For the believers of ‘mutual fund sahi hai’, most of whom are self-proclaimed value investors, these are troubled times. The returns on their SIPs (systematic investment plans) in equity mutual funds over the last one, three or even five years, are down. Adjusted for inflation, even the retired Mishra ji has beaten them hands down by putting all his eggs in a fixed deposit in a boring government-owned bank. Investing for the long term seems to have become rather too long.
The $5 trillion economic fantasy is in tatters.
Heck, even their favourite good old Mr Buffet doesn’t find value in stocks. So, what do they do?
It’s time they wake up and smell the cutting chai. While the benchmark Nifty-50 jumped a whopping 15 percent in April, the beginning of May has shown that we need to revisit the most abused word in Indian financial media during the last decade – decoupling. Remember? The theory that believes that because Indians are God’s gift to mankind, the Indian economy will march ahead even when the Western economies flounder? Well, decoupling is happening. Just not in the way we wanted.
It’s proving that we are no United States of America.
We can’t print (currency) our way to prosperity.
Our foreign exchange reserves are not ours. This is the money that foreign investors gave us in exchange for stocks we sold to them. We were broke even last year, finding refuge in some hidden clause in the Fiscal Responsibility and Budget Management Act (FRBMA). And now the government of India is struggling to reimburse states even their legitimate share of Goods and Services Tax (GST).
So, those expecting a major fiscal response to tide over this crisis, smell the chai.
And the market realised this, ironically, on Labour Day. With the lockdown being extended by another couple of weeks, no stimulus package in sight, and an overall sense of despondency among the working class; the Nifty futures contract traded in Singapore started indicating the worst even when it was officially the day to celebrate the blue-collared guy. The result? An Abandoned Baby (see chart) in technical parlance. This is an indication that a major lower top might have been made.
And ‘Sell in May, Go Away’ might just reclaim its mojo.
Wheat from the Chaff
With multiple celebrated global players picking up minority stakes in Jio, shares of Reliance Industries Limited (RIL) have been on a tear over the last couple of weeks, almost reclaiming their all-time highs. Along with shares of large cap pharmaceutical companies, RIL’s have been the ones that have held the index together. The Jio-inspired rally in RIL coincided with a sharp surge in Nasdaq Index – the mecca of global tech majors –indicating that this might not be an aberration.
The COVID-19 crisis has come as a litmus test for an already wobbly financial system. Consolidation in the favour of few stocks will most likely gather pace. Investing in a diversified basket of stocks might not make sense any more. You need to be in the right stock at the right time.
Bored Bear
Last week was the first indication that those expecting a V-shaped recovery in Indian stocks are in for a rude surprise. Lower volatility, lower participation and a general grind-down in prices – a tell-tale sign of a protracted Bear market were clearly visible. It was a sign that the plunge in March and the snap back in April are over. What we might be headed towards is the first real Bear market since 2001-2003. To tide over that will require some serious effort. As for the millennials, remember that the Nifty has corrected over 50 per cent thrice in the last three decades. So, a repeat, i.e., a move to sub 6,000 is par for the course. It has happened repeatedly, no reason it won’t again.
(The writer, T-Rex, is not a dinosaur. He is a technical analyst from the previous century.)
Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the position of 30 Stades.
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