Sunday, December 14, 2008
Week that was
Market opened positive for the week because of rate cut announcements by RBI and the stimulus package of the central government, which included some tax relief measures and incentives for exports. Inflation falling to 8.00% and contraction in IIP has given fresh hopes of some more rate cuts by RBI and more action from government to revive the economy. Sensex and Nifty gained around 8% for the week. Realty sector was the biggest gainer during the last week on the hopes of some more rate cuts and relaxation of bank norms on lending to housing sector. Banking sector was also one of the major gainers for the week. Metal stocks went up sharply because of the strong results from Tata Steel and export relief measures announced by the government. Oil and Gas sector was also up because of the speculations that the KG gas issue may be amicably settled soon.
As we expected in the previous week, Sensex closing well above 9350 points is positive news for the market. Rise in the market with strong F&O open interest is another positive factor for the market. Net FII inflows for the week has also improved the sentiments of the market. Hence we may expect that the market will be positive during the next week also. Fate of Auto Relief Package in US Congress, Federal Reserve’s decision on further rate cuts, fresh RBI/Government measures to revive our economy will impact the overall direction of the market.
Technically the Resistance levels are
Sensex - 9750-9850, 10200-300,
Nifty - 2980-3030, 3140-60
Technically support levels are
Sensex - 9350-9450, 8700-8800
Nifty - 2800-2810, 2675-2700
Traders may initiate long position at current levels and at around 9350 levels and short position around 10200 levels. Trading positions should be with strong stop loss limits.
Rupee is expected to strengthen further against the US Dollar and move between 47.50 and 49.00. Its direction will depend on the factors discussed above.
Happy Week Ahead
Sunday, December 7, 2008
Sunday, November 30, 2008
Week that was
Bailout of Citibank and Slashing of interest rates by China kept the hopes of the global markets alive. There was a very much positive movement in majority of the global markets from which our markets also took cues. There was a marginal rise in the large cap indices on a weekly basis. Sensex closed above the crucial support line of 8900 points, which gives hopes of positive trend for the next week. However, Real Estate sector was the worst hit.
Inflation continued its downward trend falling to 8.84% and GDP growth was at 7.60% raising fresh hopes that RBI may cut rates once again. Rupee had a marginal fall against USD closing at 50.12.
As said earlier, there are chances of mild up-trend for our market. Sensex will have a strong support around 8650 levels and find resistance at 9350, 9650 and 10200 levels. Further direction will depend on the global cues and decision of RBI to cut the interest rates. Rupee will be range bound and consolidating around 50 levels. Rupee movement will depend on stock market trends and NDF market movements.
Happy week ahead.
Sunday, November 23, 2008
Week that was
Our markets were showing negative trends throughout the last week except for the last day’s surge taking cues from Global markets. Major global markets were very much negative during the week and many of them hit fresh lows of the year. Official confirmation of recession in Japan and few other countries helped the bears to have a complete grip over the market.
In India, Rate cut talks and moderation of inflationary expectations did not help our markets much that closely tracked the global events. Prime Minister’s request to the corporate to cut the prices to revive the economy did not go well with the market. Even though crucial line of 8900 points was broken during the week, the last day’s last hour surge helped the Sensex to close above the line of 8900 points bringing in some hopes.
For the week, Sensex lost around 470 points (5.10%) and Nifty lost around 120 points (4.16%). Once again, the Realty sector was the worst hit followed by Banking and Metal sectors.
Crude Oil prices went below $50 during the week. CBOE Vix peaked at 80 during the week and then had a fall during the last trading session of the week.
FIIs continued to sell in Indian markets and our Forex Reserves further came down to $246 billion dollars. Inflation had fallen to 8.90% from the previous week level of 8.98%. Indian Rupee weakened further against US Dollar because of FII selling, surging import needs and NDF market arbitrage.
Last day of the previous week witnessed a rise for the indices with a high F&O volume indicating that the short-term trend will be positive. Fall in CBOE Vix (US) also supports the view as the global volatility may come down in the immediate future. Even though there are fears of a possible Citibank bankruptcy, markets are now in an oversold zone and there may be short covering and bottom fishing at every lower level.
There are strong bets in our market on a possible rate cut by RBI, as there is a moderation of inflationary expectations, which may help our indices to stage a brief relief rally.
This week, Sensex may march towards 9400 levels breaking which to 9800 levels. In case of any bad news from US, the downside targets are 8400 and 7800 points.
Rupee may consolidate around 50 levels with a positive bias, as the immediate expectations on our equity markets are positive. Further direction will depend on the movements in NDF markets and Equity markets.
Investors may look into stocks of public sector banks, which may be benefited by the probable rate cut with a long-term view. Similarly, Oil Marketing Companies, which are going to be benefited by the fall in international crude prices, may also be good bets for long-term call.
Wishing you a happy week ahead.
Sunday, November 16, 2008
Week that was
Every thing looked fine at the start of the previous week. There was a massive stimulus package announced by China. Dollar demand across the globe had eased down. Pace of FII outflows from Indian markets had slowed down. Global cues were better. Local sentiments improved. Helped by the above factors, Sensex rallied to the levels above 10500 points at the start of the week itself.
Huge sell-off came thereafter. Sensex lost more than 1000 points from the top it formed for the week and ended with a net loss of 580 points (5.81%) for the week. Better than expected IIP numbers (4.90%) for the first half-year (2008-09) and surprise fall of Inflation rate to single digit (8.98%) failed to arrest the losses for the week. Realty Sector was the worst affected with a weekly loss of 14% followed by Capital Goods Sector.
US economic data released during the week confirmed that US is in the grip of recession. Also, there were doubts in the minds of investors regarding the continuity of support to the Wall Street after the regime change. Nasdaq lost as much as 8% and Dow Jones lost 5%. Other major Global Indices barring China also faced big correction during the week.
Rupee witnessed one more fall because of renewed demand for US Dollar. Crude Oil continued its downslide.
G-20 meeting has come out with a set of sweeping plans to revive the world economy. Efficacy of these plans is yet to be known as an outgoing US President headed the meeting and the incoming US President did not participate in the meeting.
