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The Perplexing Strength Of The Market

| 4/5/2012 9:06 PM Thursday

Absolutely everything is going up. From my grocery bills (due to higher excise duty) to my mobile phone bills (due to the increase in service tax), from my insurance premium to my housing loan EMI (from 9.25 per cent to 11.50 per cent), everything seems to be headed upwards. Not even my restaurant bills have been spared. The case with equity indices is somewhat similar. They too have been surging, though for no apparent reason. Despite the not-so-encouraging Assembly election results for the UPA II and a lacklustre budget, the Sensex and the Nifty have not only managed to hold ground but have actually surged by a few hundred points. More and more market pundits featuring on TV channels are announcing that the stock market would remain firm, with a few even stating that it is likely to go up from the present levels.

I am really confused and have been trying to find out why this market should move up, especially when inflation is likely to remain firm and the economy continues to struggle on the growth front. What is it that I am missing out on, that others are able to see?

My talks with a few brokers reveal that retail investors are not really enthused by this mini upturn and are staying away from the market. FIIs have not parked heavy investments in the Indian market in the last fifteen days. The volumes on the bourses are not very exciting, and in fact, have declined. I don’t expect the RBI to push for rate cuts even on April 17, when it meets to review the monetary policy. So, my search is on for some good news that could lift the sentiment. Is it that a few in the inner circles of the market have got a whiff about some big ticket reforms to be announced by the government, and hence this strength? But petrol prices, which are supposed to increase from any day since March 31, have not gone up just because the oil marketing companies have not received a formal nod from the concerned ministry to ‘bite the bullet’. Unfortunately, these marketing companies would not be paid any subsidy as petrol is ‘officially’ a deregulated product, with complete freedom given to the oil marketing companies to increase or decrease the prices as per market conditions.

I am not very sure whether this market should rally, especially when it is trading at 18x its trailing 12-month earnings. So, if you see some indicators that I am ignoring, please email me on managingeditor@dsij.in, for it would be a pleasure to update my knowledge.

This time, our cover story is on the marriage between Mahindra Satyam and Tech Mahindra. After the original promoters of Satyam accepted the cosmetic accounting in the books of the company in 2009, Mahindra took over the company. Everyone knew then that it was just a matter of time before Satyam would get merged with Tech Mahindra. Since the merger was announced, the key question that is on everyone’s minds is whether this would create wealth for investors. Please note that after Satyam was taken over by the Mahindra Group, the counter has underperformed on the bourses against some of the leading IT players. On the other hand, Tech Mahindra itself has been struggling to keep its bottomline intact. Our team has critically examined the merger and given our verdict on it. It is a must-read story.

 

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