(This Editor’s Note was mailed on Sunday May 3, 2022 to all our subscribers)
This week we are not suggesting any stock.
Don’t be surprised because we have our reasons and our commitment to protect your hard-earned capital.
I’m sure when you read our logic, you would equally agree with our decision.
As I mentioned sometime back there are uncertainties around the world these days. Some are due to geo-political tension and others have technical reasons behind them.
The main factors that can play a big role in coming days and have enough intrinsic capacity to derail the market movement are –
The Strong Dollar Index
I wrote two weeks back, how the Dollar Index is fast reaching at an uncomfortable level. A strong Dollar Index is negative for emerging markets. Whenever it happens, FIIs take their money out from the markets. Right from July-August 2021 the Dollar Index is getting stronger day by day and the numbers say that from October 2021 till date in seven months FIIS have sold Rs 2,71,000 crore worth of shares. This is not a small number. It just happened that DIIs inflow too was almost matching so the market didn’t get the impact it could have got. However, stock specific correction has been very disappointing.
Now as it is catching its 20 years’ high level the situation will only worsen. Historically it has been between 88-75 during 2003 to 2015, and around 88-100 after 2015. The Dollar Index was 103 in January 2017 when Bond Yield suddenly had shot up. For the information – The U.S. dollar index (USDX) is a measure of the value of the U.S. dollar relative to a basket of foreign currencies. The USDX was established by the U.S. Federal Reserve in 1973 after the dissolution of the Bretton Woods Agreement.
The Fed will take the next step in its policy shift during a meeting on May 3-4 when officials are expected to increase the target policy rate by half a percentage point. Equity markets have been rocked by volatility in recent days. It is assumed the central bank’s policy rate could top out anywhere between 2% and 4.5% over the next two years.
The Initial Public Offering (IPO) of Life Insurance Corporation (LIC) of India is going to hit primary market as the subscription will open on 4th May 2022 and it will remain open for bidding till 9th May 2022. The public issue is worth Rs 21,008 crore. The secondary market will certainly feel the heat.
The Result Season
It is the result season and the numbers are not very comforting.
US Volatility Index
US Volatility Index is above 33 without any big event which indicates that all is not well.
Last Week Markets
A look at the last five days market movement reveals –
- On Monday a gap down opening and Nifty closed at 218 points down.
- On Tuesday a gap up opening and Nifty closed at 247 points up.
- On Wednesday again a gap down opening and Nifty corrected 162 points.
- On Thursday a gap up opening and Nifty closed at 207 points up
- On Friday a gap down opening and Nifty corrected 143 points.
- On the other side of the globe Dow Jones has corrected 2500 points.
NASDAQ is trading at its 52 week low.
Not only this, even there, the Small Cap Index recently made a new 52 Weeks low. All this only indicates that money is being taken out from the equity markets all over the world.
This is not the time to invest for the long term as every possibility is there that the same stocks will be available at lower price.
A look at all the above reasons will hopefully convince our dear subscribers that our decision is right. The capital must be saved. Reckless buying at any level is not a good idea.
Readers will remember my February letter. I had given certain reasons and advised to play safe for at least 25-35 days. My predictions came true and we know how the markets behaved in March. I’m not very comfortable with the market movements these days and my suggestion is to stay away for some time, at least till we don’t see some improvements.
Don’t forget life is long and Money Multiplier knocks your door 52 times in a year.
There will be enough opportunities.
With all this we are still confident that the long term prospects are very bright.
Krishna Kumar Mishra