On Friday, markets went up with the hope that the Finance Minister will announce some concessions in FPI and Super Rich Tax Surcharge. Later in the evening, the concessions were actually announced. Few other measures were also announced which the market analysts believe will push up the sluggish stock markets.
This is one of the samples:
One of the experts is predicting Nifty moving up to 11000 on Monday and that bears shall be slaughtered.
This is the kind of language which makes one wonder whether the experts really know anything or it is just bear crap and bullshit in this game of bulls and bears.
My humble analysis:
This is a scene from the finishing stage of a race at Mahalakshmi Race Corse at Mumbai.
The horses are going hammer and tongs to emerge a winner.
The horse has to carry an assigned weight in the race. There is a saying about the running of races—
Putting more weight on a horse may slow down a horse. But a reduction in weight will not make it run faster than its inherent ability.
The tax surcharge on FPIs was the additional weight which the experts believed had slowed them down. Now that surcharge is removed, will they run faster. Maybe. But they can not run faster than there inherent ability.
Let us explain this further.
It s a belief that FPI selling is due to tax surcharge. This belief is just another piece f bull crap fed to us in the name of market wisdom.
Who cares about a little tax surcharge if one is making good money? These guys are selling because:
They see recession.
They are not making money.
They are not seeing improved corporate earnings.
They see bad corporate governance.
Tax surcharge could have been taken in their stride if these factors were not present.
And the tax incidence only happens when you made a profit. Why would they worry about the tax when their investments are losing money?
They are running away because of losses on their investment and not because of a two bit tax surcharge.
All this while Domestic Institutions are buying. Experts would like us to believe that it is only FPIs buying that can cause markets to go up. Then surely we are the most fragile market in the world.
I know it is not.
The talk about tax surcharge being the reason for market decline reminds me of Hindi movie — Baghbaan which had Amitabh Bachchan as the lead actor. In one of the scenes, his son is explaining to his wife that their this month’s budget will go haywire because they have to spend money for father’s spectacles.
How flimsy the explanations can get?
But people are willing to buy any theory which gives them a little hope and there are many in the market who thrive on selling false hopes.
It is a fact that the industry is facing real problems. There is reduced production and sale, workers have been laid off and inventory has piled up. Government has announced few concessions which may lead to some spike in the sales.
When do you buy a car?
I talked to about 10 persons yesterday.
Everyone responded that they will buy a car when they have the money and need to buy a car. Along with that there should not be a cloud over their current job status or business. When there are uncertainties about th income status they will postpone buying a car.
I then asked if a car was offered to them at 5% discount, will they buy it now.
None of them was willing to buy as thy face the likely loss of jobs due to unannounced recession or their business is not doing well currently.
If my 10 guys are not buying cars, there are surely tens of thousands others who will behave exactly like that.
These are the facts on ground, not on the TV screen where everything glitters in the studio lights.
US- China Trade War:
The trade war has just begun and the effect on US market was as shown above. This may escalate or die down but our market experts are just ignoring this fact. One can afford to disconnect with the rest of the world for a day or two but not longer than that. If US sneezes, the rest of world catches cold is still a valid phrase whether we like it or not.
Markets can remain irrational far longer than we can remain solvent.
Hype and hoopla surrounding the events sometimes makes the market really go up. I will not be surprised if it goes up for a day or two.
But we can not ignore the dismal economic scenario and market too will not ignore that. The up move may provide exit opportunity in the beaten down stocks but a revival does not appear to be in the horizon.
Market may be a voting machine in the short term, but over a long term it is a weighing machine.
The Put buyers or short sellers may have a setback for few days till the artificial booster is working but finally it is the state of economy which will decide the market moves.’
And we know that weak stocks stay weak and the strong stay strong.
Let us review after one month.
Enjoy the Sunday.