Surge in CBOE Vix (Volatility Index) and NSE Vix indicate that there will be huge volatility in the coming week also. Technically (as we mentioned in the previous week) Sensex has already broken the important support line of 9600 points and closed well below it. Other technical indicators also point out that the downtrend may continue in the coming week also. However, with the Inflationary expectations moderating, any RBI action in bringing down the interest rates may be a positive factor for the market.
Sensex may find a technical support around 8900 points and a resistance around 10200 points. Traders may consider taking opposite position on extreme situations however with strict stop losses. Investors may consider entering into ETFs (Sensex and Nifty ETF) at the levels around 9000 points with a long-term view.
Rupee is expected to be consolidating around 50 levels and much will depend on FII action and RBI intervention.
Sunday, November 9, 2008
Whatever happened then looks like a dream now because of the Subprime crisis and the consequent global recession.
Since then, stock indices have crashed out. Metals have plunged down. Real Estate prices have been brought down to earth. Multinational (Investment) Banks went bankrupt. Jobs are being lost. Governments are supporting the Banks by providing capital. Central Banks are cutting interest rates drastically and pumping in billions of dollars into the system to ease out liquidity crisis.
As of now, panic level has come down in the financial markets, which appear to be finding a bottom for the time being. Dollars are more freely available in the international markets and LIBOR level has come down significantly.
Experts feel that the first phase of the downtrend is over for the time being. The second phase will be impacting more on the economies rather than the financial markets.
Second phase of the downtrend may witness the bankruptcy (i.e. not able to service the Debt and support the imports) of countries like Argentina, Hungary and Pakistan. IMF has already stepped in to save these countries. Global economy will be slowing down in the immediate future.
Now let us review our markets.
Week that was
As we expected, there was a sharp rally in the in the equity market for the first two days supported by cutting of interest rates by the central banks across the globe and FII inflows. However with the global markets turnig negative after the US elections were over and our weekly Inflation (10.72%) being much higher than the market expectations, Sensex was not able to cross the resistance level of 10750 points decisively. Huge sell off was then witnessed taking the index back to 9600 levels. Still, Friday’s small rally of 230 points helped the Sensex to close positive for the second week in a row. The positive news for the week was the return of FII flows into our markets. Bad news is that the series of economic data released in USA confirmed that USA is grip of recession.
Rupee rallied against US Dollar after hitting a historic low of 50.15 levels in the previous week. However the bad news is that the Forex Reserves of the country dipped by another $5.5 billion for the week ended 30.10.2008.
As we mentioned earlier, the panic level has come down and there is some sort of stability returning to the markets across the globe.
Arrest of FII outflows and rather some inflows into our markets too have improved the underlying sentiments
Technically, Sensex can again rise to the levels of 10800 points breaking which it may move towards 11800 points. Only precondition is that it should hold above 9600 points and in case of any fall below that level it may retest 8900 levels once again.
Traders are suggested to take position according to the global movements however with strict stop losses.
Investors are suggested to buy some blue chip stocks and public sector banks with a 3-5 years time horizon at fall, as there is limited down side from here onwards.
Rupee may consolidate around these levels as (already mentioned) there is easing of dollar demand in the international markets.
Have a nice week ahead.
Monday, November 3, 2008
Nowadays, RBI’s moves have become more predictable which appear to be just following the signals from the finance ministry. There has been a cut of 3.50% in CRR (the money, banks have to keep with RBI in cash), 1.50% in Repo Rate (the rate at which Banks borrow from the Central Bank) and 1.00% cut in SLR (the money, banks have to keep in statutory liquid assets) in the last few weeks alone.
Let us discuss hereunder whether these monetary measures can actually help the country in coming out of its economic slow down blues or these measures are simple paracetemol doses given to cure (tranquil) the cancerous diseases.
First of all, let us understand the economic problems that we are going to face in the near future because of the (current) global recession.
Ø There will be a fall in demand across the globe and our exports may be hit. BPO and BFSI segments of our IT sector may also be hit.
Ø Rising of new capital funds by our corporate will become more difficult in the absence of vibrant stock markets and FII inflows (Capital formation is key to sustain growth of any developing country).
Ø Business confidence will come down because of fall in demand and difficulties in rising funds. New businesses as well as expansion of existing business may not take off in large scale. In fact, there are possibilities of downsizing/closure of many existing business units leading to job losses.
Ø Real Estate Sector will be affected because of lack of demand and Lifestyle Sector will also be affected, as the consumers may prefer to cut down their expenditures in uncertain times.
Coming back to the monetary measures as discussed in the first paragraph, pumping money into the system may not help by itself to improve the economic conditions like similar measures (not addressing to the core problem) failed in US. Throwing money into the problem is like adding fuel to the fire.
No corporate will come forward to put additional money (by borrowing) in to their businesses if they find investment is not going to be profitable because of the expected fall in demand. Also, commercial banks may not lend if they find that projects are not viable even if their margins are good. As the Money growth (M3) is already at very high levels, cutting interest rates may make it more difficult to contain inflation in the immediate future.
To sum up, the real problem of today is not the scarcity of money but the risk appetite among the investors because of the lack of confidence in the growth of the country.
On the other hand, there are certain positive factors for India rising out of the current global recessionary environment.
Ø India is basically an import-oriented country. Our growth is more of consumption oriented rather than export oriented like China. When there is a recession across the globe the price of basic goods such as oil, cement, steel and other metals will come down helping the country to reduce its import bill and indulge in more infrastructure building measures at lower cost.
Ø In case of cost cutting measures of businesses across the world, there is a possibility of more BPO business flowing to India. Indian industry can conquer new frontiers if they are able to come out with innovative products (like Nano Car) with high cost efficiency.
Further, there has been a huge economic imbalance created in the last eight years of our economic growth. Few sections of the society have been benefited much more than the masses of the country. Now we have a (forced) breathing time to think about taking the growth to the masses also.
It is the right time for the Indian government to come forward and increase its investment expenditure particularly in the infrastructure, public health, public utilities and primary education sectors, which will benefit both the masses and the industry. Further right mix of prudent monetary and fiscal measures can help us to come out of the difficult times.
Sunday, November 2, 2008
What gives the hopes?
There was a smart recovery in the (last week) opening day’s trade after hitting a multi year low of 7697 points in the intra-day session. Diwali’s Muhurat trading witnessed the best ever Diwali day gain. Wednesday, market managed to hold the big gain with a smooth F&O expiry. Friday, market registered one of its best gains in its history. Thus there were sparklers on every day of the week, registering a gain of 1000 points on a weekly basis. The losing trend was broken in the last week.
