follow any political party