Result hour – time to take stock.

“Trade deficits hit a two year low “. The domestic headline flows clearly seems to be putting the bad news behind. But, a slowing global economy, the stalling crisis in the US over spending limits and dropping domestic growth are not giving much comfort to Indian investors. The lack of growth will necessitate a calibration of investor expectations. A downward revision of earnings is likely in the coming weeks as companies report Q2 numbers and revise their forecasts and guidance downward. When markets expect this to happen, it takes the bad news in its stride and moves on coolly. The markets will be keenly looking for green shoots of a recovery in stressed parts of the economy. Good news on this front will see money slowly return from defense to risk.

Focusing solely on the rear view mirror causes the worst investment accidents.

Invest speak:

Defensive sectors have had their run in 2013 as the markets take their bets off risk and choose safety. This choice by an overwhelming majority of money managers, made defensive stocks costly and unattractive. Yet, large investors and fund managers simply preferred to buy them. The reason was to at least return market performance and avoid risking under-performance by out of favour sectors. So, the defensive sectors like FMCG, IT and Pharma became overvalued while the smokestacks like power and the out of favour sectors like capital goods sold cheap. Investors will need to revisit the relative merits of risky vs. defensive stocks. There are moments when defensive stocks turn risky as their prices peak out. Price turns defensive stocks risky and loss averse investors must bear that in mind.

istrat: Time to rejig portfolio and raise equity exposure.

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