It’s been almost 14 long months that our markets have been under performing and constantly drifting lower with time. We had entered into a series of bad news a year back with crude spike, high inflation etc. This led people to believe that RBI would continue it’s hawkish stance and lift interest rates very high that could cause earnings and investment cycle to dampen which is exactly what happened. Any kind of positive news those days were not affecting the markets as the negative news were outweighing the positives. But today we’re in a kind of situation where a lot of those negative news are already priced in and we’re very close to getting series of positive news. Our markets have been trading neutral these days as on one hand there is expectation that earnings is going to be really bad but on the other hand there are expectations of some cuts from the RBI front.

RBI governor has already stated that their stance is soon going to shift towards growth rather inflation as inflation has shown sharp signs of decline and is on it’s way to 6% by March. Thus we can expect rate cuts from at least March 2012 and perhaps a CRR cut on January 24, 2012. In the midst of these positive and negative expectations, the markets are trading neutral and in a range. I believe that markets are very close to making a bottom and if markets are to make a bottom, it should come about in the next 1-2 months only as after March when RBI starts the interest rate cutting cycle, we would enter a phase where positive news would start outweighing the negative news and markets would not go and test new lows but only bounce back up with time. A rate cut is not a signal of bullish stance but it will change the bearish views to neutral with a slight positive bias.

The closest negative news is only the Q3 FY12 results season which is standing in front of us and has the potential to make the market test new lows and the closest positive news is RBI meet on January 24th where a CRR cut would be blessed by the markets as it signals the rate reversal stance from RBI and would help markets bottom out and start some kind of uptrend. Thus I believe that we’re in the last leg of fall as now there are a series of bad news coupled with equally series of positive news which might keep markets trading in a range and eventually break out on the upside with time as positives outweigh negatives which is likely to be the case when RBI starts interest rate cuts.

This belief signals that each and every dip in the markets now are to be used to accumulate further into the equities as the market is too attractively valued to be let go off. It is difficult to catch the bottom and thus a buy on dip approach works better as you really don’t know that where the markets might go and bottom out, so start buying now itself.

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