US markets also closed positive on a weekly basis. More significantly, the volatility indicator CBOE Vix has come down indicating that the markets are calming down for time being.
There were interest rate cuts by almost all the (major) central banks. India’s turn came after the business week was over as last but not with the least number of cuts. There was a cut of 50 bps in Repo Rate, 100 bps in CRR and 100 bps in SLR releasing around Rs.80,000 crores to the system.
Inflation has also come down on a weekly basis to 10.68% and there are provisional reports indicating that FIIs were the net buyers on Friday. Beaten down stocks like Unitech were the major gainers for the week.
Rupee has marginally strengthened against US Dollar on a weekly basis first time since a month.
All the above factors give fresh hopes that market may stage a recovery in the near term, which can take the Sensex to 10750 levels breaking which to 11800 levels. At the same time, if the market is not able to sustain the opening day’s (Monday) gains there will be down trend which may take the Sensex to 8900 points breaking which to 8300 levels.
All depends on the FIIs’ activities, which have been selling in the market with venom thorough out the entire calendar year 2008. But the pace of FII selling may slow down in the immediate future.
I am still having the view that market may hit a fresh trough wherein the panic will set in the minds of Indian Investors (also) before taking any solid up trend. Till that time, market may be consolidating in the range of 9000-12000 levels.
Investors are suggested to look into large cap stocks that have given good September results and public sector banks at falls. Traders may take a position based on the support/resistance levels as mentioned above however with strict stop loss limits.
Rupee may consolidate around 50 levels and may have marginal appreciation in the light of monetary measures of RBI.
Wish You All Happy Investing Times Ahead.
Saturday, November 1, 2008
Reasons for such sharp fall are
1. Persistent selling of equity shares in our market by FIIs
2. Strengthening of US Dollar against other major currencies across the globe leading to the devaluation of such currencies in RBI’s kitty.
3. RBI intervention in the Rupee market to arrest its fall against US Dollar.
Forex Reserves are of strategic importance to any country. Countries like Argentina and Pakistan are on the verge of financial bankruptcy as their forex reserves are not sufficient to support the imports.
Friday, October 31, 2008
Diwali gift of 250 bps cut in CRR bringing in Rs.1,00,000 crores into the banking system and 100 bps cut in Repo Rate was announced little before the Mid Term Review. Hence, there are no changes in the key rates by the RBI.
GDP forecast for 2008-09 revised to 7.50-8.00% (currently 7.90% against previous year’s 9.20%)
Inflation projection for the end of March 2009 at 7.00% (currently 11.40% against previous year’s 7.80%)
Moderation of money supply (M3) to 17% during 2008-09 (currently 20.30% against previous year’s 21.90%)
Trade of Interest Rate Futures will be introduced by early 2009.
External Commercial borrowings (ECBs) limit is enhanced under the automatic route.
Cost limit for ECBs is also enhanced.
Domestic Oil and Shipping Companies permitted to hedge their freight risk with overseas exchanges /OTC markets.
Stance of the Policy
From the review, it appears that RBI wants to balance its objectives of financial stability, price stability and growth.
With the inflation still being in double digits and Money Supply being well above the target of 17%, RBI is not comfortable in cutting interest rates further.
RBI wants to ensure sufficient liquidity in the system through the Repo window.
At the same time, it appears that RBI will not hesitate to take some unconventional measures such as cutting SLR and increasing FII limits to stimulate growth.
Banks may not alter their lending/deposit rates for time being.
Oil companies may be able to save some percentage of their costs through the provision of hedging.
Even though there have been relaxations to enhance the Forex inflows, it will be difficult to arrest the dwindling Forex reserves.
Sunday, October 26, 2008
What went wrong?
There was a short break in the downtrend for the first two days taking the Sensex to the intra-week high level of around 10,800 points after which the market fell like there is no bottom. Persistent selling by FIIs and global melt down made the market to have an unprecedented fall.
Repo Rate cut, fall in inflation numbers and melt down of commodity and Oil prices did not enthuse the market. A tragedian anti-climax waited for the last day of the week wherein Sensex fell by more than 1000 points thus closing just below its crucial support line of 8800 points.
Index stocks like Unitech (cash crunch), Suzlon (blade breakage) and ICICI Bank (financial crisis) fell prey to romours and faced huge correction in their prices. Reliance pack also continued its downfall.
Real Estate stocks were the worst hit for the week followed by metal stocks.
Rupee went above 50 levels for the first time in its history. Strengthening of US Dollar across the globe and stock market crash were the main reasons for such fall.
Currently, Panic rules the market. There is an insufficient liquidity support in our market, which makes it difficult to absorb the huge FII outflows (outflows have been to the extent of Rs.50,000 crores during the calendar year alone).
Our market will be keenly looking for global cues for the direction hereafter. In particular, there is a series of economic data to be released in US in the coming week which will be closely watched our markets also.
There is an oversold position in the F&O segment and short covering may be expected this week during the F&O expiry will happen.
Next support for Sensex comes around 8600 followed by 8200 points. There is a possibility of a sharp recovery (as it happened in the first two days of the previous week) taking the index to around 9800 levels. Breaking 9800 levels will be key to further upside.
Rupee may continue its downfall and the next support comes around 51.00-51.50 levels. Rupee will be closely tracking global movement of US Dollar and stock markets.
Traders are suggested to be cautious in view of high volatility and those with high risk appetite may trade in options taking contra view i.e. when the market is extremely negative buy Nifty Call Options and vice versa.
Investors with an investment horizon of over 5 years may start invest in ETF (Sensex and Nifty) schemes in small quantities.
Wish you Very Happy. May this light festival bring new light to the stock market.
Sunday, October 19, 2008
Fear, Panic, Pessimism, Exotic Derivatives turning Toxic, Economies darkened by Eclipse, Credit Crisis, Liquidity Squeeze, Sensex Sinking to Four-Digits, Closure of American Banks, Layoffs, Bail outs, Job Losses, Recession etc. The business and mainline media is full of such gloomy headlines these days.
