Make Hay while the Sun Shines

The stock markets are in an intermediate uptrend. Is the trend likely to continue? What are the factors contributing to this uptrend? What should I do at this juncture? These are the questions uppermost in every investor's mind. Many of us may have seen huge erosion in our portfolio in the past. This intermediate uptrend has reduced those losses to a large extent. It will be prudent to book partial profits/losses at this juncture, because the immediate fundamental factors do not point towards a runaway bull run. Even technically, the best case scenario for the Nifty is 4950, and for the Sensex close to 16500.

Let us analyse the factors responsible for the current uptrend and their sustainability:

• Falling Commodity prices: The commodity prices have cooled off recently. Indian economy is largely dependent on imported crude and the fall in crude prices to around $115/ barrel augers well for our growth prospects. The same set of analysts who were projecting oil prices to zoom towards $200 are now predicting them to hit $90 per barrel very soon. Ultimately, global demand for oil will decide the course of oil prices. The demand from asian countries has not tapered off as yet, so oil can rebound towards the $140 mark, before heading back towards double digit mark, probably in the last quarter of calender 2008. The speculators would also fuel the bounce back for a safe exit from their speculative long positions in oil futures. The investors should take the current opportunity to book some profits in refinery/oil marketing companies.
• Interest rates: The interest rate sensitive sectors like banks, real estate, automotives have been leading the current uptrend, not because any change in fundamentals, but because they were extremely oversold. The interest rates have not yet peaked out. The PSU banks have cleansed their books of NPA's due to the farm waiver scheme, but have not made due provisioning in their books to reflect the loan waiver. It will be good for the banks in the long run, when the deffered payment is received by them during the next four years, but this fiscal will put a lot of pressure on their profitability. Real estate prices are in for a rude shock. The demand has slackened, and credit is not available, so many real estate players may find it difficult to complete their projects on time, posing a threat to their profitability. Any bounce in the Bank, Realty stocks should be used as an opportunity to exit.
• Political stability: Althuogh the govt is making a lot of noise about reforms, its ability to carry out big ticket reforms is limited. The season of agitation, dharnas, bandhs has already started, and will only escalate in the months to come, causing serious disruptions in economic activity. This situation is likely to have a negative impact on the profitabilty of companies and the markets.

The moral of the story is: 'Cash is King', so make hay while the sun shines.