Haphazard Linkages

After venting my thoughts on the state of India , the country, I return to the world of equities – and sanity - with this post. Seasons come and go, years go by…but to suggest some connection between the weather and the equity market would sound somewhat ludicrous, won’t it? I had this strange hypothesis of Summer being the worst ‘season’ to trade Indian equities, and Winter the best. Did the actual numbers support this theory? Apart from the intellectual exercise, I wanted to see if a trading strategy could be built around the Indian seasons. Here’s the outcome of my curiosity... In this post, I take a look at the performance of the BSE Sensex since its birth. A ‘filter’ he re is that I have split up the months of the calendar year based on the ‘Indian Seasons’. So, I have June to September representing the Monsoon season, October to January representing Winter, and February to May representing Summer. Summer Effect There are some sound reasons for Summer being th...

Continuing in the spirit of Haphazard Linkages, I look at the consequences that a false sense of ‘progress’ has on an economy. Things may look ‘good’, but is it a true and justified reflection of the resources at a country’s disposal? Can things be made better? An economist aims for efficiency. A state where one individual cannot be made better off, without making another worse off in some way. On the 60 th anniversary of India ’s independence, patriotism and a sense of well-being abounds everywhere. People are mostly unanimous in their verdict that India had arrived and bask in glory…The Times of India headline, “60 and getting Sexier” couldn’t have captured it better. Every news channel and celebrity waxed eloquent about how much progress India had made during this time. Waxed eloquent about India ’s stupendous GDP growth…about India Shining. Did this appraisal reflect reality? Or was it just another day where patriotism oozed out of wherever anybody cared to look?...

History...once again triumphed...The gloomy story painted by the behavior of Credit Spreads played out in the equity markets (again) . The S&P 500 finally fell by over 7% from its high in response to the developments in the credit markets. Expectations of ever higher premiums in takeovers finally receded into the background. The markets seem to be rational again...Or, is this just the proverbial tip of the iceberg? Another hedge fund, Sowood Capital, succumbed to the sub-prime disease. It seems there will be more casualties along the way. Evidently, private equity buy-out firms - for whom credit is equivalent to blood - are finding the going tough. But few seem to be openly accepting it. In more ways than one, the tightening of credit is good for the markets, in terms of adjusting investor perception towards risk. This article from this week's Economist makes for good reading. I am going to be watching the happenings in the credit markets with rapt attention in the com...

An army of market watchers around the world spend a lot of time predicting market direction. Some follow the fundamental approach and base their views on things like earnings growth of corporates, P/E multiples etc; while some follow the technical approach. The latter express a view on market dirrection by reading charts. They talk support, resistances, head & shoulders, negative and positive divergences etc. While neither of the methods are per se ‘wrong’, it would be rather intuitive to learn about movements in one asset class by looking closely at what happens in another asset class. Credit Spreads is one such ‘indicator’. Investors in ‘Junk’ bonds - bonds issued by companies that are teetering on the brink of disaster are classified as ‘junk’ - need to be compensated adequately for assuming higher risk by investing in the junk bond as compared to investing in a government backed Treasury Bond. So they demand a higher yield for investing in these bonds. The difference b...