Sensex and the Nifty are above their psychological levels of 20000 and 6000. Foreign flows have been the driver of this rise. Our markets also have been buoyed by continued rise in major global indices particulary that of the US markets. US markets are at record high.
As I have been maintaining, economic fundamentals in the US doesn't seem to be supporting stock market performance. Many doubt whether US is out of the woods. Unemployment data though encouraging on the face of it, leaves plenty of room for doubts on recovery .Many analysts are not happy comparing the extent of recovery this time with recovery rate in previous recessions. Improved housing data appears to be investment driven rather than homeless American buying houses. Their numbers seems to be on the rise as is the increase in the population on food stamp.
Leave aside the other criteria such as Govt debt, budget deficit, trade deficit etc.. Doubts can be cast on the ability of the American Banks to withstand future stress, as leverage of the banks continues to be high .The culprit, as in 2008, is the Derivative Exposure. Any disaster, if it happens, it will be over to 2008 and worse..With all that money the Fed is putting into the system, inflation doesn't seem to be getting past 1%. A higher number would be desirable for recovery.
Besides there are reasons to believe the crisis in Europe is deeper than what meets the eye. Its impact will also be felt in US and all over the globe. A contagion on a global scale. But in the meantime Dow can still continue to go up.
On the domestic front UPA is in real crisis, what with minister after minister resigning on gounds of corruption, graft etc. PM Manmohan Singh is under increased attack as the opposition doesn't seem to be relenting. With Supreme Court keeping up its reputation, it will be tough time for Mr Manmohan Singh to convince people that he is capable of delivering good governance. It will mean a declared innings and over to Election Commission.
IIP (index of industrial production) data shows an improvement in Apr. Capital goods index is showing a different story as also falling car sales data. These will have to look up for any joy.
In such a scenario it is necessary to be extremely cautious and not chase prices prices as there could be double whammy in store. Liquidity flow could dry up and there can be early elections. Indices are 5% away from Double Top. Any break past a double top normally results in a strong upmove from thereon. That doesn't seem likely now.
Until my next then
Happy investing
Basudev
As I have been maintaining, economic fundamentals in the US doesn't seem to be supporting stock market performance. Many doubt whether US is out of the woods. Unemployment data though encouraging on the face of it, leaves plenty of room for doubts on recovery .Many analysts are not happy comparing the extent of recovery this time with recovery rate in previous recessions. Improved housing data appears to be investment driven rather than homeless American buying houses. Their numbers seems to be on the rise as is the increase in the population on food stamp.
Leave aside the other criteria such as Govt debt, budget deficit, trade deficit etc.. Doubts can be cast on the ability of the American Banks to withstand future stress, as leverage of the banks continues to be high .The culprit, as in 2008, is the Derivative Exposure. Any disaster, if it happens, it will be over to 2008 and worse..With all that money the Fed is putting into the system, inflation doesn't seem to be getting past 1%. A higher number would be desirable for recovery.
Besides there are reasons to believe the crisis in Europe is deeper than what meets the eye. Its impact will also be felt in US and all over the globe. A contagion on a global scale. But in the meantime Dow can still continue to go up.
On the domestic front UPA is in real crisis, what with minister after minister resigning on gounds of corruption, graft etc. PM Manmohan Singh is under increased attack as the opposition doesn't seem to be relenting. With Supreme Court keeping up its reputation, it will be tough time for Mr Manmohan Singh to convince people that he is capable of delivering good governance. It will mean a declared innings and over to Election Commission.
IIP (index of industrial production) data shows an improvement in Apr. Capital goods index is showing a different story as also falling car sales data. These will have to look up for any joy.
In such a scenario it is necessary to be extremely cautious and not chase prices prices as there could be double whammy in store. Liquidity flow could dry up and there can be early elections. Indices are 5% away from Double Top. Any break past a double top normally results in a strong upmove from thereon. That doesn't seem likely now.
Until my next then
Happy investing
Basudev
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