Maximum India

The Art of Appraisal

2010-05-11T20:11:00.001+05:30

Big Boss: This year your performance was good, excellent and outstanding. So, your rating is "average".

Kumar: What? How come 'average'?

Big Boss: Because...err...uhh...you lack domain knowledge.

Kumar: But last year you said I am a domain expert and you put me in this project as a domain consultant.

Big Boss: Oh is it? Well, in that case, I think your domain knowledge has eroded this year.

Kumar: What???

Big Boss: Yes, I didn't see you sharing knowledge on Purchasing domain.

Kumar: Why would I? Because I am not in Purchasing, I am in Manufacturing.

Big Boss: This is what I don't like about you. You give excuse for everything.

Kumar: Huh? *Confused*

Big Boss: Next, you need to improve your communication skills.

Kumar: Like what? I am the one who trained the team on "Business Communication", you sat in the audience and took notes, you remember?

Big Boss: Oh is it? Errr...well..I mean, you need to improve your Social Pragmatic Affirmative Communication.

Kumar: Huh? What the hell is that? *Confused*

Big Boss: See! That's why you need to learn about it.

Kumar: *head spinning*

Big Boss: Next, you need to sharpen your recruiting skills. All the guys you recruited left within 2 months.

Kumar: Well, not my mistake. You told them you will sit beside them and review their code, and most resigned the next day itself. Couple of them even attempted suicide.

Big Boss:*stunned* (recovers from shock) Err...anyway, I tried to give you a better rating, but our Normalization process gave you only 'average'.

Kumar: Last year that process gave me 'excellent'. This year just 'average'? Why is this process pushing me up and down every year?

Big Boss: That's a complicated process. You don't want to hear.

Kumar: I'll try to understand. Go ahead.

Big Boss: Well, we gather in a large room, write down the names of sub-ordinates in bits of paper, and throw them up in the air. Whichever lands on the floor gets 'average', whichever lands on table gets 'good', whichever we manage to catch gets 'excellent' and whichever gets stuck to ceiling gets 'outstanding'.

Kumar: (eyes popping out) What? Ridiculous! So who gets 'poor' rating?

Big Boss: Those are the ones we forget to write down.

Kumar: What the hell! And how can paper bits stick to ceiling for 'outstanding'?

Big Boss: Oh no, now you have started questioning our 20 year old organizational process!

Kumar: *faints*

The Art of Appraisal

2010-05-11T20:11:00.000+05:30

Yet another Yen-Carry-Trade?

2010-04-04T20:52:00.002+05:30

Past Week

Largecap indices have closed positive for the eighth week in a row. Sensex & Nifty ended marginally positive on weekly basis at 17693.39 & 5291.10 respectively with more action shifting to mid-caps and small-caps. Firm global trends, robust FII inflows and hopes of a strong rebound in the economy were the key for the underlying bullish momentum in the market. There are speculations that another round of Yen-Carry-Trade has begun. Realty stocks were the top gainers during the week followed by Consumer Durables and Metal stocks. IT stocks were the major losers this week on account of rising rupee against dollar. Rupee was at 18-month high to its strongest level since September 2008 on speculation that the nation’s pace of economic growth is attracting overseas funds to local equities. DQ Entertainment and ILFS Transportation got listed on the exchanges this week with significant gains.

WEEK AHEAD

We expect a stock specific action next week wherein quarterly corporate results will dominate the market sentiments. Forecast for the southwest monsoon for 2010, Greece and other Euro-zone countries’ fiscal woes, global trends and FII inflows will be the other triggers for the market.

TECHNICAL VIEW

During the week nifty has crossed its previous intermediate top of 5303 but failed to sustain decisively higher above respective level. All short to medium term technical indicators are still showing positive trend to continue in the coming days. However, the rally may be terminated around 5400 levels due to profit booking and tiring of the bulls.

We advise caution and profit booking around 5400 levels.

Have a great week ahead.

LISTING OF PERSISTENT SYSTEMS LTD - GREY MARKET PREMIUM

2010-04-02T23:37:00.004+05:30

Shares of Persistent System are going to be listed on 06.04.2010. The current Grey Market premium is said to be around Rs.100.00 per share.

