Sensex Gains Momentum; IT Stocks Surge

Fri, 25 Nov 11:30 am

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After opening the day on a flat note, the Indian share markets registered gains and went on to trade on a positive note. Sectoral indices are trading in the green stocks in the information technology sector and metal sector witnessing maximum buying interest.

The BSE Sensex is trading up 243 points (up 1%) and the NSE Nifty is trading up 91 points (up 1.1%). The BSE Mid Cap index is trading up by 0.9%, while the BSE Small Cap index is trading up by 1.5%. The rupee is trading at 68.46 to the US$.

Global financial markets witnessed volatility during this week on the back of data releases and various announcements.

Most of the volatility was seen as speculation regarding an US interest rate hike by the Fed intensified. This came as data released during the week showed US home resales rose 2% in October to an annual rate of 5.6 million units. This was the highest level in more than 9 and a half years. The data pushed the dollar to its session highs and also sparked optimism regarding the US economy.

The above development, coupled with hopes for increased fiscal spending under Trump's presidency, has sparked optimism for an US interest rate hike by the Fed in December.

The US Fed kept interest rates unchanged in its Federal Open Market Committee (FOMC) meeting in November. However, the central bank has signaled a possible rate hike in the month of December as the economy picks up steam.

While, 14 of 17 Fed officials expect to raise rates before the end of this year, the outcome here will largely depend on how the US economy performs in the coming days.

In our view, a possible rate hike in December by the Fed will have no less an impact on Indian financial markets than it will have in the US. The hike, however small, will lead to a global change in the direction of interest rates. This could mean a pullback of cheap liquidity from emerging markets, including India.

We believe, investors must be prepared to witness increasing volatility in the stock markets. Apart from the above development, several domestic factors are likely to influence the course of Indian stock markets in the coming times. Our message to investors is to not fear volatility and uncertainty. Instead, use it to your advantage as increased volatility could throw up bargain buying opportunities.

In another news, the European Central Bank (ECB), in its Financial Stability Review warned for more volatility in the near future in global financial markets. As per the ECB, the risk of an abrupt global market correction has intensified on the back of widespread political uncertainty, posing a threat to banks, stability and economic growth.

The central bank's report stated that elevated geopolitical tensions and heightened political uncertainty amid busy electoral calendars in major advanced economies have the potential to reignite global risk aversion and to trigger a major confidence shock.

However, despite of the above warnings, the ECB assured that it will be able to continue shielding the euro area from the risk of a sudden correction in asset prices.

The case for the above uncertainty and volatility is this: Central banks across the world are trying to prod growth with the help of stimulus measures and near-zero or negative interest rates. This is seen because many nations today are struggling through a period of low to no growth. The reasons are many - ranging from central bank policy measures to deleveraging and demographics. The average consumer is saddled with large debts and is looking to pay them off. This means a lower outlook for growth. This low growth scenario is one of the reasons for all the scrutiny over interest rates.

The global economic system is a giant Ponzi scheme needing more debt at the base to support the apex. The cracks of this Ponzi scheme are starting to appear: European banks, US corporate defaults, a realisation that negative rates are not working, earnings downgrades in the US... The system is so unstable it may only take the flap of a black swan's wing to send it all crashing down.

If you're interested in knowing what's really happening in the world of man and money, you can claim your free copy of Bill Bonner's latest book, Hormegeddon (just pay Rs 199 for shipping and handling).

However, we believe that it would be unwise to hit the panic button just because of these developments. While the volatility led by above developments will impact Indian stock markets, there will be businesses in India that will continue to do well. And that would create shareholder wealth in the long term when invested in at right levels. So our message to all value investors is this: Focus on the business fundamentals, and use short term corrections due to global economic events to add such businesses to your portfolio.

In fact, we are keeping a close watch and will use any crash opportunity such as above to recommend great businesses that look good but do not allow action due to valuation concerns. Meanwhile, you take care at your end to stay clear of profit killers, irrespective of how tempting the valuations look.

While we are on the topic, Asad Dossani at Daily Profit Hunter has recently come up with a successful trading strategy that can be highly profitable during these volatile times. You see, Asad has been working on a new trading strategy for months. One that fits the three criteria for trading success. As per Asad, trading is possibly the best secondary income you can find. If you're interested to know more about this strategy, you can learn more about the same here.

On the news from domestic markets, the Jan Dhan Yojana was touted to be a big success story with there now being 250 m Jan Dhan accounts across the country. Now, little did the Government know that it is these very accounts that could be used to work around arguably the biggest financial drive since independence.

With people resorting to innovative ways to prevent their cash from turning trash, the Jan Dhan accounts have been like a godsend. The modus operandi works something like this. Grab hold of a Jan Dhan account holder and deposit the maximum allowable limit of Rs 50,000 only to take it back few months later in exchange for a small fee. Is it any wonder that in the fortnight since demonetization Jan Dhan bank account deposits have swelled a massive Rs 21,000 crores? This is almost 30 times higher than the cumulative amount that was lying in these accounts before demonetization.

While the Government is of course watching this carefully, it will be interesting to see what comes out of this.

Interested in knowing why demonetization matters to us much more than we realize? Well, you could do no better than read Vivek Kaul's insightful little report on the subject. It has some great information on how demonetization could impact things like your investment and your property.

I strongly recommend you read the complete note here.

For information on how to pick stocks that have the potential to deliver big returns, download our special report now!

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