Are we sitting on breakout?                                                                                                                         

Its been quite some time to have penned down my thoughts. Markets have been keeping everyone busy. It has been hell lot of rally and yes those higher double digit returns corrupt the mind to just raise your confidence to arrogance level and investments slowly take a shape of betting. That’s the cycle I somehow have been trying to avoid. Nevertheless mind is prone to corruption.  Anyways, I am just going to write something about the view on markets, is it good time, is there any risk or no. let me make the thoughts more structured. I will avoid divulging much numbers.

Yes the rally in markets has been real, money flow has been amazing. At 26,500 we are sitting at almost 20 times current earning. I will not try to value market at future earnings as according to some analysts we may be at 16 times which is long term average. Analysts are justifying the stocks like reliance on FY16 valuation that’s rubbish according to me. We are no way cheaper at this juncture, lets accept the fact.

China as usual is much cheaper and available at mouth watering levels. China is just like Indian PSU banks whose PE multiples make them look darn cheap in any market and investors always get lured but HDFC bank despite being expensive outperforms the lot. FIIs always in emerging market rally give allocation to china and come out crying each time. India has a history to support as it has since 90s generated arguably the superior returns. So we are not cheap, nevertheless we are on the cusp of breakout. The consolidation for last one month clearly suggests the markets are waiting to breakout. All the numbers from finmin have been extremely encouraging, Mr Modi  has been making pretty good noises and fingers crossed his every step has been towards execution. The overall sentiment booster is actually the thing which he has been feeding.

Is it a good time to invest?

Indeed it is! But I will complicate the matters a bit here. We are sitting at 26,500 20 times earnings. Markets may chose to take the two kinds of routes from here for upside-

1. I expect the GDP number for Q1 to be a pleasant surprise and markets may take this as an event for breakout and we reach 30,000 Sensex in jiffy by December (may be early). Rally may begin from Monday, all factors are favorable- Crude is trading at extremely comfortable levels, inflation numbers look good, money flow remains smooth, US numbers are good and QE is reducing but its there yet, monetary easing in JAPAN and Europe may accelerate. Post December the real correction begins but 24,000 I feel will be a base and wont be breached. But that’s a good 20% correction you have been waiting for and markets look reasonable at 15-16 multiple. Here you will see the news like Mr Rajan goes right again, crash to continue and what not. The reason for breakdown will be global, Either the US rise in rates or crude spike or Europe again or Russia.

So it makes a sense to invest now and be a part of roller coaster ride as you will be at gains certainly.

2. Second thing that may happen is we have a consolidated & structured rise in broader index and good stocks perform and bad stocks and sectors get the beating. The reason could be all global investors behave cautiously on the back of geopolitical scenario worsening and in anticipation of US QE reducing, the rise could be more structured and we will have 5 -7% kind of corrections. I can’t comment on levels we see but certainly we will be 27,000 -28,000 kind of levels by March end. I believe this will be very hard time then as we will certainly be outperformer for the year but the markets will be listless. Still the investment will make sense as stocks and mutual funds will outperform in this scenario too.

Some may call my writing audacious as I am not giving any chance to a fall from here. A fall from here is certainly a possibility as we are not cheap at all but overall euphoria I feel won’t die in vain and so I am not considering that as probability in near future. Many people are sitting outside and may just be disappointed with me.  

My view -

I feel we are going to see much more valiant market. We certainly will have one fall but waiting for it may not yield anything.  Fixed income investors also have reason to cheer as very few are praising the efforts of Mr Raghuram Rajan. Rajan has been targeting inflation and using the interest rates as a gun pointed on the government. But, in a process may be first time an RBI governor is trying to create positive real return in economy. Fixed income blamed for not creating wealth may also be wealth creator for many in the process.

There are innumerable turnaround stories in the market, I am also working on the few, these are the multibagger ideas of the future, some have started working and some are in a process. Be vigilant but follow the allocation tactic. Or use wealth managers like me (:P).  

Risks –

Virtually there seem to be no risks for equity investors in near future and that’s the case always and so the “black swan” keeps us on the ground.

US risk  -

Money flow faces a bigger challenge in the near future. The hunky dory US economy which was fed by FED with QE will see stoppage of QE and virtually every analyst agrees the US will raise the rates in future. The trajectory of these rate hikes will decide the fate of Emerging markets in that tenure. Nevertheless, unprecedented level of easing by Japan may compensate a bit. Europe as well may see some kind of easing, its been some time, that EU nations have been demanding weak euro to boost exports, if it happens the robust US scenario may be taken over by robust Europe.

Some shocks will certainly be there. Existing geopolitical scenario possesses the power to change the track of markets overnight. Any kind of move by Russia over Ukraine, Palestine Israel issue, Iraq and even Pakistan may change the trajectory for markets. You cant plan for these but former issue I guess most are planning.  

How to plan for these?

Asset allocation is the only key. we are expecting  jaw dropping numbers in Sensex in next three years, Keep doing SIPs, invest more part of your savings, Use right instruments to invest in equities, avoid quasi products like ULIPs, some broker schemes promising 10 time returns. By keeping things simple you will be there. Have fixed income exposure, no harm in looking at 3 years FMPs, 9% tax free returns is damn good allocate for long term.

NO REAL ESTATE, NO GOLD, NO OTHER INVESTMENT INSTRUMENT HAS BEATEN EQUITIES IN LONG TERM. BUT ASSET ALLOCATION IS THE KEY!!!!!