Tis the season to be jolly...

Indeed, Xmas has come early to Indian markets, where there was a broad based recovery from recent lows of 4750 odd....a neat 300-350pt rally. You know which stocks made me money during this recent spurt? Boring staid names like ONGC, NTPC, Cipla, Coal India....yes. Giving annualised returns between 44% (COAL) to 492% (ONGC)!! Moral of the story: We do not have to re invent the wheel. I found comfort in these counters fundamentally knowing fully well that while I may not catch the bottom, I know I have picked quality stocks which will stand by me in the long run....so that is what they did.

I believe we are in the last phase of the bear market which tends to be very painful. But this is a mutated phase in the sense that it wont last that usual 4 months...may take 2-3 quarters...and this will wear people out. Everyone would have quit equities for sure by then.

Globally, after the concerted central bank efforts and recently announced austerity measures, bond yields came off, and European equity markets rallied smartly. As of now, US treasury seems to be better off, with lower credit risk, of course, with governments going bankrupt, the credit risk aspect still hangs, however remote. So your Kd has an increasing component of that.

The flip side is S&P warning of a Eurozone downgrade, questions on sustainability of US unemployment data.

Rates are being cut across the world...be it China or Australia. When would RBI blink is the question. Historically markets have rallied whenever there has been a rate cut. So have our markets rallied in anticipation? Or the rise is more due to global cues and the December effect? All said and done, if the rupee continues to weaken, somewhere our market returns plus rupee effect should look terribly attractive to a FII.

Gold story seems to be over for the time being. Back home M&M planning to double XUV500's capacity and Hindalco planning to double is capacity may very well be the first signs of capex cycle picking up.

What do we do till then? I would still allocate a larger part to debt to lock in those fantastic yields domestically. I may be a tad wary of FMPs, but some corporate bond issues look juicy (rates are upfront unlike FMP, despite the tax disadvantage), and for liquidity hungry investors, UST and Liquid still pack a punch. Equities would largely be family jewels like Unilever, ITC, Exide, Infosys, HDFC Bank, RIL and the names I mentioned above. Play a larger allocation towards defensives and lock in a few growth stories. Rebalancing can be done on greater clarity.

What can Eurozone do?

The Europe situation remains worrisome. Why am I focusing on this issue? Because this will determine the long term trend of our markets. Europe can not mend itself. USA looks like an angel compared to the European crisis. Greece is a foregone conclusion and people are now contemplating minimal damage there (orderly default). Italy and Spain pose new issues. So what now? Austerity measures are not easy to implement...but are necessary...if only as a starting point. So will years of excesses be corrected in a hurry? I think not. Growth stimulus will not work. Europeans have to swallow the bitter pill that things will not change in a hurry and they are looking at at least two years of pain.

On to the US, things are better, so lets keep it at that. Back home? Flirting with all time lows. Now the time correction has worn people out. Like I mentioned in my previous posts, this cyclical rally may only frustrate people. Also a time of tremendous opportunity. Select companies with self sufficient business models which can do well in the long run are available at dirt cheap valuations. If one has the capacity to hold on for an extended time correction, this is a stock pickers paradise. Consumption themes, esp in organised retail and consumer durables still has not died. While I see no immediate trigger for structural plays like capital goods and construction, I do also understand my limitation to time these counters and have picked them some winners for the long term, assuming if and when the turnaround happens, I may not be able to get them at these values.

I would not pick up expensive defensives right now, its like not being a stock picker and just being safe. I would rather pick another asset class then. Alpha seeking could be done in Tata Motors, Pantaloon Retail, Lovable Lingerie, Exide Industries, Axis Bank, BoB etc.