NTPC – AN INTERESTING OPPORTUNITY

2010-03-31T21:35:00.009+05:30

The stock is has broken a long term downtrend and closed just above the 50-day moving average. However, the break-out has not been decisive and one requires following up the stock action in the next few days. If there is any decisive technical break out, NTPC may move towards its next targets of 215, 225 and 235.

As per the technical chart, NTPC is in an interesting point.

The stock is having a strong support around 185-196 levels and one can keep stop loss limits around these levels.

With best wishes

Areva T&D India Ltd - Technical Break Out

2010-03-28T22:09:00.003+05:30

The Company belongs to Electric Utilities Industry. It has given an important technical break out in the last week.

DQ Entertainment – Listing on 29 March 2010

2010-03-28T21:40:00.003+05:30

Allotment in the Block Buster IPO stock DQ Entertainment has been done last week and the listing is to be on 29.03.2010. There are strong expectations of a good amount of premium on listing. Grey market websites indicate a premium up to Rs.60.00 per share.

With best wishes

Persistent Systems Ltd – IPO – Invest at Cut-off

2010-03-18T22:47:00.001+05:30

Persistent Systems is a pure play Outsourced software Product Development (OPD) services company. The company is different from other IT companies as it caters to Independent Software Vendors (ISV) as well as smaller product development companies. Persistent Systems offers its customers OPD services that help them reduce time-to-market, better the quality of their products, improve predictability and reliability of the engineering process and helping them lower their over-all product engineering costs. As a result, client stickiness is higher than other IT companies.

Investment Arguments

Healthy balance sheet

Aggressive expansion plans

Continued interest from VC firms

Dedicated client base

Key Risks

Dependence on US market

Expiry of tax holidays

I feel that the company has the management expertise and the necessary cash to pave the path for aggressive growth in the years to come. Persistent Systems continuously spends in R&D to better its technical skill sets. It appears to be attractively priced considering the potential upside due to capacity addition and earnings in the long term. Even from a long-term perspective also, the company can provide significant returns.

I feel that one can invest in this company at cut-off price (Price Band Rs.290-310)

NMDC LTD – SUBSCRIBE AT LOWER BAND PRICE

2010-03-11T21:49:00.008+05:30

NMDC Ltd, a navaratna Public Sector Company, has come out with a Follow-on Public Offer. The issue details are hereunder.

Issue Period - March 10, 2010 to March 12, 2010
Issue Size - 33,22,43,200 Equity Shares
Issue Type - 100% Book Building
Face Value - Rs. 1/-
Price Range - Rs.300 to Rs.350
Tick Size - Re. 1/-
Market Lot - 20 Equity Shares
Minimum Order Quantity - 20 Equity Shares
Maximum Subscription Amount for Retail Investor - Rs.100000
IPO Market Timings - 10.00 a.m. to 5.00 p.m.

The pricing is considered to be aggressive and the market would have been happier had the price been fixed in the range of Rs.250-Rs.300. There has been a poor response for the issue so far.

I am of the view that one can look into the issue with a long term perspective and bid at the lower band price considering the facts that NMDC is a low cost producer of Iron Ore having strong competitive advantages and the prospects of the iron ore industry which will benefit from a strong economic growth. The company is having a high RoNW and consistent growth in earnings. Future plans of NMDC to indulge in steel and power production, though associated with risks, may add to the earnings of the company.

Happy Investing

Disc: The ideas on market are for sharing purpose only. Investments should be done on own risk.

Unanswered Questions Remain!

2009-09-13T19:32:00.000+05:30

It is still a big question whether the global economy will return to its glorious past as was in 2006 & 2007. But, stock markets are now quite convinced so and returned to their peak levels of 2007, if not 2008. Many individual stocks have gone even above their life time high levels tested in those years.

Generally, stock markets are the leading indicators and can visualize the future to some extent. However, stock market need not be 100% correct in its every assumption. Even though, there are certain greenshoots visible in the global economy, it is too early to assume that economic life will turn back to its glorious past any time soon.

Hence, it is prudent to be cautious in the future rallies of the stock market. One should take position in equity market only after visualizing the probability of global economy returning to normalcy, the ability of the individual companies to survive unscathed till that time and the earnings of the company once the normalcy returned.

