Orpheus India Outlook 2010

 

 
Absolutely speaking India is in trading range for 2 more years, relatively speaking it’s time to shift allocations.
It’s the time of the year, where we account for what we got right and where we were off mark. This is what we said in our annual outlook in Jan 2009 and what happened.
Anticipated – ‘We won’t be surprised if prices retest October lows or breach them marginally in early Q2, 2009. And this means selective stock picking and minimizing market exposure by doing quantitative long short strategies. 13,000-15,000 is an achievable high for Sensex in 2009.’

Happened – Sensex touched 15,521 in Jun 09 and now prices are 16% above 15,000. The Oct 09 low 7,699 was tested marginally in Mar 09 at 8,047.
Anticipated -‘BSE Metals was the worst performing sector of the year at -72 returns. We expect it to deliver better returns’

Happened – BSEMETALS was up 339%
Anticipated -‘Long BSE500 and short Sensex also seems an attractive pair’

Happened – The pair was up 14% till date from Mar lows, up 5% from Mar – Jun 09.
Anticipated – ‘Don’t get too much into the negative mode despite all crisis talk.’

Happened – Assets moved up 100% to 300% after Mumbai attacks. You can’t say we did not try to convince you. We wrote on ‘History, markets and terror’ explaining why the Mumbai attacks didn’t happen at a market top. We wrote ‘Russia Oil and the Global low’.

Anticipated -‘The expected bounce should be choppy and time consuming.’
The markets rose clearly from Mar to Jun and then got into choppy sideways action.
Anticipated – ‘The tech reversal – 26 Jan 09’

Happened – Technology reversed and pushed up 191%.
Where we got it wrong
24 July in our half year outlook we said
Anticipated -‘We repeat the best of 2009 is nearly over and any upside from here should barely reach double digits (less than 10%) for the 12 indices we discussed above’

Happened – Though BSEOIL, BSEFMCG, BSEREAL, BSEPOWER did not cross 10% gains since 24 July high. The rest of the nine indices broke the 10% barrier. On average all sector indices registered 19% gains since 24 July.
Though we said the expected bounce should be choppy and time consuming, there were sectors and indices that grew without a pause like CNXIT.
‘Performance cycles’ is a term coined by us at Orpheus. This is another name for time triads, time arbitrage, time fractals but expressed in terms of relative performance. It’s a bounded oscillator that moves in a fixed range say 1-30. 1 is top relative performance and 30 is worst performance. The idea is that performance is cyclical. A top performer will underperform in future and vice versa. A top relative performer is also the worst value pick and the top relative underperformer is the best value pick. We have carried the quarterly Numeric Ranking for Nifty 50.
Top performers for Q1 2010 – Reliance Infrastructure, Grasim, Reliance Com, Bharti, Reliance, L&T, Jaia, Dlf, Idea, Ambuja, Reliance Cap, Reliance Power, Suzlon, Unitech, ABB. The top underperformers for Q1 2010 are Punjab National Bank, Jindal Steel, Cipla, TCS, Tata Motors, Wipro, Ranbaxy, Tisco, HDFC Bank, SBI, SUN, M&M, Infosys, GAIL, and SAIL. The passive way of investing using performance cycles assumes that you have 30 stocks with 10,000 Euros each in the 30 stocks. Now you close the top underperformers and reinvest the cash proceeds into the top performers. The active way to play on performance cycles is to go long top performers and short top underperformers. This would need pairs, value hedging and beta classifications and of course understanding of leverage.
Regarding the overall market direction, we can look at time again. Markets go up when the time confirms and vice versa. Time fractal approach means that if we need a view for the 12 months and few weeks ahead, we need to see how time is placed few months and weeks. This is what we did. We plotted the time (days) between intermediate trends. The time indicator is an oscillator. A rising oscillator indicates a trend and a falling oscillator indicates counter trend. At this stage the intermediate time indicator is still rising suggesting there may be further upside. Any rally in Indian markets should not last beyond Q1 2010 (high of 2010). At this stage however, we see the market opening positive on 4 Jan and pushing higher. A net positive 2010 is a low probability scenario at this stage. India is in a multiyear trading range for us, something like the 1990’s US bear market which lasted for 4 years. Till the time we get clarity on the absolute performance, we will stick to the relative performance, get out of today’s top performers and get into today’s top underperformers.