Week that was
As expected by us there was a technical bounce back in market taking the Sensex up by 1000 plus points in the first two days of the market. The rise was due to the positive global sentiments and the confidence of stability returning to the financial system.
However, the last three days witnessed sharp fall in the market despite the cutting of CRR by RBI by full 100 bps (to 6.50%) that too with a retrospective effect and Sensex plunged below 10000 points after two years. The fall was mainly attributed to the exit of FIIs and weak sentiments in our market.
Sensex and Nifty declined by 553 points (-5.25%) and 206 points (-6.27%) to close at 9,975 and 3,074 respectively.
There was a heavy selling in the Reliance Pack and capital goods sector.
FIIs continued to sell. Rupee was trading below 50 mark thanks to the measures initiated by the government to ease the Forex inflows.
The annual inflation, calculated on a point-to-point basis, fell to 11.44% in the week ended Oct. 4 as against 11.80% in the previous week.
Sensex at four-digit level is highly depressing. If the downtrend continues, panic may be spreading across the Indian investors’ minds also and redemption pressure will be huge on mutual funds.
However, with the governments and monetary authorities across the world having initiated many measures to restore the balance in the financial system, there may be a brief pause in the falling trend. Also, fall in inflation rates, fall in oil prices and easing of interest rates are positive factors for Indian macro economy.
There is a technical support for the Sensex between 9700-9800 points breaking which 8800-8900 levels will form a stronger support.
In case of positive news flows and pause of FII outflows, we may witness a short-term bounce back to 11500-11800 levels.
However, the volatility in the market is going to remain
RBI is expected to cut Repo Rate in its mid term monetary policy announcement (24.10.2008).
Investors are suggested to look into relatively safer sectors like Banking, Pharma and FMCG. Investment in ETFs (of large cap indices) is also a good option.
Traders may initiate long position at falls however with strict stop loss limits.
Rupee is expected to continue to trade below well below 50 mark and the general demand for US Dollar is expected to slow down.
Sunday, October 12, 2008
As expected, equity market continued to plunge down during the last week also, mainly due to the worsening global situation.
Technical support of 12500 (Sensex) was broken on the first day of the week itself and then, there was a fall of around 2000 points (-16%) in just four trading sessions making it one of the worst ever week.
Cutting of CRR by 150 bps (and also Fed Rate) did not help in improving the sentiments either.
Relaxation of P-Note norms also did not help the market.
The De-coupling theory losing its sheen as the IIP data for the last month was a shock to market.
Still, the fall in inflation is a positive sign but market ignored it.
Even though, Infosys results were on the expected line, its lower guidance for the year brought the stock down before managing to recover at the end.
FIIs continued their selling spree.
Rupee broken 47 levels and fell further down to near 50 mark.
There is war like situation across the globe and the international leaders are now trying to solve the deep trouble by mutual coordination. Our government and RBI are also doing their part.
Sensex has now corrected by around 50% from its peak at 21000 levels. Next support for the Sensex is around 9800 levels. Stronger support comes around 8800 points.
Technically, the market appears to be in an oversold zone and a short covering may be possible any time in the immediate future.
At the same time, there has been so much of fall, by which, the back of the market has already been firmly broken and hence immediate recovery to the earlier high levels appears to be near impossible.
Also, even in case of a recovery, it will be a long-term process as well as a painful one.
Traders may avoid short positions, as there is a possibility of a swift recovery of at least 1000 plus points in Sensex in case of any positive clues from global markets. Long positions may be initiated however with strict stop-loss limits.
Investors are advised to exercise caution in picking stocks for long term as it is still not very clear which stock is having more FII exposure and which company is exposed to Foreign Currency risks. Investors are requested to look into Sensex or Nifty ETF schemes wherein the exposure is against a group of blue chip stocks rather than investing an individual stock in the current turbulent period of time.
Rupee may test the levels of 50. However, with the measures already initiated by the government as well as RBI with regards to easing the norms on Forex inflows, further fall may be arrested around 50 level.
There is a saying.
“The bull market ends with a euphoria and the bear market ends with a panic”
Sunday, October 5, 2008
Bears continued their onslaught on the market.
Sensex lost as many as 575 points during the week and closed the week at a year low, while the Nifty managed to stay away from a yearly low by just a whisker.
As mentioned herein earlier, 12500 points continued to be the strong support for our markets. Even though, the line was pierced once during the week, market was able to close above the level of 12500 points.
Rejection of Bailout plan by the House of Representatives (US), earlier in the week and apprehensions on the passing of the revised Bailout plan at the close of the week were the main reasons for such fall.
FIIs continued their sell-off during this week also.
Commodities have witnessed one of their worst weekly shows because of the jitters on global recession and strengthening of US Dollar.
Finally, the $700 Billion Bailout plan was passed by the House of Representatives and signed by the President also in double quick time. But the Dow Jones ended in the red with a loss of 157 points for the day because of the worse than expected economic data confirming the recessionary trend.
The annual inflation (India) declined to 11.99% in the week, falling below 12% for the first time in many weeks, as prices either declined or remained stable for most product groups.
The broad market view is that an intermediate bottom seems to be round the corner.
At the same time, as the global conditions continue to remain bad and the FIIs are continuing their selling spree, it is better for the traders to follow a “Wait and Watch” approach.
Long-term investors may consider buying some large cap stocks at fall.
Rupee has broken its crucial support line of 47 during this week even though RBI continued to intervene in the market.
With the FII money going out, trade deficit widening and USD strengthening against other major currencies, Rupee is expected to trade weaker in the coming week also.
Sunday, September 28, 2008
Investors/traders’ confidence is in shambles now.
Is it a Beginning of an End or End of a Beginning?
Main reasons for such a drastic fall are as under.
Ø Collapse of American Investment Banks.
Ø Delay in passing the “Rescue Bill” by the American Congress.
Ø Sell-off by US Investment Banks in Indian markets.
Ø Nuked Banks coming in the way of approval of Nuclear Deal by the American Congress.
Now, we are in a “Make or Break” situation.
Sensex is very close to its crucial lifeline of 12500 points and it is quite likely that the levels may be tested once again.
Now, the important question is, whether the support line will hold for the third time (in the recent past). Any fall below this line may take the Sensex even to four digit numbers.
Immediate outlook for our market is grim and there are unanswered questions how many more US banks are going to fail in the immediate future and how much more money is going to move out of India. Effectiveness of the rescue measures is also doubtful.
