The equity markets have had a tough time last month with both the benchmarks Nifty and Sensex down between 5.5% - 6%.
Technically the market seems to be in a bear trend with the daily moving averages (50, 100 & 200) all appearing in descending order. The momentum indicators indicate some kind of bounce-back in the short term. The market also seems to have achieved some kind of equilibrium with the prices right now somewhere in the central region of the Bollinger band.
Fundamentally the Sensex is valued at 20.47 trail earnings. This is still higher than the long term average of around 18.5. There is talk of companies moving in and out of the index and the earnings ratio is expected to come down to 19.5 or thereabouts at current prices. This is still above our historical average.
Our outlook on the equity markets are therefore that they remain slightly over-valued at this point of time. We would therefore recommend to not over-allocate in to equities. Our technical reading at this point of time is that the markets could be range-bound. Should they remain range-bound then a time correction of valuations should take place and will give us opportunities to pick up more equity.
In debt, the benchmark 10 year G-Sec closed at 7.7% today. This is up from 7.55% a month back. Duration strategies have taken a knocking. While we are looking at a rate cut cycle certain events have lead speculators to expect a temporary halt in the reduction cycle. News from the US Fed that rates in America could increase as early Dec (based on better than expected economic data) has increased the value of the dollar and has had an inverse effect on the value of bond prices in the world as well as in India.
While the up-move in rates has affected prices in bonds we still remain confident of an RBI interest rate cut cycle over the long term. The targeted inflation is 6% for Jan 2016 and 5% for Jan 2017. The Consumer Price Index (CPI) currently is at 5% which will keep the RBI comfortable. The macro-economic situation is also more or less in control with the Current Account Deficit and Fiscal Deficit all at manageable levels. The economy also has been slowing down which makes it an ideal scenario for reducing interest rates. The RBI will have to watch developments in the global economy.
Brent Crude is currently trading at $45/ barrel. This is helpful to the Indian economy in the short term. However, the fall in crude in the last year could also signal weakness in the global economy and could raise concerns on global growth especially for economies not yet out of the woods.
Gold is at it's 6 year low in the international market. Currently trading at $1070/ oz, gold has been in a bearish phase for some time now. This signals that it's not all gloom and doom for the global economy.
Technically the market seems to be in a bear trend with the daily moving averages (50, 100 & 200) all appearing in descending order. The momentum indicators indicate some kind of bounce-back in the short term. The market also seems to have achieved some kind of equilibrium with the prices right now somewhere in the central region of the Bollinger band.
Fundamentally the Sensex is valued at 20.47 trail earnings. This is still higher than the long term average of around 18.5. There is talk of companies moving in and out of the index and the earnings ratio is expected to come down to 19.5 or thereabouts at current prices. This is still above our historical average.
Our outlook on the equity markets are therefore that they remain slightly over-valued at this point of time. We would therefore recommend to not over-allocate in to equities. Our technical reading at this point of time is that the markets could be range-bound. Should they remain range-bound then a time correction of valuations should take place and will give us opportunities to pick up more equity.
In debt, the benchmark 10 year G-Sec closed at 7.7% today. This is up from 7.55% a month back. Duration strategies have taken a knocking. While we are looking at a rate cut cycle certain events have lead speculators to expect a temporary halt in the reduction cycle. News from the US Fed that rates in America could increase as early Dec (based on better than expected economic data) has increased the value of the dollar and has had an inverse effect on the value of bond prices in the world as well as in India.
While the up-move in rates has affected prices in bonds we still remain confident of an RBI interest rate cut cycle over the long term. The targeted inflation is 6% for Jan 2016 and 5% for Jan 2017. The Consumer Price Index (CPI) currently is at 5% which will keep the RBI comfortable. The macro-economic situation is also more or less in control with the Current Account Deficit and Fiscal Deficit all at manageable levels. The economy also has been slowing down which makes it an ideal scenario for reducing interest rates. The RBI will have to watch developments in the global economy.
Brent Crude is currently trading at $45/ barrel. This is helpful to the Indian economy in the short term. However, the fall in crude in the last year could also signal weakness in the global economy and could raise concerns on global growth especially for economies not yet out of the woods.
Gold is at it's 6 year low in the international market. Currently trading at $1070/ oz, gold has been in a bearish phase for some time now. This signals that it's not all gloom and doom for the global economy.
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