The Pain Continues....

The pain continueth....as they say! 2011 has been a difficult year, with what everyone expected but did not really want to believe, that the world would collapse.

Lets face it, the developed world, like it or not, has collapsed. It is time for soul searching. What went wrong in Europe (PIGS) and USA? Living beyond means? Not having enough "real" assets to back paper stuff? We can dwell into the depths of what happened but it all boils down simply to this!

India in the past has grown despite the political and business setup and not because of it. The same may continue...even now our economy has the pizzazz to deliver 7.5% growth. I will take that anyday over sub 3% global growth....any friggin day! The consumption theme may fizzle out now, given the fact that there has been a concerted effort by the Reserve Bank of India to hike rates. Its bloody expensive to buy anything on credit now and the retail guy along with the SME will suffer most. This is delaying the capex cycle more than slowing consumption but eh...the transmission effect takes time. Also we have to factor in the rural economy which is largely cash based and the underground economy as well!

So what is in store for the markets? I am afraid six more months of sideways movement...some day gains here and there, probably an astute trader can make money during this time frame. But for us fundamental investors, time to shop, keep a 3 yr horizon, chances are that you will not regret buying during this phase!

More to go

Interesting point where we stand in today's market. Domestic triggers seem positive with a healthy saving rate, positive cues from the government about oil deregulation and disinvestment, strong balance sheets of good quality companies. We seem ready for the next phase of growth. Of course, caution is needed considering that the global economy is still struggling to find its feet with a major part of Europe to report GDP de-growth.

Oil demand has now fundamentally shifted to newer participants like Asia and China/India will lead demand once the economy properly recovers. Oil can be range bound between $60-$70 till such time. Exploration activity has shown signs of picking up but early days yet.

Valuations have undergone a dramatic shift across sectors, particularly for mid caps. Analysts are at a loss to justify fresh buys and mostly are going with the flow for the moment. Since markets have not stabilised and we are still in the transition phase, it becomes difficult to assign relative valuation measures to stocks. It becomes additionally difficult as global companies can not be strictly compared with domestic peers due to different growth and operational parameters.

Where will markets take us now? India is not totally decoupled from the world so I really do not know how much of that euphoria can translate into actual demand. Sentiment has given us a breather for the time being with desperate FIIs pumping in money and enhancing liquidity. Mid caps suddenly seem to be back in flavour and lot of bulk deals in the market seem to accentuate that.

On a different note, here is my take on why the Congress led UPA won:

1. When urban India was facing the heat from global recession rural India was shining thanks to loan waivers, employment guarantee programs, minimum price support etc. Rural voter turnout is higher than urban so they voted across caste lines and massively for the Congress
2. Rahul Gandhi campaigned extensively and reached out to the masses. He got a lot of grassroot support, something which the BJP missed
3. BJP went too right wing for the moderate Indian citizen’s liking. With Varun & Modi campaigning, they realized with these guys in power it would be a talibanised version of India.
4. Pro incumbency wave in emerging nations, this trend has continued in India as well