What has really changed in the past few weeks?
(a) The Oil is still trading at levels much above our comfort zone, so what if it has declined by 15%. Do not investors oversell when oil climbs up assuming it will peak at $200? The euphoria is no less with they becoming over bullish when it starts receding.
(b) We had UPA + Left (semi-reformist). We now have UPA + SP + parties-with-many-riders-on-plate. We have lost some and gained some. What magic will the new combination perform? Elections are due anyways in a short time. The government may in fact take populist decisions forgoing underlying economic impact in the longer term.
(c) Interest rates are where they were. A possible rate hike on 29th July? Why won’t the earnings slowdown for companies take place? Why will the investment growth rate not slow down?
(d) Inflation still needs to be tamed. I must admit the 2 bps decrease (11.89% versus 11.91% previous week) though. Still no where close to RBI’s comfort zone of 5%.
(e) Finally, the news from other quarters of the world is not too great either. Things are in bad shape everywhere.
The status quo has not altered. But the Sensex has jumped because of increased volatility. Up 15% in 2 weeks. It is trading at above 16x trailing PE (assuming Rs 900 EPS, a close approximation to actual numbers) but where is the growth in the earnings going to come from. I am short the Sensex unless obviously Oil goes below $100 a barrel and hides somewhere for a few years.
It may not be a bad idea to buy some OTM Puts (A put option is out-of-the-money when the strike price is below the current trading price of the underlying security. Read here for more details) on Nifty, though with caution. I am cautiously pessimistic!!
Filed under: Investing | Tagged: inflation, interest rates, oil, sensex
