The Nifty remained subdued and was down 1.6% for the month. Aggregate corporate performance continues to be weak. On top of this, there are concerns over a slowdown in economic reforms, due to the election loss for the BJP in Bihar. On the other hand, there seems to be some early signs of consumer confidence picking up, with some consumer oriented businesses indicating a pickup in business momentum this festive season.
The most awaited event in recent market history is the Fed meeting planned for December 15-16. To give you a backdrop of why this particular Fed meeting is important, one needs to step back to the year 2008, when the Fed dropped its Fed funds rate to zero for the first time. Subsequently, when the Fed felt the need to further stimulate the economy, it went ahead and did what is known as Quantitative Easing (QE) wherein they buy government and mortgage backed securities from market participants. The Fed eventually did three rounds of quantitative easing over the years.
You may recall a couple of years back a term ‘taper tantrum’ splashed across pink newspapers. This was the time when the Fed first started communicating to market participants that it may begin to taper off the quantitative easing and eventually stop doing more QE. The term taper tantrum was used because there was a minor earthquake in emerging market currencies, when the Fed announced that it intended to taper. Interestingly, when the Fed actually started the taper, the market did not seem so nervous.
Having stopped the QE, the next step in normalization of monetary policy would be to start increasing interest rates from zero, because not only are zero interest rates not ‘normal’, given history, for interest rates to remain so low for so long is also somewhat unprecedented. Over the last 8-9 months, the most covered financial question by financial journalists is about when the Fed would increase rates. The uncertainty around this question has created a fair bit of volatility in currencies, commodities and other financial markets. Even Dr Rajan, the RBI governor, has expressed his concern about the uncertainty that has remained hanging over financial markets for a while and the impact it may be having on decisions of other central bankers around the world.
So, while the jury is still out on whether the Fed will actually increase interest rates at its coming meeting, our hope is that the Fed will just go ahead and bite the bullet and get this uncertainty out of the way. It is true that the global economic recovery is still fragile but perhaps this uncertainty around the rate hike is not going to help the recovery much either. The patient does need to be taken off life support to at least observe how she behaves on discharge.
Meanwhile we continue to scan the market for opportunities that may arise from the volatility which is in any event a characteristic of Mr. Market. The current market mood remains fairly stock specific, and that is the kind of market that suits us because we pride ourselves in our ability to spot mis-priced opportunities, especially with reference to high quality stocks – our search continues.