As many would have noticed, Nifty crossed the all-important resistance level of 4730 levels last week comfortably thanks to the surge in giant caps like Reliance, SBI and ICICI Bank. However, broader market did not rally once after this remarkable success was achieved as anticipated by many analysts. In fact, there was a huge profit booking in the smaller stocks even while the giant caps were hitting their new highs for the year 2009.

I expect the same trend to continue in the coming week also. I suggest the traders to exercise caution while picking the smaller stocks which have run up miles since March 2009. 4700 points for Nifty can be taken as a pivot point while taking trading positions in larger stocks.

Wishing a great week ahead!

Green Shoots and Yellow Weeds

2009-08-22T20:47:00.001+05:30

Markets continued to be indecisive and volatile during the last week also. Markets started the week with lot of negativism thanks to poor jobless claims data from US however ended with great optimism thanks to the record rise in homes sales in US and better than expected industrial data from the Western Europe.

As witnessed in the earlier weeks, our market continued to ignore the local happenings and was always looking for the direction from the west. For a change, markets are now looking east also particularly China which evoked great interest in the recent times, thanks to the “China Bubble and the its ripples in Asian markets.

Locally, Adani Power failed to impress with a lackluster debut on the bourses. There was no big premium on listing as expected by its IPO investors. However, it is a reminder for those, who do not want to leave any thing on the table for the IPO investors that such issues may not evoke great interest from the investors in future.

Coming week, NHPC’s listing will be viewed curiously as there are many government company issues lined up for IPO. In case of NHPC also, government has not left much on the table for IPO investors. Still, there are hopes in the market that the company may get listed with a decent premium. Any failure on the premium part may hurt the future IPO plans of government companies.

Going back to global scenario, Obama is expected to raise the projection for the fiscal deficit (US) for the next 10 years from $7.1 trillion to $9.0 trillion. Such projection may lead to the impression that the American government may continue to flood the markets with dollars for many more years to come.

As mentioned earlier, hopes of persistent dollar flooding and visibility of green shoots have been taken well across the board, currencies commodities, gold, oil and stock markets.

Euro strengthened against the US Dollar as the appetite for riskier assets went up due to the new found optimism for a quicker recovery in the global economy.

At the same time, it is notable that the INR failed to join the global rally against dollar and in fact, INR lost against USD in a big way. FIIs withdrawing their investments in India and higher import demand may be the reasons for such Rupee weakness.

Crude Oil was a stunner for the last week. It had a big rally and broke the crucial resistance of $72. Even though many analysts put expectation of higher demand rising from the global recovery as the reason for the surge in oil prices, personally I am not convinced. I feel that the dollars are now flowing towards the commodity markets particularly oil and gold as a new avenue of investment as stock markets are appearing as overvalued.

There are good chances for a big rally in oil and gold in the coming days provided that the economic data continues to be good.

In India, even while the largecap indices were struggling to make new highs, many stocks are started to make merry thanks to the renewed interest from the operators and small traders. Many stocks witnessed dramatic rallies in the last week.

To sum up, green shoots are more visible as of now but there are yellow weeds too. It is the duty of the governments and the central bankers to protect the green shoots and weed out bubbles. If they fail to do so, bubbles would impact the global economies badly.

Wishing you a great week ahead

Easy Money Policy for an Extended Period

2009-08-15T22:48:00.004+05:30

Sudden fall in unemployment numbers in US had raised speculations that Federal Reserve may end its easy money policy sooner. Accordingly, US Dollar started gaining against other major currencies including Indian Rupee. Poor monsoon data and negative FII inflows also put pressure on INR in the beginning of the week.

Gold and other commodities were also seen losing against US Dollar. Bursting of bubble in Chinese markets also added pressure on the metals.

However, Federal Reserve, in its FOMC minutes on Wednesday, said that the easy money policy will be continued for an extended period of time and it would pump in $300 billion dollars (around Rs.15,00,000 lacs) into the market by October 2009. This statement revived positive sentiments in the global markets.

Positive GDP numbers in Germany also added to the bullish sentiments of the markets. Euro gained in a big way against US Dollar. Gold also had a spurt against USD rising to $963. Fall in South African Gold production also helped the Gold prices to firm up against US Dollar.

Indian Rupee also turned into positive trend and went below 48 levels. Surprise rise in IIP numbers (India) for the last month also helped INR to strengthen against USD. However, heavy demand for Dollars from the importers checked any major appreciation for Rupee.

