The Optimist’s Guide to Nifty!

      No Comments on The Optimist’s Guide to Nifty!

In our previous post, we had written that our short stance on markets at12000 levels may or may not hold at 10000 odd levels. On this satan’s day, Friday the 13th of March, would things turn around? We will hit the circuits most likely and therefore whatever you read ahead is just a small exercise in optimism as it is foolish to attempt to predict that may happen when panic is at extremes – but then, this is exactly where a rational cold approach may at least help bring some balance – and this short piece gives you reasons for how such a balance may come in

3 Reasons for a Rebound

1) At 16x or so average valuations of the previous decade, the markets could and should trade at about 9000 levels which is where we are. Of course, a recessionary trend could change the equation in EPS trailing growth and we could gravitate to about 7000 levels which is at 12x valuations close to the 2008 bottom.

2) The S&P Vix has reached a level of 3.5 standard deviation yesterday- March 12, 2020, and at this level, it is not even a 0.1% probability that this can sustain – in other words, at some stage, shorts have to be  covered. This could be triggered by  any action by the Fed or some news on the virus or so on  – of coourse markets could decline further but the historical weight of evidence suggests that sooner or later this level will be given up as markets revert to a (lower) mean

3) The 100 MMA – Monthly Moving Average – of the Nifty is at 8442 levels currently – The only time this was tested was at the peak of the 2008 crisis and it seems unfathomable , despite the possibilities of recession versus a globally better macro post crude corrections – plus any local rate actions – that this level can be broken because if it does, it actually means the end of the long term  bull run.

We are in uncharted territory if this bear run extends beyond the technically familiar historical landscape so its best to keep the above in mind and take rational decisions – Markets are telling us they are not willing to listen so we dont have a choice but to be extremely cautious. The Corona Virus will sooner or later become a reality of life and people will begin to hope that the vaccines become available soon or the weather patterns take care of it, Plus of course the quarantines may play a big role in control.

So listen to markets carefully, keep cash aside as the bright side of this collapse – you have gems at multi year lows and there will soon be a time when you will call your broker to buy these. so keep your shopping lists ready!




Leave a Reply