Matrix: Reloaded

Author : Anky, the 'Sabu' guy.

Now that we are well versed with various asset classes. Lets look at strategies, inter-linkages between various asset classes and how they react on various measures.

So we know when CB(central bank) cuts rates or does easing, risk assets rally. Also, the local currency depreciates. Look at it this way, when CB cuts rate they are basically increasing the money flow in the market. So more INR coming into market means, value of INR should depreciate in short-term(in medium term it may balance again as the demand may increase to cater to the increased supply)

So, lets understand what does weaker currency mean for an economy. The obvious bit here is exporters will benefit ( because they get paid in foreign curncy and thus would get more on simple value terms). E.g. You started exporting weed at $10 for 100grams when 1$=40INR. Now INR weakens due to RBI rate cut and 1$=50INR. So, now for the same 100 grams of weed and at same price like before you would be earning more,10INR more.

So their lies your first strategy too. Lets assume everyday at the end a stock is fairly valued(that means its trading at the price where it fundamentally should). And then RBI cuts rate then exporters will benefit more and should rally or outperform(**again make sure you actively track these events, because most of the times these cuts, etc are priced in early by the market. So by the time the actual rate cut happens exporters had already rallied**)

So any export driven equity name does well during INR weakening. And thus you find IT companies doing well when INR weakened( IT companies clients pay them in foreign currency, so the currency conversion helps them). And this is also the reason why recently you had IT names falling because INR strengthened.

Now you also have geographical exposure for various companies. And any positive development in that region helps those companies. So when you had Japan doing heavy quantitative easing( kinda like easing but here instead of rate cuts, the govt buys securities in the market to infuse cash) Suzuki did well and which indirectly helped Maruti as well and the stock rallied. Its these subtle things that if you are aware of or atleast know about then you can google out and find results and your desired stock to buy ahead of markets.

Another example would be impact from commodities. Now, being a major importer India and a lot of its companies use various commodities which are imported. One bad weather (where the crops are imported from) and if the crops are affected, their prices go higher and that would increase your input costs and thus lower your margins and hence the profitability ( recall equity means you are owner, so something bad and you would also suffer)

So to sum it up: Easing by CB implies INR weaker implies Exporter stocks should rally

Also, Positive development in your geographical region implies your stock will rally

And lastly, Bad weather raises agri or commodity prices implying higher input costs implies lower margins implies lower profitability and thus Equity sells off

Thats why I call it.. Its all interlinked.. One action affects various others in smway or the other.

Word of caution here: The strategies above are all fundamentally true. What you as an investor need to gauge is predict things that are likely to happen in future ( via reading articles, etc and your own learning). At no point these wikl give you assured returns, as I said you need to track stocks well and read about them to understand the price movements and what all factors are priced in. Trust me have patience, market will give you enough opportunities even based on the above 3 strategies to trade well, but choose stocks after reading well about it. Nobody controls the market, but atleast be informed where you are investing.