Sum it up ! : Give me some Sunshine, give me some Rain !

A take on markets amid monsoon uncertainties

Its that time of the year when expectations are high and nervenous is abound. Markets are directionless and monsoon is playing tantrums again. Blame it on the global warming or thy neighbours (don’t we blame Pakistan for everything) but the economy, markets, industry, macroeconomic fundamentals and FM words everything is at a standstill (though inflation is inching higher) and waiting guidance from the rain gods. Will they or won’t they is the question and so much depends on how much deficiet or excess we are likely to see this year. According to the Met Department, rather leave it no one trusts Met department foreasts not even the Met Department’ s Chief’s wife.

So how to trade in this uncertainty ? Well I think we are likely to see some weakness in auto stocks particularly after they rallied in the last few quarteres and some (TATA Motors) are still showing robust growth numbers. High inflation, fuel price hike (deregualtion is likely to escalate prices even further), hardenening of input costs and pending rate hikes by RBI will cause some pressure on auto stocks. So if you are invested look at profit booking and medrating investments in this sectors with a short term view. Long term view is still positive for autos and holding small positions is still not a bad idea. Go short on auto stocks particualy Tata Motors (with August expiry), the high base effect is likely to taper off and high level of debt in the balance sheet may lead to some pressures. Reduce exposure (or buy puts if you may) on cement, steel and IT stocks with a view on July expiry and increase positions in Pharma and Mid cap banking stocks. Buy sugar and pulses in the commodities futures with August expiry (I foresee a deficit monsoon again).

Rate hikes are going to draw down bond prices so if you are still holding bond positions, you’r one optimistic person I must say. Any dip in markets towards 4900-5000 levels should be seen as a buying opportunity and pick up blue chip high beta stocks in each industry. Reliance Industry, HDFC Bank, SBI, Infosys, Tata Steel, ACC, Maruti, Tata Motors, Hindalco have a long term potential if bought at the right prices.