Fairval

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Markets to head down now..

Posted by fairval on March 26, 2012

Towards the end of Dec’11, we wrote that there was more upside than downside in the markets (See post ‘More upside than downside in Indian equities’)

The markets did rally up after that. The Sensex rose to around 18400 levels by mid Feb, rising about 19% in 7 weeks.

But, given the turn of events in the last 3-5 weeks, time to do a u-turn. Looks like the Sensex should trade with a median value of 15-15.5K or about 14x forward. At current levels of around 17K, the market is at about 17x forward, which is not sustainable, too many negative ahead.

Inflation remains stubborn, the need to raise petro prices will put furhter pressure on inflation. The UPA govt seems to have no ability to do anything constructive, and worse, India seems to be regressinng back to the pre’90s license-permit raj. Retrospective action against MNCs (2G licences, Vodaphone case) sends negative signals. Fiscal deficit is out of control and will get worse. This will put pressure on rupee and interest rates. In other words, very little going for businesss,

There is atleast a 10-12% downside ahead.

Market Matrix range for 2012/FY13

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4 Responses to “Markets to head down now..”

  1. Munish Hingorani said

    Isn’t 17K about 16x forward assuming FY13 earnings of 1050-1100?

    • Munish Hingorani said

      Ok. I just saw the chart. So have you shifted the range from 15000-17000 to 13000-15000?

      • fairval said

        In 2011, the market generally traded above most expectations. So dont know if I am being more bearish than warranted. But hard to see positives at this point, atleast within India.
        The other part is as long as dollar interest rates are near zero, liquidity can keep markets like India up.

  2. Munish Hingorani said

    Your analyses are quite accurate and therefore the above prognosis is worrisome. If we account for inflation then 13000 is but 10000 in 2008 prices

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