In December 2012, Ridham Desai of Morgan Stanley had advised investors to buy stocks with the promise that they would see a 25% gain in 2013. He repeated that promise in April 2013 and exhorted investors to “buy aggressively”. He said that while there would be pain in the short-term, the gains would be “outsized” in the medium to long-term. He also made it clear that the Morgan Stanley Model Portfolio was “massively overweight” on Banking stocks.
Interestingly, Ridham Desai’s “buy aggressively” call had come as a counter-blast to Shankar Sharma’s “Sell Now – Doomsday is coming” call.
Today, just a few weeks later, Ridham Desai has thrown in the towel and changed his stance. He is now advising investors to sell stocks at every relief rally and run.
In his latest interview to CNBC-TV18, Ridham Desai defended his change in stance by arguing that “What has changed since May is that the world’s reserve currency has told us, it is no longer interested in funding our Current Account Deficit (CAD). Until then we were having a party because the world’s reserve currency was happily funding us because they had their own set of problems. Once they decided they don’t want to fund us, we have to fix our CAD”.
Ridham Desai explained that the RBI had no elbow room in the short to medium term to lower interest rates because if it were to do that, there would be a flight of capital from India to the US (where the interest rates were increasing due to the tapering of the quantitative easing (QE)) and this would lead to further weakening of the rupee. Also, the consumer price index is at 9.7 percent reducing the scope for a lowering of the interest rate even further.
Ridham Desai also pointed out that a similar thing had happened in 1998 when the RBI had hiked interest rates to tackle the Asian currency crises. It took three long years before the interest rates could be lowered, he said.
He added that today the equity yield is 7 percent while the bond yield is at 10 percent. There is a negative 3 percent gap which meant that either the bond yield had to go down or the equity yield had to fall. If the equity yield has to fall 3 percent that is almost a 20-25 percent knock on equity share prices, he emphasized.
So, the bottom-line is that Ridham Desai is of the view that valuations are not cheap and more downside is in the offing. So, if you want to sell your shares, you may do so at every relief rally that you see.
With this move, Ridham Desai has joined the camp of Shankar Sharma who was the first to predict the great Bear Market.
As wise man has said “Predictions tell more about predictors than future” 🙂
Though I am not defending this guy, but a lot has changed since he made his prediction. Govt has taken “not so right” decisions, RBI cannot yield on rate cuts, Tapering etc. Hence, he cannot be held guilty to change his stance.
Well Mr Kaushal,
Since when congress has taken any right decisions since in power ?
First of all,its creditable that he had the courage to come out & change his stance.Secondly,its very true that a lot has changed ever since RBI announced the rise in SLR,etc.Thirdly,he has given excellent,detailed reasoning for his views.If investors followed him then many of the IT cos have given 60%+ returns since he first suggested a buy.Anyways,we are in for bad days…more than CAD,trust deficit is eroding stock prices.
Sir,
Some error has crept into the transcription of talk of Ridham Desai , in the underquoted para:
“He added that today the equity yield is 7 percent while the bond yield is at 10 percent. There is a negative 3 percent gap which meant that either the bond yield had to go down or the equity yield had to fall. If the equity yield has to fall 3 percent that is almost a 20-25 percent knock on equity share prices, he emphasized.”
Instead of words “the equity yield had to fall” , it should “the equity yield had to rise”, and also instead of “If the equity yield has to “fall “3 % , it should be “If the equity yield has to “3%”.
Hope, you make the necessary correction in the abovetranscription.
Thanks
ttthakur
i do not agree with this Ridham Desai has joined the camp of Shankar Sharma
its bullshit