Worse than expected US Consumer confidence data released in US on Friday indicated that the recession is far from over and the US Dollar gained against other major currencies accordingly. Gold also fell to $948 levels.

US Dollar may begin the next week with some gains against other major currencies including Indian Rupee. Local currency markets will also look for the trend in the equity markets particularly the FII inflows. For the next week, Rupee may trade between 48 and 49 levels.

There is a major risk of downgrading of Indian Rupee in case our government increases its borrowing programme for the current fiscal year to accommodate the possible drought relief measures.

Gold may face a strong resistance around $963 & $ 980 levels. Breaking the above two levels may take the prices to $1000 levels. In Rupee terms, MCX Gold may face resistance around 15020 and 15200 levels.

Indian stock markets are now cautious about the impact of poor monsoon on the overall GDP. It is expected that there may be an impairment of around 1.00% in the overall GDP for the current year due to poor monsoon. Further, reduced crop production will add to the pressure on the food inflation which is already at a high level.

Overall outlook for a normal monsoon seems to be a distance dream now and the short fall is likely to be over 25%, sounding weakness for rural demand prospects.

Still the broader trend of stock prices has been inline with Dow futures and the net inflows from FIIs, who were once again net sellers in cash market except for Thursday. The gains were broad based and the mid and small cap stocks gained more than the large cap stocks. There was renewed interest from domestic institutions and they gave strong support at every low, absorbing most of the net sales from FIIs and public.

Stock markets are quite happy about the IIP data and there is view that impact of poor monsoon may be nullified by a strong growth in industrial sector. However, personally I would like to see the trend of IIP numbers for some more months to take a firm view on the revival in the industrial sector.

Next week, Indian Stock markets will be looking for direction from its Asian peers and US Dollar movement. As said earlier, Nifty may face resistance around 4610 & 4730 levels and find support around 4520 and 4480 levels. Firm breaking above 4730 levels may indicate a new bull cycle whereas a complete fall below 440 may point towards a steep fall.

Wishes for a happy week ahead.

Keep Swine Flu Away with Basic Precautions

2009-08-10T22:54:00.001+05:30

Swine flu in India is spreading like wildfire, taking the toll to six. Officials say there are currently more than 800 cases of the H1N1 flu strain in India. Governments from all around the world are finding ways to combat this deadly disease. So what can you do to protect yourself?

Stay calm and practice these 10 effective prevention tips.

1. Wash your hands frequently

Use the antibacterial soaps to cleanse your hands. Wash them often, at least 15 seconds and rinse with running water.

2. Get enough sleep

Try to get 8 hours of good sleep every night to keep your immune system in top flu-fighting shape.

3. Keep hydrated

Drink 8 to 10 glasses of water each day to flush toxins from your system and maintain good moisture and mucous production in your sinuses.

4. Boost your immune system

Keeping your body strong, nourished, and ready to fight infection is important in flu prevention. So stick with whole grains, colorful vegetables, and vitamin-rich fruits.

5. Keep informed

The government is taking necessary steps to prevent the pandemic and periodically release guidelines to keep the pandemic away. Please make sure to keep up to date on the information and act in a calm manner.

6. Avoid alcohol

Apart from being a mood depressant, alcohol is an immune suppressant that can actually decrease your resistance to viral infections like swine flu. So stay away from alcoholic drinks so that your immune system may be strong.

7. Be physically active

Moderate exercise can support the immune system by increasing circulation and oxygenating the body. For example brisk walking for 30-40 minutes 3-4 times a week will significantly perk up your immunity.

8. Keep away from sick people

Flu virus spreads when particles dispersed into the air through a cough or sneeze reach someone else's nose. So if you have to be around someone who is sick, try to stay a few feet away from them and especially, avoid physical contact.

9. Know when to get help

Consult your doctor if you have a cough and fever and follow their instructions, including taking medicine as prescribed.

10. Avoid crowded areas

Try to avoid unnecessary trips outside. Moreover, avoid touching your eyes, nose or mouth. Germs spread this way.

Good News and Bad News

2009-08-09T22:27:00.001+05:30

Our Equity Market is always sensitive to two important factors.

First one is the dollar inflows to our markets. There is always a strong correlation between the FII flows and our market’s direction. Our market believes that dollar weakness brings more inflows to the emerging markets including India.

