INDIA: CONFUSING ‘SONG OF DEBORAH’ TO ‘TAPS’

Unless you find beauty in walking away, you shouldn’t walk away from this beauty.

I clearly remember Modi’s swearing Assembly.. I was at work and everyone was going long and buying Calls; Nifty had closed at 7367 last trading day and opened at 7428; remained at 7400s and suddenly fell back to 7300s.

I was hoping a bullish trend like many others, now that Modi was officially our Prime Minister, but I returned to work next day to Nifty still at 7300s and difference of a billion traded shares (168599276 shares from 26^th May’s 273236339).

If noticed, an all time high of Nifty (in its 7500s) and Sensex (in it’s 2500s) have only been witnessed on 16^th May 2014 and 26^th May 2014 (until 5^th June 2014); Election Results Day (Modi’s victory) and Modi’s Swearing Assembly respectively.

It clearly is MODI WAVE! Known for his pro-business attitude, business-friendly policies, speedy clearances; He was everyone’s favourite horse to bet on, be it a Gujrati or a foreign analyst. Then why did the prices fall later?

Because everyone was booking profits.  So, would investors be tempted to book profits again and exit the markets?

Probably, but so what? Isn’t that what Stock Markets are all about? Buy and Sell, Long and Short, Call and Put? A fall (and rise) in market prices is as inevitable as the scorching June heat in North India and as routine as a January blizzard in Colorado. If you are prepared, it can’t hurt you. And when else must you buy stocks if not when prices drop? How else would one make gains?

Sensex and Nifty are the Indexes of the most famous Stock Exchanges of India – BSE and NSE respectively. The following Charts show us the current P/E Ratio of Indices, Nifty and Sensex. P/E Ratio is the price (in Rupees/Dollars) an investor is willing to spend for each rupee/dollar earned from the investment.

NIFTY P/E RATIO 2014

	Date	P/E	P/B	Div Yield	Close
	1 Apr '14	18.91	3.24	1.37	6,721.05
	16 Apr '14	18.79	3.22	1.38	6675.3
	23 Apr '14	19.2	3.3	1.34	6840.8
	30 Apr '14	18.79	3.23	1.37	6696.4
	07 May '14	18.56	3.18	1.43	6652.55
	30 May '14	19.82	3.43	1.34	7229.95
	2 June '14	20.27	3.5	1.31	7362.5
	10 June '14	20.86	3.62	1.26	7656.4

(Source: http://www.bseindia.com/)

Currently, markets are behaving like an ocean on a full moon night taking both the small boats and the ships, to the top of its tides. With Sensex at it’s current P/E Ratio of 18 and Nifty at it’s current P/E Ratio of 19(average), is definitely a country and an ocean away from “cheap”.

Credit Suisse’s Robert Parker thinks going long India (and short China) was a good investment decision as the markets were cheap yesteryear; now markets appear expensive, slightly over-bought and up by 20%, which is when investors would want to book profits.

Whether over-valued or not, investors apparently are willing to pay more expecting the market to outperform, causing the P/E Ratio to have moved up 16 times from last year (Sensex). Nevertheless, India definitely has, very proudly, managed to take off it’s tag of “Emerging Markets”, “Fragile 5” and other Acronyms like BRICS while riding the bulls.

 (Source: SeekingAlpha.com )

The following Comparison Chart shows India (INP) outperforming all other “Fragile 5” economies and iShares Russell 2000 Index Fund (IWM); where INP- India, EZA – South Africa, IWM – USA, EWZ – Brazil, TUR – Turkey, EIDO – Indonesia.

(Source: http://www.etfscreen.com/etfperf.php)

Indian Rupee (INR) has trekked the top of the mountain from its spot of World’s weakest currency last August against the dollar (USD/INR – Rs 69) to a very stable and consistent USD/INR Rs 59 for some time now. GDP Growth is presently at 4.6%. WPI is at 5.2%,

Raised interest rates, a dollar-swap program, narrowed CAD, whether that was due to more demand in exports from a fallen Rupee or/and due to oil and gold import curbs imposed by the Government, a pro-business ruling party, easing inflation and a stable currency have resulted in attracting money through FIIs, and helped our markets to rise.

Year		GDP		USD/INR	CAD
1999		8		45.9	-4.1
2000		4.15		45.7	-2.7
2001		5.39		47.7	3.4
2002		3.88		48.4	6.3
2003		7.97		45.9	14.1
2004		7.05		45	-2.5
2005		9.48		44.3	-9.9
2006		9.57		45.2	-9.6
2007		9.32		40.2	-15.7
2008		6.72		46	-27.9
2009		8.59		47.4	-38.2
2010		8.91		45.6	-45.9
2011		6.69		48.1	-78.2
2012		4.47		54	-88.2
2013		4.86		61.5	-36.8

(Source: CSO, RBI, EAC to PM, Ministry of Finance

http://planningcommission.nic.in/data/datatable/1203/table_1.pdf )

Enthusiasm has returned to India, with a lot of NaMo slogans and bulls. If this is not the time to go long, then you could be waiting on snowflakes, just to realise the window was shut.

Pessimists might worry about investors’ exit, but that’s the thing about Stock Market.. it’s a Zero-sum game. Someone’s loss is equaled by someone’s gain. Just as a longer winter in the hilly terrain upsets farmers; thrills Hotel industry.

Depreciated INR results in a happy exporter, a rapturous expat; meanwhile vexes citizens planning trip/studies abroad, importers, etc.

Nevertheless, India (along with a few other “Emerging markets”) has proved every short-EEM and catchy Acronyms lover to be someone who was listening to a “Song of Deborah” and condescendingly kept judging it as a tune of “Taps”.