Disclaimer:
This post is not a recommendation. Any stock/sector mentioned is not a recommendation. I am not SEBI registered. These are my personal views.
Frankly, today was a lot of action, writing, and sharing this post to unwind.
“There are decades where nothing happens, and there are weeks where decades happen.”
―Vladimir Ilyich Lenin
Today was a tough day for market participants across the globe. There was a bloodbath across major indices in the world.
How did the Indian Market fare today? Let’s look at NIFTY50
So far, it has not breached the EMA 50 (on daily charts). To put things in perspective we are only 4% off the Top. However, the downward momentum is strong with two successive gap downs.
Compare that with other Major Indices
NIKKEI (JAPAN)
KOSPI (South Korea)
S&P 500 & NASDAQ
Better looking at this point compared to Japan and Korea. Recovering from the bottom.
What’s happening around
(1) Yen Carry Trade Unwind: Law of unintended consequences
One of the key tenets of Abenomics was monetary policy. They intended to take Japan from a deflationary state to a 2% inflation target. To achieve that one of the major instruments was the ultra-loose monetary policy which included large bond purchases by BOJ and negative interest rates.
Rather than bringing the desired objectives, the easy money was being channeled into riskier assets abroad. (Carry Trade)
As Japan increases interest rates and decreases liquidity in the system and on the other side US decreases rates, the pay-off in carry trades is becoming negative leading to a reversal in the direction of flows.
This reversal is evident in the sharp Yen Appreciation (Over 13%+ in a month)
This flow of capital trying to create equilibrium is creating havoc in financial markets.
As far as India is concerned, I hope that the contagion is limited.
(1) India is not meaningfully dependent on Foreign Money, especially in the stock market with domestic flows taking charge of things
(2) The economy is on track, with the fiscal deficit decreasing.
(2) Coup in the neighborhood
The political situation in the surrounding nations impacts a lot more than we care to think about.
The toll a country has to take to safeguard (expenditure on defense) which otherwise could have been used in other welfare/development programs
That said, as Hon'ble EAM said " we can't choose our neighbors". This is the reality we have to live with.
This situation imo is favorable for the Textile space at large. Actual results, however, are not black and white but in shades of gray.
eg. Though we might benefit from supply constraints from Bangladesh, other countries like Vietnam may step up their game or the global market may slow because of a recession
Given, that we have hostile borders left and right, this could mean a continued push towards the defense sector and the resolve to be self-reliant in defense
To Sum Up - What am I doing
Focus on your Plan. Whatever your plan is focus on that.
The tenants of my plan are:
(1) Risk Management
As part of Risk Management, I exited positions where SL triggered and prematurely closed positions to raise cash in the positions that were recent or in loss.
Further, I'll be monitoring the price action and will be exiting wherever SL triggers.
To get back in the game, need to prepare a list of strong RS names/sectors.
(2) Diversification for the long innings
I've already covered my asset allocation approach in my previous post
My overall net worth is quite diversified. You have to invest to the level where you can sleep peacefully.
(3) Keep on learning.
There is no substitute. Keep learning, keep compounding.
***
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Disclaimer: I am not SEBI registered. The information provided here is for educational purposes only. This is not a buy or sell advice. I will not be responsible for any of your profit/loss based on the above information. Consult your financial advisor before making any decisions.
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Will happenings in Bangladesh have substantial issues at borders? I don't think so however we may have internal problems on religious grounds.