India: Rally helping funds, Redemptions coming

Wednesday, November 05, 2008

To Mr. Barack Hussein Obama: C O N G R A T U L A T I O N S

This has been a breath-taking stock market rally...the first mouse has been busy. But we know the story; the first mouse always gets caught in the trap. We are seeing the trap in action. Remember Lawrence Olivier's question in the 'Marathon Man'. Is it Safe?
The answer is NO, it isn't safe.

Hedge funds have lost money and credibility during the meltdown of 2008 and India specific funds have ravaged their investors through negative returns and hosed them with annual incentives payments. In this environment, India funds are an endangered species.

The redemption pressure is building and this market rally is providing an exit...we will test the recent lows before this bear market ends.

Nifty is trading at 14x earnings again...why? Has anything changed? Yes, the government is acting in the face of overwhelming evidence of a liquidity crunch and economic slowdown. They are trying to stop a downward spiral from gaining momentum...

I continue to target 11x earnings as a reasonable multiple and Rs 225 EPS for Nifty: this gives a consolidation level of 2475.

When it trades there for some time without knee-jerk reactions we will begin to seem some clarity in the economic situation and perhaps a decent investment horizon. Until then...

I prefer to be the second mouse....after the first mouse has, sadly, identified the trap.

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