Today I want to Share a Secret with you. A Secret that will help you successfully Invest in the Market. Lately Markets have been in a strong up move and a lot of people ask me as to what i think about the direction of the market. To be honest, there are only a few people who i know who can predict the market but the best traders React rather than Predict.
At Stallion Asset we Strongly believe in Data, infact we don’t have a television in office. The Reason of this Blog is not to criticize television but to tell you that in the short term and the long term, data suggest that there is only one Independent factor that you should track very Carefully but i guarantee you that you don’t track it yet. Believe me after reading this blog, it will change the way you think.
The Chart Below is a 23 year Chart of MSCI India & MSCI Emerging Market Index from 1992 to 2014
Shocked? Surprised? Impressed? looking at the Similarities.
We used 1992 as base year as that is the year where FII’s were allowed to Invest in Indian Markets. The Indian Markets have exactly the Same Patterns as MSCI Emerging Market Index for last 23 years. Let me Repeat, this is not a 2-3 Month Chart but a 23 year Chart of MSCI EEM and MSCI India. We in India worry so much about Rainfall, IIP and other things but actually its Global market which matter’s the most.
What is the MSCI Emerging Market Index?
The MSCI Emerging Markets Index captures large and mid-cap companies across 24 Emerging Markets (EM) countries. With 842 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in each country.
India & All Emerging Markets move in Tandem, want more proof of it?
The Biggest Event of the Decade in the Indian Economy has been Demonetization right ? The below is a 2 year chart of MSCI India & MSCI Emerging Market that will help you understand that Domestic Factors have only a limited effect on the Index.
If you see the Last 2 year Chart the Patterns of MSCI India & MSCI EEM have remained the Same even after demonetization which was an India only event.
The thing is that Markets are Global & this can be Statically Proven by the Below chart with the Help of Correlations.
Correlation of 83% between MSCI Emerging Market and MSCI India is of extreme significance and is higher than that of HDFC & HDFC Bank clearly showing the strength in the Correlation. The above chart shows that 69% of Movements in Indian Markets can be explained by just one factor i.e. the MSCI EEM.
Sector Performance- We have successful proven that Indian markets are heavily correlated with Foreign markets but domestic news flow in Indian Market helps us understand which sector will outperform or underperform, but overall markets are heavily influenced by Emerging Market Index.
This Time its Different – These are the 4 most dangerous words and a lot of Guys may argue that this time its different & it is domestic money which is driving the market rather than FII Money, but believe me FII’s own 21% Stake in BSE 500 Companies, whereas mutual funds own just 5% and its never different.
Conclusion – In God we trust, but everyone else should get us data. The Information presented helps us give less weight to noise about local & Random factors which explain only 30% of Indian Stock Market movements but give more weight on Emerging Market Index. The Secret has been hidden for many years and hopefully will no more be a secret anymore.
Watch the Video Now for Full Presentation & better Understanding of the Topic.