Equity market outlook : Special update

Value adjustment in process, no panic!

Investor's over exuberance from ultra-dovish monetary stance drove equity assets up; while DJIA index unwind of  17350 to 15855 collapse (from 19/9 to 15/10) is in order, extension into 18000 is stretched given the current weak growth momentum on the system. It was kind of ZIRP/NIRP monies looking for parking space despite valuation pressure! Now, good sense is seen to prevail allowing unwind of hot-to-hold valuation from 18000 to 17350-17500, seen as a fair-value for first entry, keeping appetite for extended weakness into 17175-17200 ahead of 17000 seen as strategic base (and cheap-to-acquire) at this stage. All taken, short term consolidation at 17000-18000 is in order till clarity from FED on monetary policy guidance for 2015.

In India, it is combination of luck and hope; luck from sharp fall in imported commodity items led by Brent Crude from over $115 to below $65 and liberal dose of $ supplies from FIIs chasing safe-haven India equity & bond assets, while the hope is from high confidence on the one-man army, Narendra Modi to perform miracles in economic and social well-being. Result is the one-way uninterrupted rally from cheap-to-acquire zone of 7700-7750 to hot-to-hold zone of 8585-8635. What goes up like this (without fundamentals back-up) has to come down (in the absence of corporate earnings to support and sustain high valuation)! There is strong strategic base now at 8150-8200, which is seen as good reinstate level against the 8585-8635 exit. While some look for extension beyond here into 7700-7750, will evaluate this option on way below 8260-8285 ahead of 8160-8285. Having said this, there is no guarantee in markets, hence watch resistance zone at 8335-8360 for stop-loss buy at 8365 if there is premature end to the correction process for shift of focus back into 8585-8635; needless to say trail stop-loss entry will be reviewed below 8260-8285 ahead of 8150-8200 (at 8290). There are bullish cues from improved macroeconomic fundamentals (mainly dilution in growth-inflation conflicts), rate cut pressure, no signs of U-turn in commodity prices and good FII appetite, while risks remain from Rupee exchange rate pressure, hawkish monetary stance by FED and delay in realisation of domestic hope (and euophoria) into reality. It is only six months into NaMo regime; need to give him time when being dependent on others for policy initiatives, while the management band-width is seen to be strengthened with much agile bureaucracy and administrative machinery. Need to have patience allowing baby-steps momentum, as break-neck speed is tough to maintain leading to excessive two-way volatility.

Moses Harding