Government announced 2.11 lakh crores of support to the PSB’s, market goes berserk. PSB stocks like SBI, PNB goes up more than 30%, PNB made 46% gains. Private banks took a hit, NBFC’s which were leaders lost big value. Broad indices move up a percent and our portfolio goes down a percent. After having had continuous out performance, which saw big alpha generation against the benchmarks and our portfolio. Now the reverse has began to happen.
NBFC stocks had big run up, which stretched their valuations, now probably the market is selling them to accumulate PSB’s. In my opinion, just infusing capital cannot take a business out of mess, unless the management is responsible. One more thought that I heard from the markets, banks get capital from Government and soon there is election and they will have to waive off farmer’s loans, which will eat up 61K crores.
Ultimately, Government is playing, using the banks as a tool. With the kind of moves that the banks had today, it brings concern on the future rally in the markets. Mutual Funds having exposure to banking stocks will show enormous gains tomorrow, while the same will not stay for long as what goes up has to come down too. And here, there is no real value, so the fall will also be drastic.
Liquidity from retail participation has been driving the markets where the earnings have been subtle, now the current move to breach 33000 on the SENSEX will bring in more investments. People who were waiting on sidelines will take a plunge, just to ensure that, they don’t lose even more opportunity. And this money is coming into the markets after seeing the gains of the past 12 months, expecting that the same will repeat. Even a slight unsteady move from here, the same retail money will become a pressure to the fund managers as they have to sell to meet redemption requests.
Then, they will go out and complain that Mutual funds are not good investments, it is a gamble.
We have been waiting for a correction since 7 months now, the markets have defied expectations and gone far away. Now, if it has to fall in place, the impact will be high too. Looking forward to some challenging times in the coming months.