Traders are requested to monitor the market closely and initiate action only, in case, the said support line is firmly held or a positive trigger from US (Both on rescue bill and nuclear deal)
Cements, Infrastructure, Capital Goods and Power stocks will be in demand, in case of approval of Nuclear Bill.
Dalal Street is now looking at Wall Street (which is already in shambles) for further direction.
At the same time, we should remember one thing.
We should not confuse between the impact of collapse of US Investment Banks on our markets and the same on our economy.
Indian economy is not much dependent on USA like our stock market.
Our economic growth is more consumption oriented than being an export (particularly to US) oriented. In fact, fall in US demands will help us in containing our import bill as the prices of crude and other basic goods will come down.
Indian growth is more visible now than ever.
Friends are hereby requested to look at our countryside for the visibility of growth rather than looking only at cities like Mumbai and Bangalore.
Indians are now importing Audi like cars whereas western countries are getting ready to import Maruti (Alto New version) cars from India. This fact should give a lot of confidence upon ourselves.
Changing demography in India has resulted in more Indians thinking how to grow or how to make money. Traditional way of content-life style is not there now.
India will continue to grow, even though, the growth rate may slow down by some extent.
Still, India will be the one among very few countries to have growth in times of a global slow down.
At the same, major threats for our economy will be
High Interest Rates
Solving of these problems should be a priority for us rather than looking at American problems.
I am of the personal view that Investors may now look for picking some stocks of high quality companies , which can withstand the (likely to be) turbulent times in the (for at least) next two years.
There is a saying. “When tide recedes, one can see who is nude and who is not.”
I would also like to suggest investors to pick such high quality stocks, over a period of time and not at one time, to minimize the price risk.
Even though, gold prices may go up in the short run because of the uncertainty/negative trends in equity markets, gold is not considered as a very long-term investment call. Once US economy, rebounds gold may loss its shine.
However, a portion of investment portfolio can be allocated to Gold investments to moderate the portfolio risk.
Rupee faces strong resistance at 47 levels and there have been RBI interventions in the market in support of Rupee. As I already mentioned, Government may not be comfortable above 47 levels and there may be relaxation of ECB/FCCB/FCNR Deposits rules to bring in more dollars. Or, there may be relaxation in exports norms or tighening of import norms.
I would like to conclude that while investing in India, one has to concentrate on its own economic issues rather than looking at others. Let us concentrate on our Indian Companies where our hard earned money is going to be invested.
Let us stop worrying for others as we have our own tasks.
Wish you happy investment times.
Wednesday, September 24, 2008
Random market movement causing any investor (Layman) to mistake himself as a financial genius.
A time period (duration unknown) during which, children get no pocket money, wife gets no jewels and the husband gets no sex.
The fine art of buying high and selling low.
The finest art of buying low and selling much lower.
The person who scratches his head wondering why his every prediction goes wrong.
The person, who does not know any thing and accepts that by telling every time, “I don’t know”
The firm, which has just downgraded your stock.
The person, who tells you to buy at higher levels and sell at lower levels.
Earlier prosperous, now poorer than you.
Foreign Institutional investor (FII):
Last year investment bank, this year bankrupt.
Domestic Institutional Investor:
Last year investments, this year provisions
Managing your funds in such a way that NAV always goes down regardless the market movement.
Missing. Will be rewarded in case any one finds now.
Chief Embezzlement Officer.
Chief Fraud Officer.
Analysts/ Investors Meet
Events forgotten long back.
Large Cap Stocks
Stocks where fall is large.
Mid Cap Stocks:
Stocks behaving mad (Cap) way.
Small Cap Stocks:
Stocks getting smaller every day.
Stocks that will make you (multi) beggar.
Stocks you have to search for (in the sky) after some time.
Stocks, which will be hiding from you (or you may hide from it) after some time.
Internet Account of which, the password has been forgotten.
Phones switched off.
Percentage of price correction after your purchase.
Earnings Before I (Industry) Tricked the Dumb Auditor.
Taxi-wala giving tips.
Standard and Poor (S&P):
Lifecycle of an investor in a nutshell.
Your former wife and her lawyer split all your assets equally between themselves.
Day after you buy stocks.
Movement of your invested money down the drain.
Wednesday, September 17, 2008
Origin of Subprime crisis can be traced back to early 2000s when US was struggling under the grip of recession. Terror attack on September 11, 2001 added to their woes. Americans were asked, to enjoy their life by spending, by none other than their President, George W Bush. He said on 27.09.2001, “It's to tell the traveling public: Get on board. Do your business around the country. Fly and enjoy America's great destination spots. Get down to Disney World in Florida. Take your families and enjoy life, the way we want it to be enjoyed".
Recovery of US economy
Americans decided to spend their way out of the economic decline. “Shopping More” was linked to patriotism. Federal Reserve took the initiative by cutting the Fed Rate drastically (key rates went down to 1.00% levels). Rules were relaxed in lending to subprime borrowers ( who otherwise not qualified to take loans at market interest rates due to various risk factors like low income level, size of the down payment made, poor credit history and not so good employment status). Subprime Loans were lent as Adjustable Rate Mortgages (ARMs) wherein the interest rates were kept lower during the initial repayment period and which are subject to subsequent rate hikes.
Structure of Subprime Lending
Subprime Borrowers took loans to buy property (housing loans) then taken multiple loans using the same property as collateral (mortgage loans). As every body was doing the same, the demand for homes had gone up artificially, the buyers were able to sell the property at higher levels in no time. The cost of funds was minimal as the initial interest rates were much lower (because of ARM). Huge margin of profit was available in such transactions. Money thus earned was spent lavishly in the name of patriotism. Banks were happy to see their business growing up and the government/ Federal Reserve was happy to see the country recovering from recession.
Investment Banks (housing Harvard/Oxford/Cambridge educated employees) sensed a new earning opportunity. Subprime loans were securitized (loans were pooled and sold as new asset class) into MBS and other complicated derivative products.
Commercial Banks, Insurance Companies, Fund Houses and other Financial Institutions found these new avenues to deploy their funds profitably and trade actively.
Millions became Billions and Billions became Trillions.