There was an improvement in US Unemployment data published last week for the first time since April 2008. Unemployment rate fell to 9.4% from the previous month level of 9.5%. Even though the white house officials warned that the unemployment rate may peak at 10%, markets were convinced for the time being that the end to the American recession is nearer now and accordingly, there was a sharp rally in the US markets.

At the same time, there were fresh apprehensions that the Federal Reserve may exit its easy monetary policy sooner than later by hiking its key interest rates. Hence USD strengthened against other major currencies. Euro and GBP registered one of their sharpest falls against USD on the last day of the week.

As said earlier, our markets sensed in advance that the dollar inflows may become scarcer hereafter and duly witnessed a sharp correction in the last two sessions of the week.

The bad news was from our skies. Indian Meteorological Department has said that the rainfall was deficient in 27 out of 36 meteorological divisions of India. Now, there is a real threat of a drought like situation in India this year.

Though, agriculture forms a smaller part in overall GDP of India, majority of Indians is dependent on agriculture in India. Further, scarcer rainfall may badly impact the allied industries of agriculture particularly in rural India.

Failure of crops may add the pressure on prices of food articles which are already at high levels and the supply side hyperinflation is the last thing our market would like to have now.

Thus the combination of above said two factors have brought down the sentiments of our high flying market.

Hereafter, the direction of our market may depend on the FII inflows and the monsoon pattern.

As said in the earlier post, our market (Nifty) failed to break 4700 levels decisively. Now it finds support at around 4430 & 4320 & 4200 levels. It faces resistance at around 4550 & 4580 & 4700 levels.

Wishes for a happy week ahead!

Pace Of Recession Slowing Down?

2009-08-02T20:19:00.002+05:30

Economic Data from US indicate that, at last, the pace of recession in their economy is slowing down. There is no major job losses reported last month. At the same time, authorities therein are in mood to tighten their monetary policy. They expect that the unemployment in US may peak little above 10%. It appears that they want to continue their policy “flooding the markets with dollars” for some more time till there are visible signs of recovery in US markets.

At the same time, such flooding of dollars in markets may create havoc in the world markets. To some extent, pegging the currencies of emerging countries undervalued against US Dollar by their respective central banks also disrupts the stability in the financial system.

We could witness the fragility of the global markets including India last week when Chinese authorities warned a bubble in their markets. In no time, our markets lost around 400 points in Sensex. However, continuous inflow of dollars made the traders to ignore these fear factors and surge ahead as usual for another weekly gain in the key indices.

Coming week, we may witness a strong but interesting fight between Bulls and Bears. Bulls may try to break the psychological resistance level of 4700 (Nifty) points and move the market into a momentum zone. At the same time, Bears may grip their hold at around 4700 points.

Resistance levels for Nifty are at around 4700 and 4800 points

Support levels for Nifty are at around 4475 and 4425 points

Wishing a happy week ahead

Another Super Bubble in the Making?

2009-07-25T23:06:00.003+05:30

Our market continued its bull run last week also wherein the key indices gained around 4%. Benchmark Index, Sensex, is once again above the psychologically important 15000 levels. Global markets are not left far behind. HangSeng is close to an important 20000 levels. Dow Jones is above 9000 points once again.

Ben Bernanke’s assurance of continuing the soft rate policy for a longer period of time coupled with strong corporate results across the globe lifted the sentiments of the all the major equity markets. Positive US home-sales data has added fresh hopes that the recession would have a quicker end.

Our market’s rally has so far been a stunning one. It offered no chance to the people who were waiting on the sidelines to enter at lower levels. Abundant FII flows were the key reason for such rally. It is noteworthy that FIIs have put in more than 38000 crores during the current year alone. Union Budget was little disappointing for the market. However, it did not stop market’s upward rally. Market took excuse from the parliamentary speech of the Finance Minister and marched ahead as usual.

I expect that the sentiments of the market may turn more positive once the Sensex breaks 15600 levels and the left out so far, may be sucked into the market. Thus market may slip into a Super Bubble Zone wherein fundamentals would take a backseat.

One should not forget here that the macros are not very much convincing as of now. Poor GDP growth, meager credit growth, dropping exports, low IIP numbers, faulty monsoon and unclear global situation do not warrant for doubling of P/E within such a short time.

