January 2013: Expiry Week

The results have been pretty decent from companies so far, with INFO, RIL, LT, all beating forecasts. In fact, some of the worst performing names over past year have given pretty good returns in last few weeks. Market should continue to remain supported at these levels, and I don't Nifty breaking down to 5800-5850 levels over the next week or so. If S&P is any indication, actually we may see a new high pretty soon. 

With China performing, and none of the big global risks in the limelight, risk should continue to do good. Financials, Infra and Metals should do well over coming weeks, whereas I expect continued weakness in the consumers sector. With OINL and NTPC going under the hammer in next two weeks, INR should remain strong. I won't be surprised if 53 is broken as well before Feb end.

For the expiry, if the roll levels remain strong, will keep building longs  in a few names, and keep INR longs as well. There are quite a few scrips coming in for divestment, and it should keep USDINR under pressure. 

China: Finally Coming Of Age

Last few months have been very exciting for anyone who follows the Asian markets. China has announced a serious of reforms, and have been slowly expanding quotas for foreigners in its domestic A-share market. At the same time, its also moving ahead with internationalization of RMB (with the current plan of making it happen by 2017). I guess both the stock market and FX market reforms would go hand in hand, and one isn't possible without the another. 

There were apprehensions around the time of leadership transition, but now all those have gone away, and the new leadership is also dedicated towards financial reforms. We may be in for exciting times in coming months when more and more quota is released, and trading volume picks up. Already the futures trading volume in Shanghai has seen phenomenal growth over the past couple of years. Less than 3 years old as a product, they have already seen huge volumes being traded. 

The other giant, India has also embarked upon a series of reforms, opening up the country further for attracting FDI and FII inflows. India needs dollars, and hence it has no other option than opening up of economy further. However, the key difference here is INR on the ground very much reflects almost the true level of the currency - RBI hasn't been too aggressive or defensive with the currency movements, and has allowed the market to take it to its level. There have been interventions, but they mostly short term, and that too for preventing the volatility of the currency. 

I'm changing my stance of being underweight India for this year, and I think this may be another huge inflow year for all the emerging markets. We may see continued ETF flows in Asia, and have another 20% plus year for many indices. 

A Week Into 2013

Every year in different in markets, and new themes tend to emerge. The sooner one catches on to the theme, the better for the books. Like in 2012, the theme was increasing allocations in Asia, and the resultant fund flows. Almost all the markets received a boost, with huge flows taking the indices higher. Barring China, most major markets went up in double digits.

So far, this year has been high beta play, where investors are switching out of defensives into risky sectors. Can be a sign of revival for the broader markets, with both bonds and Gold disappointing last year. Yields are inching in US, and we may see average Joe trying to shift his portfolio into risk assest pretty soon. For, while the bonds returned around 2% last year, equities ran up 15%. Another year of similar returns, and we would definitely see US yields inching up.

This may finally be the year when China party begins. After years of frustrating investors with subdued performance, we may see Shanghai Composite flying soon.

Beyond The Cliff

So US has patched up some kind of an agreement over the fiscal cliff, and market expectedly jumped all over. Now as investors pour over the details of the deal, they will realize nothing much has actually happened.

They have increased the tax rates for super rich, and made permanent the tax rebates for everyone else. In the times of crisis, everyone must be ready to make sacrifices, but for some reasons none of the elected representatives around the world seem to be in a hurry for it. There is a big vaccum of leaders with spine and vision.

Anyways, back to the markets which seems to be flush with liquidity. I expect China to be the talk of the town for most part of Q1, and see more and more people jumping on the story. As for India, am not too optimistic for this year - think it would lag other regional markets this year. Only Metals and IT seem to be offering some values at these levels, most other sectors look over stretched.

Let me track Nifty, CNXIT and SHCOMP over the next three months, from January 7th to March 31. I would tend to think SHCOMP would outperform, followed by CNXIT, and Nifty to underperform.