New Global Order
Thus found liquidity started to flow across various other markets. Asian countries, BRIC countries, Commodities and other asset classes started to witness huge fund inflows. US Dollar was pumped into every corner of the world resulting in weakening of US Dollar against every other major currency of the globe.
India too received its share (Few billions of Dollars). Sensex grown up from 3000 levels to 21000 points. Experts gave various reasons right from “Structural Bull Market”, “Super Power by 2050”, “Most Happening Place”, “Strong Fundamentals driving growth”, “ Long term Growth story” etc etc. (You can refer to the other article of the same blog – Layman Brothers Versus Lehman Brothers).
Arab Countries and Russia gave Oil, South American Countries gave commodities, Asian Countries (especially China) became factories and India became a back office for Americans to sustain their high level of spending. Every country was praying day and night that Americans should continue to spend more. There was growth every where in the world.
Dr. Marc Faber concluded his monthly bulletin (June 2008) with the following:
'The federal government is sending each of us a $600 rebate. If we spend that money at Wal-Mart, the money goes to China. If we spend it on gasoline it goes to the Arabs. If we buy a computer it will go to India. If we purchase fruit and vegetables it will go to Mexico, Honduras and Guatemala. If we purchase a good car it will go to Germany. If we purchase useless crap it will go to Taiwan and none of it will help the American economy. The only way to keep that money here at home is to spend it on prostitutes and beer, since these are the only products still produced in US. I've been doing my part.'
It may not surprise us in case, some of the foreign countries, who see the above comment, may prepare themselves to export beer and prostitutes also to US. It is not an exaggeration. Such has been the mad obsession of the world economies to see that Americans continue to spend money lavishly.
While the home prices were peaking out, Subprime borrowers started defaulting as they were not able to repay in terms of higher EMIs(introduced after a certain initial period). Delinquency rates started rising. Western Banks refused to accept the truth and number of new derivative products like CDS (Credit Default Swaps) were introduced to the market in the name of innovation.
In February 2007, Federal Reserve admitted for the first time that there was a crisis in US financial markets. A short term correction followed in all the global markets. It was a tip of the Ice Berg. But this time, the newly found bulls in Emerging Economies including India (You can refer to the other article of the same blog – Layman Brothers Versus Lehman Brothers) refused to believe that such crisis might have strong ripple effects across the world in the future.
Big liquidity crunch happened in USA in January 2008. Societe General Collapsed. Equity markets witnessed big sell off in December 2007 and January 2008 across the globe. Federal Reserve added fuel to the fire by cutting interest rates in the name of facilitating easy liquidity to the struggling banks.
Bear Sterns became bankrupt in March 2008 and one more sell off in equity markets followed. Equity story appeared to be over for the smart people. Investment Bankers and Traders found new investment avenues in Oil, Gold and other commodities. Various stories right from US attack on Iran, more demand from emerging economies and last but not the least, US hurricanes were spread to justify speculation in oil prices.
Final Burst (?)
Nothing could save US and European Banks (who later joined their US counter part in the lucrative (?) subprime business). Entire “Reverse Pyramid”, hanging over the “Subprime Borrowers”, collapsed on its own weight. Delinquency rate spiked up. There was neither buyer for homes nor borrowers for loans. Mark to Market Provisions mounted up. Series of write-downs in billions of dollars followed up. Provision requirements were much higher than the net worth of the banks. Losses run in trillions. Remember, GDP of of entire India is just around one trillion dollars.
US Treasury initially tried to bail out the falling banks by providing additional capital. This also could not help the sinking ship. Final Burst of the bubble has started in the current month (September 2008). This time, commodity markets also joined the other markets in the Big-Bang fall. Flight capital deployed in other markets including emerging economies returned back to US thus helping the US Dollar to strengthen against other currencies.
This is the story of the latest bubble formed by the oldest bubble maker i.e. Greed, which has made even the smartest people to fail one more time. Now there are certain question in our minds.
What is in store for India now (coupling or decoupling)?
Whether this Big Bang fall will continue?
What are the lessons for our markets/ traders/government/monetary authorities?
What should be new policies by our government/ RBI to protect the country and investors from such fall?
Whether to invest now or just keep in cash?
In case of investment, where to invest now, Gold or Commodities or Real Estate or Stocks?
In case of Stocks, which sector and what Company?
Now it is an open forum. Readers are welcome to post their views and suggestions in the comments box.
Part II on the same subject will follow soon.
Tuesday, September 16, 2008
I understand that you have become so much tech savvy nowadays and you spend majority of your time sitting before the computer terminals (by hacking wi-fi connections across Mumbai) and writing threat mails to the government authorities. Hence I hope that you may read this letter also, one fine day.
I think that you may be having few or all of the following objectives while planting the bombs.
1. Horrifying the minds of the people
2. Reduce the population.
3. Disrupting the communal harmony
4. Spoiling the economic climate
5. Drawing the attention of Politicians.
6. Media attention
I sincerely believe that you are not going to achieve any of your objectives for ever.
Do you think whether you can ever horrify the minds of Indian public? As a person, visiting Mumbai, you may be aware how it is horrifying to travel by Local Trains in the peak hours. Can you ever horrify us like we get while crossing Mumbai roads (any other Indian city for that matter) amidst the over-speeding vehicles? Your strategies to horrify people by planting bombs may work in western world. It may not work in India, because, we all Indians are the people who strongly believe in “Karma” i.e. if some thing has to come, it will come no matter through whom it comes. So your attempt to horrify the people’s mindset is simply a waste of time. It has been proved many a times by the affected cities returning to normalcy from the very next day of horror.
Do you know what is the population of India currently and at what pace it is growing up. Sooner than later, we are going to surpass China as number one populous country in the world. By planting bombs you kill around 30 innocent persons in one attack after toiling for 2 months. Do you know more number of people die every day in the railway tracks of Mumbai alone? Mind that few people killing crores of people is impossible.
It is a new competitive age. Religions are becoming more of a personal matter rather than public matter. We, Indians believe in all gods. We, Indians, will accept any and every god who can solve our ever-growing problems. Moreover, people are now clear that no god will be happy to see innocent people being killed by brutal means. I believe that your god too will not be happy for killing people for whatever reason.