Even though the corporate results, in terms of bottom-line growth, have generally been good, the top-line growth has only been marginal. The profits were also more attributed to cost cutting and sharp rise in other income rather than core business profits.

Hence the investors may avoid entering into the market at the higher levels and rather wait for any major correction for an entry with a long term view. They may exit their holdings accumulated at the lower levels whichever achieved their target prices.

At the same time, traders have great opportunity to play according to sentiments of the market. They are advised to trade with strict dynamic stop loss limits.

Sensex faces a strong resistance at around 15600 levels and Nifty around 4600 levels. Any strong break out above these levels would give a big bang movement for the market. Monetary Policy announcement by RBI due for the next week will be keenly watched by the market. Quarterly results of Reliance, India’s most valuable listed company, are disappointing and the market may react negatively to it. F&O expiry may add to the volatility of the market.

Wishing for a happy week ahead

Stunned as ever?

2009-07-18T17:47:00.004+05:30

It has been a stunning recovery once again witnessed by the market last week. After losing 1500 points in the previous week as the Union Budget failed to meet the ever growing expectations of the stock market players, market recovered 1200 points almost in the same speed.

Assurance from the Finance Minister on continuing reforms and divestment boosted the sentiments last week and the government siding with Reliance Industries in the KG appeal revived the heaviest among the index stocks. Persistant inflows from FIIs and positive global cues helped the market to sustain at higher levels.

As said earlier, it has been a stunning recovery. Many stock analysts and technical experts failed once again by expecting the largecap indices to cover the gap formed on the post-results day. As usual many who were waiting on the sidelines to invest at lower levels were sidelined.

Market turned to the bullish mode wherein every small positive news is rejoiced and bad news, however big, is ignored. Better than expected results from IT biggies have also helped to lift the street sentiments.

Sensex is back to 14500 plus zone wherein the valuations are little overstreched. Traders may take cues from global markets. Even though, US biggies are delivering better than expected results and stock markets are doing well, oil prices, a key indicator of global recovery, are not showing major upmove which is a cause of concern.

Investors can continue their cherry picking strategy as explained in the previous posts over a period of time with a long term view.

Happy week ahead!

Too Many Expectations?

2009-06-21T21:14:00.004+05:30

Market has too many expectations from the forthcoming Budget ranging from tax cuts, tax holidays, special status for some industries, fresh government investment in infrastructure and divestment of public sector enterprises. Even though, electoral victory by the Congress is more attributed to its populist measures such as farm debt waiver, pay commission and NRGEP and Congress may not like a pro-corporate image ahead of elections in key states, many market participants still believe that Congress government will push for aggressive financial reforms in the coming budget.

However, I have my own doubts whether the budget will be able to fulfill all of the market expectations. With the fiscal deficit mounting to around Rs.4,00,000 crores and the first half yearly borrowings at Rs.2,54,000 crores, government’s ability to push through larger tax cuts is quite limited even though there may few reform measures here and there more expectedly in export oriented sectors.

Hence it will be very difficult for the budget to make a major positive impact on the market as many positive factors have already been discounted in the prices. At the same time, we can not underestimate the ability of certain market participants and media to derive great things from nothing make others to believe it.

In the short term, market is expected to track the global events. In fact, our recent rally is more attributed to the FII inflows which have been stupendous in the last three months. FII inflows were mainly attributed to their expectations of a ‘V’ shaped recovery in the global economy and the huge liquidity made available to the American banking system.

Last week, global market participants came to a new conclusion that even though the recession has come to a near-end as of now, the recovery may not be as swift as markets expected earlier. US economic data has been quite mixed in the recent times and the recent downgrading of American banks resulted in strengthening of US Dollar and JPY, the less risky currencies against other major global currencies including INR. World markets are now apprehensive of raising commodity prices and Federal Reserve’s probable monetary measures to tame the inflationary expectations. These speculations led to withdrawal of FII money from emerging markets including India. Such withdrawal coupled with some local negative sentiments rising from Bombay High Court’s judgment in RIL-RNRL case resulted in a big market fall last week.

I feel that delayed monsoon, revival of Indian industry and performance by the Indian Corporate and firm government action in continuing the financial reforms would carry more weight in the minds of FIIs, who may be waiting in the sidelines for some more time to get better clarity in the global scenario. Even though, negative inflation is bad news for the industry, as RBI Governor put it, India may not fall into a deflationary environment any time soon.

