Short to medium term market outlook
A large number of readers have been asking my opinion on whether the kind of up move that we have seen over the last three weeks is sustainable and what is the likely direction of the markets going forward. There have also been questions like whether this is the beginning of a new bull market or this is just a sharp correction in the bear market.
The large cap side of the markets has seen a sharp up move of nearly 25% since the beginning of March. The contributory factors have been the strong stimulus packages and liquidity measures in the USA, better economic data, and small inflows into equity funds globally and more relevantly in the short run large scale short covering by both wholesale domestic investors as well as hedge funds. However like I covered in my last article the up move has largely been restricted to the large cap side and the broader markets have not moved up so much.
I believe over the next couple of weeks the markets are likely to be in a corrective mode where they will give up between 25-50% of their gains in the current up move. However there is likely to be more action on the mid cap side of the markets which are likely to be more buoyant and we are likely to see lot of stock specific action. However clearly the current up move seems to be different from most of the up moves we have seen over the last 15 months which had been on the backdrop of deteriorating fundamentals and continuous negative bad news. I believe that economic performance globally seems to have bottomed out now and given the fact that the current up move comes in that backdrop it is likely to be much more sustainable. I believe that whether this is a bear market correction or the beginning of a new up move will be known much later. However I clearly believe that the current up move will take the markets at least to the 200 days moving average of the markets which stand at around 12000-12500 levels for the BSE Sensex.The current up move in most markets globally has been backed by a sharp drop in the value of the US Dollar and also a fall in volatility globally. The drop in the value of the USD has also led to a sharp rally in most commodities like crude, gold, aluminum and a number of Agri commodities. The US Dollar after a short term up move is likely to fall very sharply in the second half of the current year which will lead to a deluge of money into emerging markets. We are now in the base building phase of the next big up move. The only short term damper specifically for India can be the election results which are an event difficult to predict.The results season is also around the corner which should be inline or better than expectations on the whole. Also to repeat what I said in an earlier blog – No new lows for the markets.Sectorally on the large cap side sectors like steel, automobiles, capital goods and Private Sector Banks look good for the medium term although they might correct over the next few days.
The large cap side of the markets has seen a sharp up move of nearly 25% since the beginning of March. The contributory factors have been the strong stimulus packages and liquidity measures in the USA, better economic data, and small inflows into equity funds globally and more relevantly in the short run large scale short covering by both wholesale domestic investors as well as hedge funds. However like I covered in my last article the up move has largely been restricted to the large cap side and the broader markets have not moved up so much.
I believe over the next couple of weeks the markets are likely to be in a corrective mode where they will give up between 25-50% of their gains in the current up move. However there is likely to be more action on the mid cap side of the markets which are likely to be more buoyant and we are likely to see lot of stock specific action. However clearly the current up move seems to be different from most of the up moves we have seen over the last 15 months which had been on the backdrop of deteriorating fundamentals and continuous negative bad news. I believe that economic performance globally seems to have bottomed out now and given the fact that the current up move comes in that backdrop it is likely to be much more sustainable. I believe that whether this is a bear market correction or the beginning of a new up move will be known much later. However I clearly believe that the current up move will take the markets at least to the 200 days moving average of the markets which stand at around 12000-12500 levels for the BSE Sensex.The current up move in most markets globally has been backed by a sharp drop in the value of the US Dollar and also a fall in volatility globally. The drop in the value of the USD has also led to a sharp rally in most commodities like crude, gold, aluminum and a number of Agri commodities. The US Dollar after a short term up move is likely to fall very sharply in the second half of the current year which will lead to a deluge of money into emerging markets. We are now in the base building phase of the next big up move. The only short term damper specifically for India can be the election results which are an event difficult to predict.The results season is also around the corner which should be inline or better than expectations on the whole. Also to repeat what I said in an earlier blog – No new lows for the markets.Sectorally on the large cap side sectors like steel, automobiles, capital goods and Private Sector Banks look good for the medium term although they might correct over the next few days.
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