Do you expect that your bombs will impact the economic growth? No way. Indian economic growth is irreversible because of the changing demography. May be the bigger bombs like inflation, high interest rates, fiscal/trade deficit and turmoil in the global markets may slow down it by a small extent. Your bombs are too small to induce any major impact on the economic growth. You would have seen every time, the Sensex firing up in the very next of day terror. Do you think that western countries will stop investing in India because of your bomb attacks? Don’t forget that troubled waters are the fishing ground for many foreign countries
You know, Politicians are very busy in fighting and winning elections (infighting too), forming coalition governments, sharing ministries, issuing statements, appearing in TV shows, celebrating various functions (both India and abroad) etc & etc. Your acts of terror may add just one more statement or counter statement from them
At the most, all media will be discussing about your act for two days and after that they may switch over to cricket, cinema, Aarushi/Grover cases.
Oh Terrorist. Stop your acts of terrorism. Return to the mainstream. It appears that you are having good web designing skills. You can join a software firm and earn decently. Have a peaceful life then which will be hundreds of times better than your present style of living.
Live and Let Live
Sunday, September 14, 2008
Big Bang Theory says that Universe has expanded from a primordial highly hot and dense initial condition (from a definite point of time some time in the past) and will continue to expand in the infinite space.
Recently, Scientists in Geneva have launched preliminary experiments to test the Big Bang theory by building a giant contraption unit designed to smash sub-atomic particles into each other at extremely high speeds and create events that are similar to those supposedly occurred when the universe formed.
Definitely, this theory is a big one and the scientists too. But there are few unanswered small questions.
1. What was the origin of the “initial condition”?
2. How old the was “initial condition”?
3. Is there any boundary for the infinite space in which the universe is expanding?
4. If the universe is expanding in an infinite space, what was there earlier?
Saturday, September 13, 2008
Let, the experts discuss about the Lehman Brothers and the laymen like us may discuss the story of the “Layman” Brothers who have also failed recently in our Indian markets. Layman is nothing but the person who lives in the heart and soul of every retail investor of India. The “Layman” comes out as a new “Avatar” just before the market is going to peak out. His brother is “Expert” who lives in the brains of Analysts (both Indian and Foreign), Panelists, Investment Bankers and News Papers/ News Channels. This is the story of the latest “Avatar” of “Layman”
Original Lehman Brothers
Our own Layman Brothers
The story of Layman Brothers
Once upon a time, a ‘Layman’ lived in India. He was following the stock market for quite some time without having invested in it. He wanted to earn from the stock market boom but always having fears of losing.
One fine day (early 2007) he decided to seek the help of his brother who is an ‘Expert’ and a living encyclopedia.
That point of time, entire world was discussing about “Yen Carry Trade” and so the Expert too. He explained Layman in detail about the vicious cycle of funds flow from one part of the world to another part and winding up of such fund flow is dangerous to Indian markets. He further asked the Layman to closely track the JPY-USD trade. Simple funda: If JPY appreciates our market will fall and vice versa. Layman was just wondering why he should not track INR-USD. But he didn’t ask because the person who told him to track was an “Expert”
Also came in, Subprime crisis. Mr. Alan Greenspan warned the world about the Subprime Crisis. Expert started analyzing the Balance Sheets of NYSE (New York Stock Exchange) listed Companies forgetting our own NSE listed Companies. Expert explained the Layman in detail about Securitization CDO, MBS, ARM, Credit Squeeze, Monoline Insurance, etc and etc. He also told that entire world would have problems because of housing crisis in US. Layman did not understand much about the terminology given by the Expert and whatever he knew was just that the tiny piece of land he had bought near his “Halli” was having good appreciation on paper within a short period of time from his purchase.He was wondering whether Subprime crisis would impact the paper appreciation of his tiny landholding. Layman started reading high-end financial magazines and tried to learn how to escape from such crisis. He could find no answer. Still, he was happy that he was too becoming a market player.
Till that point of time, Layman had not started to invest in equity markets. Expert was always telling bad things about the Indian market. He had given multiple reasons. EPS, P/E, Historical P/E, Comparison between BRIC countries (India was the costliest market then), infrastructure bottlenecks, political weaknesses etc and etc. Layman started wondering whether he could ever make any investment in the Stock Market, which never stayed at lower levels for longer period of time that was enough to make any investment decision.
Suddenly one fine morning (August 2007), Layman got a tip from a “taxiwala” about a fundamentally strong penny stock, which could give many folds returns. This time Layman ignored Expert's advice and invested a small amount himself on an experimental basis. From the next day onwards, the stock was always on upper circuits, Our Layman got excited and started looking for tips from every corner. He was also passing the tips to other laymen as well as to our own Expert. This point of time (December 2007) our market was firing on all cylinders whereas western markets were crumbling down because of Subprime crisis.
Now, Expert had to give up his own inertia and he had to concur with our Layman. He told Layman. “No need to worry. Subprime Crisis means cutting of interest rates in US, which will increase fund flows to India and take the markets further up”. Layman continued to invest on tips.
Expert had also devised a new “Decoupling Theory”. India is long-term story. Indian market is a structural bull market. India will become a developed country by 2050 (Layman started wondering what would be his age by then if at all he be alive then). Expert applied various technical and fundamental studies to discover that Sensex would reach 54321.09 points by 12.March.2045.
Every day, Expert discovered new hidden gems from small and midcap sector and termed them as multi-baggers. (For a brief period, Layman also became an Expert himself and started discovering hidden gems on his own).
There is a different story, which tells Layman became a multi-beggar after having invested in such multi-baggers. Expert analyzed the saving pattern of Layman and found that the equities form lesser part. Expert told Layman to invest 80 minus Layman’s age percentage of his savings in equities. Layman was now die hard to increase his equity holdings to maximum possible level. Never mind to borrow and invest.
Decoupling gone. Coupling came. Our markets started tumbling down (late January 2008). Initial Reaction from Expert was that the correction was due to some technical problems (margin issues and liquidity crunch due to Reliance Power IPO) and strong Indian fundamentals remain the same. Layman was complaining that he was not allowed to buy any stock, which he liked, and also available at damn cheap price because of technical snag happened at the broker terminals and stock exchanges. After the technical snag is over, Layman started to pick the stocks at damn cheap prices (10-20% lower than the peak levels). He was happy that he was entering the market at the right time and right levels. He started dreaming what he would do with the returns going to be generated in the next few years. For some time, he was in heaven.
