The Sensex ended Friday (27/01/12) at 17,233.98, reflecting a sterling 11% YTD performance. Undoubtedly the Indian equity market and global equity markets in general have gotten off to a strong start in 2012. Despite the lingering fears related to a potential Greek default it appears that most investors have taken the view that Europe will “muddle through”. I personally think there are still a number of potential shocks that could impact the global economy and still don’t believe that the US has avoided a recession for a number of reasons. First, ECRI (Economic Cycle Research Institute) made their recession call back in September, 2011. Although the recession case has been weakened by the recent spate of good data coming out of the US, I’m hesitant to bet against their forecasting prowess. They correctly called the slowdown in the summer of 2010 as being temporary when the growth of their WLI indicator dipped significantly. Thus, in my view they don’t make recession calls without conviction. Given the recent weakness in WLI growth, combined with the decline in the Baltic Dry Index, I think it’s still too early to say the US will avoid a recession.
In terms of the Indian market, we’re still seeing some underlying weakness as well. The Economic Times is reporting this morning that 4 companies have let their IPO deadlines pass based on market concerns. Micromax mobiles, Pride Hotels, Betul Oil and Tara Jewels all let the January deadline for launching their IPOs pass. Typically, in the later stages of a bull market you would expect a number of companies to come to market to raise capital. Anyone remember the late 90’s in the US? Furthermore, the article mentions that at least 25 companies had held off their IPOs plans in 2011. I would need to see confirmation of strength in the primary market before making the call that the bull market has made a comeback. I think the more likely outcome in 2012 will be high volatility as markets and investor sentiment are whipsawed by events in Europe.