DON'T FRET OVER REXIT OR EVEN BREXIT, MARKETS ARE FINE!!

WHY STOCK MARKETS WILL MOVE ON

I was in 2 minds about the conclusion of my thoughts on markets post Rajan till 30 minutes back. That is when I decided to go for a walk and by the time I was back, I was fairly certain about what I was going to write. It rained cats and dogs and it still is while I write this. So makes my job easier.

First things first – The only reason anyone should even fret about Rajan exit was because of its timing. It couldn’t have come at more uncertain time with market already bracing itself for the Brexit vote and some renewed uncertainty over the progress of monsoon.

If this was 2015 second half or first 2 months of 2016 when the stock market went through a cyclical bear phase, I wouldn’t have ben surprised by a 300 point Nifty fall. However, things are different now. This is a market in which smart money is so hungry for bad news (so that it gets an opportunity to buy cheap) that the first major correction (if any) will be lapped up by both hands.

The best example of what I am saying was the market’s reaction to the changes in P notes regulations, which the market forgot in a matter of 45 minutes. Last year, the market was making lower highs and lows on the day of good news. This year, the market is making higher highs and lows on the day bad news hits it. In stock markets, you don’t argue with the tape. It’s telling you something

So what makes me so bullish and comfortable on the state of markets? Let me go back to the opening para – the rains. The monsoon is THE MOST IMPORTANT trigger this year for us and if we get a normal monsoon, then you will find (with benefit of hindsight) that REXIT was a great buying opportunity.

After-all, RBI as an institution is way bigger than any individual. Yes, Rajan has done a good job in RBI's war on bad assets and crony capitalism but there is no reason to believe that his replacement will do any different. On the other hands, if the new governor leads to even slightly easier monetary policy, the market will get one more catalyst for a rally. 

Now, the next important trigger this week would be BREXIT. If Britain decided to stay within Euro zone, all markets are poised for a big rally and India would be part of that. If however, the dreaded BREXIT does take place, then again I will repeat the same point. If the monsoon is good, you will find that BREXIT was once in a lifetime opportunity to accumulate stocks.

For tomorrow, trade with caution – Buy any significantly big dips in good stocks and be prepared for a mark to market of 10-15% and don’t be afraid to buy more if that happens. I don't see this market moving anywhere lower than 7800 in a worst case scenario. The way I see it, if we have a good monsoon, this market is on course to hit a new all-time high at some point in Oct-Dec quarter.

Disclaimer: The author of this article does not invest/trade in stock markets including derivatives. His only exposure to stock markets is via the stock options given to him by his employers as part of his compensation