The 2011 Outlook – Get ready for inflation investing?

“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.”
Mar 2010 high was 17,793 (Sensex). Markets closed 2010 15% up. 2010 became one of the least change years on Sensex since 1990. Now one may say, so what, it was positive. Well getting in and out of the market costs money. The Nifty indeed went to sleep in 2010, as the fear gauge VIX went to historical lows and stagnated at sub 20 levels.  Sub 20 VIX for multiple months is high complacency, which did not deliver. High complacency that does not deliver is like an exhausted market in a state of rest before tumbling lower. For me sub 20 VIX after almost 24 months of rise can never be an absolute buy. I need to see a real volatility spike for at least a few weeks before any return of the absolute bull.
In 2010 we made cases suggesting relative opportunities and illustrating how absolutism was old tech. Marginal move on Sensex just proved us right. Relatively we talked about ‘Health Care outperformance’ on 09 Sep. We talked about top shorts  on 19 Nov in ‘India Pair Grid’ when we mentioned that Banks were a sell and Federal Bank, Bank of Baroda, Cummins, Corporation Bank, Canara Bank, Andhra Bank, LIC housing were best shorts. LIC Housing cracked more than 30% after the signal. We also talked about best longs like Punj Lloyd, Suzlon, Housing Development and Infrastructure limited, Sesa Goa and NTPC. We got many of the calls right. Relatively we were able to capture alpha. We ended last year with ‘The Rieki Hedge’ 9 Dec where we illustrated how a hedge could be made profitably.
About 2011…
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Coverage India: BSE500 traded stocks and Indian Indices.