Traders are requested to exercise caution in the near term and initiate long position only in case of Nifty breaking 4400 levels firmly. Banking sector is expected to do well in the short run.

Investors may accumulate shares of fundamentally strong companies during fall. Banking stocks may perform well in the long run. Indraprashtha Gas may be considered as a long term investment option. Strong Government Companies’ stocks may also be considered.

Technically Sensex finds good support at around 14,500, 14200 and 13,600 levels. It faces strong resistance at around 14,700 and 15,200 levels.

Wishing you a happy week ahead

Tiring Bulls and Fearing Bears

2009-06-14T22:24:00.002+05:30

Last week, there was a pause in the Bull Run that had continued for a record thirteen weeks. Still, Sensex managed to close the week with marginal gains. Nifty closed with a marginal loss. However, small and midcap stocks faced a big sell-off probably due to profit booking. Even though, Bulls are quite tired after running for quite some time without break, Bears are still uncertain of taking full control of the market.

Markets opened the last week with losses as there was a good amount of profit. Sensex faced a strong resistance around 15500 levels and the Nifty at around 4600 levels. It was widely expected at that time that the Bears would take control thereafter. However, Prime Minister’s statement in the Parliament that the country has a potential for 9% growth and the stunning profit made by Satyam changed the moods of market. Bears were marauded once again. Still, rising crude prices and indecisive global markets checked a repetition of previous weeks’ big show and in fact, small and midcap stocks could not recover their early losses like their largecap peers.

WPI Headline Inflation hit record low levels. Finance Minister impressing upon the PSU Banks to cut their lending rates hit the PSU banks hard. Positive IIP numbers cheered the markets. However, it triggered profit booking by the traders.

US data was a mixed one. There are fears of an inflationary environment choking the growth prospects. Rise in crude prices is negative news for the global equity markets. There are market speculations of rate hike by Federal Reserve sooner than later to moderate the inflationary expectations.

Sensex faces a strong resistance at around 15600 levels and Nifty at 4700 levels. Sensex has a good support at 14500 and 13500 points.

Even though India is a good long term story, the largecap indices appear to be fully priced-in in the short run. Market seems to be in an overbought position. At the same time, tireless FII flows may change every calculation.

Wishing a happy week ahead.

Betting On A Quick Recovery

2009-05-31T22:53:00.002+05:30

It has been an amazing run continuing for the 12th week in a row surpassing even the most optimists’ expectations. Whether “India Shining” and “India Decoupling” stories are back in market? Even though, Indian story is quite intact in a longer run, whether stock markets deserve a valuation closer to the January 2008 peak levels with the economy crawling now just at a half the pace of that time? Let us introspect once again hereunder.

As we discussed earlier, market builds up lot of expectations over Manmohan Singh’s new government. It likes to safely ignore the facts that Congress is not known for speedy reforms and it has come back to power mainly because of its populist face as opposed to the corporate image of the previous NDA regime. It also ignores that the Head of Government is not the de facto political boss. He can not push through tough reforms either way as there are still many political, coalition and electoral compulsions to show a populist face.

Sensex now trades under a fair valuation given the gloomy economic indicators like negative IIP, manufacturing degrowth and GDP growth, lowest in five years, even though the business confidence is expected to improve because of the electoral verdict. Negative credit growth is a depressing factor and an important indicator that the current business confidence is quite low.

Hence, it will be too much on the part of the market to expect that miracles will happen in the short term and Sensex (Companies) earnings will move up drastically in no time. Hence, I am of the view that the any big move hereafter may be another bubble in making.

Hype is building up in the market that there will be a huge divestment of PSU companies in the short term which will take the market further up. It defies the fundamentals of supply and demand. Divestment is good for the small investors no doubt but there are hardly any reasons to chase the costly listed companies with weak fundamentals when there are plenty of fundamentally strong PSU companies are going to be available at much cheaper valuations.

I would suggest the readers to continue their value picking in small lots over a period of time. At the same time, there should not be any “there is no tomorrow” approach. There will be a plenty of opportunity for the small investors to participate in the PSU divestment process that is going to happen shortly.

