Is the market in the midst of a battle between the bulls and bears? Or is this a passing storm before the beginning of a new growth phase?
It is once again that time of the year when everything is in a state of animated suspension, with investors taking a pause and consumers postponing their shopping, as the countdown begins for the year’s biggest show: the financial market’s Oscars. Separated by a few days, the Budget and the Academy Awards have too many similarities. Lobbying by industry groups and studios in Hollywood intensifies in the run-up to D-day. A grim-faced finance minister walking into the portals of parliament becomes the focus of shutterbugs as also the smug bean counters from PricewaterhouseCoopers strolling on to the red carpet at the Kodak auditorium. Millions of television viewers watch live the unfolding spectacle, the witty one-liners, the snide asides, the cheering and heckling. Who will be the winners? They invariably stand to gain from fatter bottom lines as stock pickers place a buy call and cineastes rush to buy tickets. The losers fall off the trading screen, waiting for another day. This year things may get hotter with the rollout of reforms expected to garner more eyeballs. The budget is likely to provide a roadmap to Goods and Service Tax and the Direct Tax Code, and there will be 10 movies contending for the Best Picture statuette instead of the usual five. Keenly monitored will be how the passing of the buck between UPA partners Congress and the NCP over rise in prices of food grains and the contest for Best Director between two former spouses-cum-collaborators will play out. Time to take the season’s quiz to stay on top of the game.
1. The present state of the stock market resembles:
a. A U-shaped recovery. b. Pre-budget sell-off. c. The beginning of a bear phase. d. A correction before a sustained recovery. e An opportunity to enter low.
2. The slide in the market is on:
a. Deceleration in foreign portfolio investment. b. Profit booking. c. Fears of harsh taxes in the budget to bridge fiscal deficit. d. Hints of interest rate hikes to tame food grain inflation. e. Liquidation to take exposure to PSU IPOs and FPOs.
3. The markets have become volatile because of:
a. Good earning news followed by rising debt of many European countries. c. Shuffling of portfolio tracking news flow about the likely changes in the budget. d. Bloody battle between the bulls and bears to gain control. d. President Obama’s scolding of China for manipulating its currency and ban on banks from conducting proprietary trading. e. Two views on the short-term direction of the market, creating liquidity.
4. The slowdown in foreign capital inflows is due to:
a. Tightening of liquidity by China and others including India. b. Seasonal phenomenon before the budget. c. Rise in risk aversion on the delicate economic health of several European countries. d. RBI’s hint at capital controls. e. Narrowing of opportunities for carry trade on strong dollar.
5. The dollar’s volatility can be traced to:
a. The fragile global economic recovery. b. Lack of confidence in President Obama’s handling of the US economy. c. Its nature as a floating currency. d. The incipient recovery of the US economy. e. Churning by arbitrageurs and hedgers who had gone short on the US currency.
6. The forthcoming PSU IPOs and FPOs are:
a. To narrow fiscal deficit and improve the economic health of the country. b. To make PSUs market oriented. c. Ushering in a bear phase by sucking out liquidity from the secondary market. d. Making available quality stocks to invest. e. Throwing up opportunities for arbitrage due to discounts likely in their pricing.
7. The sectors to be in the news next year will be:
a. Infrastructure including real estate as India needs to take giant steps to sustain and accelerate its growth. b. IT as the US economy recovers. c. FMCG and pharma as everyone needs to wash linen and pop a pill for that headache. D. Commodities as India and China crank up their growth machine. e. Telecom as the sector consolidates.
8. I will resign if this will help bring rains. Who said this?
a. Union Agriculture Minister Sharad Pawar, refuting criticism on rising food grain prices. b. Prime Minister Manmohan Singh, following southwest monsoon deficit. c. Union Environment Minister Jairam Ramesh, refusing to introduce genetically modified brinjals. d. Mumbai Municipal Commissioner, responding to water shortages. e. Does it matter? I have taken large exposure to commodities as there will be droughts and floods in some corner of the globe, requiring imports and thereby boosting global commodity prices.
9. To hedge, the best alternate investment avenue right now is:
a. Index funds as they will capture the market’s rise. B. Debt instruments such as FDs and income schemes, with interest rates poised to go up. c. Cash because the rupee is appreciating. d. Gold as it is never out of fashion. e. Futures and options by using call and put on the same stock to protect capital.
10. The new fiscal will:
a. Result in rollback of stimulus and higher interest rates. b. See some sectors peaking and some bouncing back. c. Be worse as the low base effect of the previous fiscal will not provide a cushion for companies’ earning. c. Have moderate inflation and interest rates on arrival of rabi crops and better monsoon. d. Present plenty of stock picks as India put its economy back in shape.
As usual, there are no wrong answers, only missteps in investments. Selecting most `a’ options would be the cautious investors, mindful of the factors influencing market behaviour. Those tending to tick off `b’ seem to be indifferent to their surroundings. Choosers of `c’ are likely to be pessimists, while `d’ would appeal to those who are realistic and conservative, yet tend to have a sunny view. The risk takers would naturally gravitate towards `e’.