Bear Stern came then (March 2008). Market crashed and the stocks crumbled. But Layman was unperturbed. Layman was wondering he should have more money to pick the stocks, which became further cheap. It was Expert’s turn to advise Layman to closely follow global market trends. Layman started gluing to News Channels throughout the day and night. Layman used to get up from bed with Nikkei in the early morning, have coffee with Kospi and read newspapers with Hong Seng. Layman had lunch with European markets and dinner with US markets.
Then came again decoupling but again on the wrong side. Global markets became stable whereas we continued to tumble down. Now it is the Expert’s turn to discover that FIIs are going out of India and entering into producer countries such as Brazil, Russia etc.
Along with earlier woes came, Inflation worries. For some time Expert was maintaining that inflation is going up because of “Base Effect”. Suddenly Inflation numbers jumped into double figures.
Expert visited vegetable shops, groceries and other stores and discovered that prices had already gone up.
American experts went one step ahead and said that the commodity prices went up (internationally) because Indians were eating more.
Expert declared that this was only a supply side problem and nothing to do with the demand side. Government has to remove the infrastructure bottlenecks and there was no need for increase in the interest rates. Layman too believed Expert’s thesis.
Federal Reserve Cut rates whereas RBI increased rates. Layman was clueless.
Expert maintained that Indian inflation is a supply side problem and asked the Layman to follow monsoon data that too for the “Agriculturally important states like Maharashtra, Andhra Pradesh and Karnataka”. Laymen started following weather reports.
As a result Layman went with Rain Coat and Umbrella on sunny days and without any protection on rainy days. Layman caught “cold and cough” and got a name “idiot” from his wife and other friends.
In the mean time, Layman was confused by the various government authorities giving different dates (right from October 2008 to March 2009) on which the double-digit inflation would become a single digit inflation. Interest rates hardened. He was wondering for the first time about the cost of funds involved in holding the investments, which have already depreciated by over 70-80%. Expert did not lose his heart. He maintained that Equities were best asset class in the times of inflation.
Expert later discovered that Indian inflation is”Imported Inflation” as International Oil prices are the main culprits for Indian inflation. Layman started wondering how it is so, as the Indian Government is not passing much of the international price rise to Indian customers. Even at this point of time, Layman dare not question Expert’s wisdom.
Many things happened in between, 1-2-3 agreement, survival of the trust vote of the central government, derivative woes of Indian Corporate, NSG approval of Indo-US Nuclear Deal, US Banks getting closed, IIP data, CPI , WPI, P-Notes etc and etc. Layman became a master of all and jack of none.
For every rise of 200 points (Sensex), Expert gave new targets 18,000, 20,000 and 25,000. For every fall of 200 points, Expert gave targets 13,000, 12,000 and even 9,000. Layman had not worked this much mathematics even in his school days. Layman started to sleep with a calculator.
On the global side too, Expert had earlier told Dollar was weakening against Euro and other major currencies because of slowing down of US economy. Now the same Expert has started telling Europe slow down is worse than USA and hence US Dollar strengthens against other currencies.
IT companies derive major part of their income from US and other western countries in terms of Dollars. Expert advised Layman to buy IT stocks as Rupee is weakening against Dollar. Later Layman found where is the question of more rupees when there is no Dollar to come in as there is an overall global weakness. Now it is Expert turn to discover the same and tell to sell IT stocks. Layman is wondering now whether to Buy Low Sell High or to Buy High and Sell Low.
Expert told commodities have a life cycle of 15 years, which has started only 3 years back. Still a lot more remains. Gold mines had been closed. No fresh oil discovery since forty years. No major mine discovery for coal, steel and non ferrous metals. Layman invested gold when it was at $1000 per ounce, which reversed to sub $800 levels in no time. Oil came back to sub $100 per barrel. Expert then declared that commodity price fall was good for India as it is a consumer/importer country. Hence, Stock Market should go up only.
Nothing has worked so far in favor of Layman’s adventure into stock markets. For every inch rise, there is a foot fall. To add his woes Subprime Crisis resurfaced and Lehman Brothers failed. Expert immediately revisited the Subprime crisis as the Lehman Brothers’ fall became an issue.Our market started crashing down once again. Expert's latest discovery is that our market is falling as Lehman Brothers are selling in the market.
But, Layman is not having any clue. He has started wondering whether there will be any take over bid for his own investments, from US Treasury Department as it did for Freddie and Fannie. . Now Layman is in a big dilemma whether he could ever sell his stocks in the market with a profit.
However, Expert continues to live happily as ever giving new definitions and discoveries for every rise and fall.
Now it is left to the Reader to decide what's right and what's wrong with Layman Brothers and Lehman Brothers.
Wednesday, September 10, 2008
Rupee started falling against US Dollar in January 2008 and lost around 15% since then.
High Trade Deficit because of rising Oil imports. There is a lateral growth in demand for oil in India and the International Oil prices have also gone up significantly.
Sizeable withdrawal of FII money from India on account of profit booking and various other global and local issues such as Subprime Crisis, slow down in global economy on the global front and rising inflation and political instability on the domestic front.
Dwindling ECB inflows as the Capex plans slowed down in India
General strengthening of US Dollar against major global currencies like Euro and Pound.
Rupee depreciation is good for Exporters as they become more cost competitive in the global market and they get more Rupees for every Dollar they earn.
Rupee fall discourages imports helping the local industries. Thus there is a possibility of an industrial growth.
On the negative side, falling Rupee increases our already bulgy trade deficit and puts a burden on the precious Forex Reserves possessed by our Central Bank.
Rupee depreciation puts pressure on inflation, as we are an oil-importing nation. Any rise in oil prices will directly impact the inflation and thus economic growth.
Falling Rupee will drive away foreign investors and country will be deprived of the capital it requires to sustain the high growth.
Currently, Rupee faces huge pressure from the negative equity sentiments, ever increasing oil demand and low risk appetite of the foreign investors. There is a possibility of Rupee hitting 46-47 mark in the near future,
Rupee management is a tricky and crucial job of the Central Bank and the government. They may have to take a balanced view on it. Once the authorities find Rupee has reached an uncomfortable level, they may (or be forced to) ease the ECB control and the Rupee convertibility to bring back the stability in the Rupee market