Aug 8, 2016

Market Update- 8/8/2016- (Post GST Bill)

The equity markets are edging towards their 52 week highs. The 1 year market graph looks almost like a perfect 'V' as the last time the markets were at these levels was exactly 1 year ago.

The markets have risen a mere 400 points since the passing of the much touted GST bill. Much hype & hoopla was created around the passage of the bill. This once again highlights the nature of markets to "price-in" information much before events have actually taken place. Very rarely is a 'delta' created on the basis of such plays.

The Sensex PE ratio is currently close to 21. This is above the median valuations of 19 for the Sensex (past 25 years data). While we will not add to our equity positions we will continue to hold on to our asset allocations. It is likely that, under the liquidity driven infusions from global central banks and the deflationary trends that persist in the global economy, the markets will have a new median going forward. However, we will need to be cautious in approaching this 'new-normal'.

Our debt-market strategy has played out wonderfully well . We've been envisaging a falling interest rate scenario for the last couple of years. The G-Sec has fallen from 9.1 seen in early 2014 to 7.2 (approx) today. Positions taken in 2014 have given us a significant 'delta'. The added tax benefits of holding debt mutual funds for 3 years will only enhance this 'delta' created. We continue to maintain that interest rates will fall. However, this fall will be gradual, just like what we witnessed for the last 3 years. Investors will have to be patient and treat every jump in rates as an opportunity to add to their 'duration positions'.

Brent crude seems to have settled around $50 to a barrel. Crude has bounced off it's lows of last year and is looking at a settling at these rates. This implies that global investor risk-appetite is improving. But, it also implies that global investor sentiment has changed quite significantly from the days in which crude used to trade at close to $ 80.

Gold also seems to have bounced of its lows and is now settling in a range of $ 1300-1400/oz. This could be an indication that liquidity infusion is finally making its way back in to gold again. However, commodity markets in general are yet to recover from their recent bear falls. We don't read too much in to the price of gold at this moment.



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