Nifty at the end of June 2009
The dramatic run from 2K to 6K was attributed to the India Shining, global decoupling, appetite for risk and huge excesses of liquidity. It was assumed that this is not a hill but a straight line to the moon.... Sun.... Mars... neighbouring galaxy!!!
Corporates, during this period, managed to attract investor (debt, equity, convertible, speculators, punters) in whatever way and at whatever cost. The sole objective was to increase capacity. The race to be the first and an underlying assumption that things don't change. Higher Capex --- Higher Profits --- leadership position in the sector.
The fact is that the only thing constant is change... Change in liquidity position, Change in Decoupling, Change in Risk Appetite...... Suddenly it seems that all the factors responsible for the to have taken the value up the hill have reversed and have triggered the "joyous" roller coaster ride down.
Coming to the main point for which you are reading this piece....
The run up started from 2K in 2005 (lets not get into the month 'cause it really doesn't matter). "Assuming" that we had a good and positive pre-inflation growth rate of 9% in 2005-06, 06-07 and 07-08 and of 7% in 2008-09.
This provides us a figure of 2771 (annually compounded) on a base of 2K. This is a likely fundamental situation wherein the underlying assumption is that the economy has not lost the value that is created in these 4 years.
However, one may argue that value is not lost ---- to that a mark down of 20% can be provided on the 2771 resulting in 2217 which surprising the level that the market has not breached so far. Also this will be a level that will not be sustainable for a long period of time as value investors would keep buying at these levels.
With fluctuations happening here and there end June of 2009 the index should be between 2700 and 2800 no matter what changes are made to the government and reserve bank policies.
Corporates, during this period, managed to attract investor (debt, equity, convertible, speculators, punters) in whatever way and at whatever cost. The sole objective was to increase capacity. The race to be the first and an underlying assumption that things don't change. Higher Capex --- Higher Profits --- leadership position in the sector.
The fact is that the only thing constant is change... Change in liquidity position, Change in Decoupling, Change in Risk Appetite...... Suddenly it seems that all the factors responsible for the to have taken the value up the hill have reversed and have triggered the "joyous" roller coaster ride down.
Coming to the main point for which you are reading this piece....
The run up started from 2K in 2005 (lets not get into the month 'cause it really doesn't matter). "Assuming" that we had a good and positive pre-inflation growth rate of 9% in 2005-06, 06-07 and 07-08 and of 7% in 2008-09.
This provides us a figure of 2771 (annually compounded) on a base of 2K. This is a likely fundamental situation wherein the underlying assumption is that the economy has not lost the value that is created in these 4 years.
However, one may argue that value is not lost ---- to that a mark down of 20% can be provided on the 2771 resulting in 2217 which surprising the level that the market has not breached so far. Also this will be a level that will not be sustainable for a long period of time as value investors would keep buying at these levels.
With fluctuations happening here and there end June of 2009 the index should be between 2700 and 2800 no matter what changes are made to the government and reserve bank policies.
posted by AB at 6:21 AM
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