“BE GREEDY WHEN OTHERS ARE FEARFULL & BE FEARFULL WHEN OTHERS ARE GREEDY”
- Warren Buffett
If there is one single reason why my guru WARREN BUFFETT is the most successful Investor the world has ever known it is because he follows the above PRINCIPLE… to the “t”…
He BUYS when Others are panicking & running away from the market & he refrains from buying when others are madly buying Stocks…
This PRINCIPLE is very easy to understand (even a Teenager can understand it ) but very difficult to follow in a Practice
Why is this so ?
Because our EMOTIONS come in the way (& Emotions do not go by Logic, do they? )
When we read the Newspaper Headlines screaming Blood in the Market ; the way to read it is DISCOUNT SALE but we Panic & run away …
Similarly when we see Newspapers claiming this Stock has made so much returns or this fund has made so much returns in the the past , we throw caution to the wind & enter the market at High Valuations whereas it is at this stage that one needs to be very cautions & extra careful…
STOCK MARKETS & Stock Prices are governed by 3 Powerful forces;
- SENTIMENTS &
… in no particular order;
Of the above, Fundamentals take a long time to change & its Fundamentals that should govern an Investors decision but the fact remains that if enough LIQUIDITY is not there then how will the Stock Prices rise & at the same time if there is too much Liquidity then Stock Prices rise beyond fundamentals that makes markets very Expensive…& hence Risky…
Sentiments is nothing but EMOTIONS which is the biggest impediment in wealth creation for an Investor…how can one make money if one buys when everyone else is buying & one sells when everyone else is selling…
MONEY is made only by doing the opposite of what others are doing, by going against the trend …but this is easier said than done…
Now where do we stand today? What’s happeing in the Stock Market ? Why did the Stock Market correct so much in 1st week of FEB ???
RBI keeps repo rate unchanged at 6%; increases inflation outlook to 5.1% for Q4
The central bank has cut GVA guidance for FY18 to 6.6 percent from 6.7 percent earlier and for FY19 the guidance has been cut to 7.2 percent from 7.4 percent
Reserve Bank of India kept key p olicy repo rate unchanged at 6 percent on Wednesday, in a third consecutive pause for the monetary policy.
The central bank pegged GVA guidance for FY18 at 6.6 percent and for FY19 at 7.2 percent.
No surprises about the hawkish tone. Inflation estimates have been revised upwards to 5.1 percent in Q4 due to factors like rise in food prices and international crude oil prices.
“CPI inflation for 2018-19 is estimated in the range of 5.1-5.6 percent in H1, including diminishing statistical HRA impact of central government employees, and 4.5-4.6 percent in H2, with risks tilted to the upside,” RBI’s monetary policy statement said.
RBI said, “In terms of actual outcomes, headline inflation averaged 4.6 percent in Q3, driven primarily by an unusual pick-up in food prices in November. Though prices eased in December, the winter seasonal food price moderation was less than usual. Domestic pump prices of petrol and diesel rose sharply in January, reflecting lagged pass-through of the past increases in international crude oil prices, it said.
The 2-day deliberations on February 6 and 7 by the Monetary Policy Committee (MPC) headed by Governor Urjit Patel noted that the inflation outlook is clouded by several uncertainties on the upside. First, the staggered impact of HRA increases by various state governments, pick-up in global growth and the Union Budget proposal to revise MSP (minimum support price).
The government promised to ensure MSP of key crops at 1.5 times the cost of production. This could mean at least a 50-70-basis points increase in the headline inflation number.
GVA (gross value added) growth for 2017-18 is projected at 6.6 percent. Beyond the current year, the growth outlook will be influenced by several factors including GST, early revival signs of investment climate reflecting credit offtake and recapitalisation of banks even as resolution of stressed assets is underway.
GVA growth for 2018-19 is projected at 7.2 percent overall — in the range of 7.3-7.4 percent in H1 and 7.1-7.2 percent in H2 — with risks evenly balanced.
Repo rate – the rate at which banks borrow short term funds from RBI – continues to stand at 6.00 percent while the reverse repo is at 5.75 percent.
The liquidity in the system continues to be in surplus mode, but it is moving steadily towards neutrality, the statement added.
The December bi-monthly resolution projected inflation in the range of 4.3-4.7 percent in the second half of 2017-18, including the impact of increase in HRA (house rent allowances).
“Since the MPC’s last meeting in December 2017, global economic activity has gained further pace with growth impulses becoming more synchronised across regions… Financial markets have become volatile in recent days due to uncertainty over the pace of normalisation of the US Fed monetary policy…,” said the sixth bi-monthly Monetary Policy Statement for 2017-18.
Rise in crude oil prices, coupled with a rise in prices of vegetables, has already led the consumer price index (CPI) or retail inflation shoot up from just under 2 percent in June 2017 to a 17-month high of 5.21 percent in December 2017.
As inflation remains a worry, in the last few months, RBI has been gradually nudging up its inflation forecast. While keeping the medium-term target for CPI inflation of 4 percent within a band of +/- 2 percent, the Central Bank had raised the near-term forecast of inflation to 4.3-4.7 percent for the second half of FY18.
Amid rising interest rate scenario, experts had pointed out risks of higher inflation with fiscal slippages and higher food prices apart from the government’s plans to increase the Minimum Support Price (MSP).
The government has said the fiscal deficit in 2017-18 will be 3.5 percent, higher than the budgeted 3.2 percent at the start of this fiscal, which is seen as a negative by the bond and equity markets, and already reflected in higher yields and falling stock prices in the wake of the Budget.
Of the six members, four voted in favour of a pause while one called for a rate hike of 25 bps.
Chetan Ghate, Dr. Pami Dua, Dr. Ravindra H. Dholakia, Dr. Viral V. Acharya and Dr. Urjit R. Patel voted in favour of the monetary policy decision. Dr. Michael Debabrata Patra voted for an increase in the policy rate of 25 basis points.
The minutes of the meetings will be published 14 days from now on February 21.
The last repo rate cut by RBI was done in August 2017 when the central bank had reduced the repo rate by 25 basis points (bps) from 6.25 percent to 6 percent.
The next meeting of the MPC is scheduled on April 4 and 5, 2018.
India Union Budget 2018: What does Finance Minister Arun Jaitley have up his sleeve?
S. Naren, CIO, ICICI Prudential Mutual Fund
The correction seen in the Indian equity space is largely owing to the correction in global markets. Since December 2017, a global bull market was underway with some of the indices (Dow) adding nearly 1000 points in just ten-fifteen days. Hence, the market was overbought.
It is difficult to say whether the markets can correct more or not.
Developments in global market and the crude oil price trajectory are near term factors to watch out for.
Today’s market reaction has been on account of global factors. We continue to believe that mid and small cap pockets are expensive. On valuation basis, large caps are better placed. In terms of earnings, we believe corporate earnings growth will pan put over the next eighteen months.
Our approach has been to focus on asset allocati1on. Having seen big bull markets like 2007 and in retrospect 2017, some of the biggest mistakes that investors make is to forget asset allocation. We believe that equity and debt should be invested in tandem today. The markets are still not extremely cheap which is why we believe that there is a case for defensive investing in equity (balanced advantage / dynamic asset allocation category of funds) and also investing in debt, particularly credit oriented funds at this point of time.