Nifty may face some resistance between 4500 and 4600. Stronger resistance may be there around 4800 levels. There is huge build up in F&O position and hence it is safer to trade with strict stop loss limits.

Wishing a very happy week ahead

Left is left out?

2009-05-24T23:29:00.002+05:30

Last week has been a dramatic one for the markets. Key indices posted historic gains and the market was shut on an upper circuit for the first time in the history. Decisive electoral verdict for a reformist Prime Minister this time relatively free of coalition compulsions lifted the mood of the market.

Now there is a feeling of being left out among the investors from the last rally in which key indices nearly doubled from their bottoms recovering around half of their total fall. There has been a mad rush in the market last week which witnessed a historic gain and turnover.

Whether this jubilation is justified? Whether every thing has changed in India all of a sudden to become so bullish once a stable Congress government is in place?

One should have strong introspection now. In fact, Congress was in power in the last one year also almost with full control of the government particularly without any Left pressure. What it did to revive our economy? There were two or three very small fiscal stimuli making no major impact on the economy. Further, one should also remember that Congress has always been a centrist party with a socialist face. In fact, the 1991 reforms were more of a result of compulsions from IMF rather than a voluntary one.

Even the current electoral success is owed to the populist measures like NREGS, Farm Debt waiver, fuel subsidies and Pay Commission undertaken by the Congress government as it was very much aware that the corporate image of the previous NDA regime was the main spoiler for NDA in the previous elections. Hence, it is very much doubtful that the Congress will go for aggressive reforms risking its electoral successes in the future. Rather, it would like to carry on its socialist posture and doing some reforms here and there in bits and pieces.

Hence, we may conclude that the market jubilation for a Congress government is an overreaction. Even though the long term story of India is very much intact and the key indices may very well cross many new highs in the future, short and middle term success of our market will be mainly dependent on the following factors.

Ø Mounting Fiscal Deficit which is the biggest threat for our growth.
Ø Slow down in economy and degrowth in industries.
Ø Falling exports of goods and services.
Ø Low WPI Inflation resulting in high real interest rates and persisting credit squeeze.
Ø Global recession particularly the US recession may hurt us.
Ø Falling profits of the listed companies and their poor corporate governance record
Ø Last but not the least, infrastructure bottlenecks.

It will be a challenging situation for Indian economy and its corporate world to recover quickly.

In my view, Nifty is now placed at a fair value with its Price-Earnings multiples at 16-17 levels. Any big rally from here onwards in the short run may be a bubble in the making. However, there are many small and midcap stocks trading at attractive valuations. But they have to be picked only after a careful analysis of their fundamentals under necessary professional guidance.

Nifty faces a strong resistance at 4500 levels breaking which it may move towards 4800 levels. It has a strong support at 4150 levels and any fall below this level may take it to 3900 levels.

F&O open interest has gone up very much in the recent times. There is a market talk that FIIs are now selling in F&O market even though they keep buying in cash market. Caution is the key word now and any trading position should be accompanied by strict stop loss limits.

Wishing a happy week ahead!

Happy Times Are Back?

2009-04-18T22:51:00.004+05:30

It has been a stunning rally sustaining for the sixth week in a row. Even the hardcore optimists would not have expected such sharpest recovery in a Bear phase.

Even the poor guidance from Infosys, last week, did not affect the market sentiments beyond a point. Positive global market cues and resumption of FII inflows were the main reasons for such sudden turnaround in market sentiments. Are the happy times back? Whether this mind-boggling rally will sustain in the longer term?

Last week was one more truncated trading week. Though the results of Infosys were in line with the market expectations, the guidance was way below expectations. There was an initial negative reaction in the market but recovery came sharply because of the strong positive undercurrent.

Small and midcap stocks outperformed their largecap peers. Many smaller stocks were hitting upper circuits giving an indication that the operators are back in the market in full swing.

Banking sector was the major gainer for the week as the market was expecting good results from that particular industry. Capital Goods and Realty sectors also recovered significantly on the hopes of an economic recovery sooner than later.

Consumer Durable sector was the worst hit for the week as the traders shifted their focus to high growth sectors. IT sector was negative because of the poor guidance from Infosys. Oil & Gas sector was facing heavy profit booking.

Even though, largecap indices have successfully broken the psychologically important 200-day Moving Average levels, they could not sustain above these levels for a longer period of time. There was an indecisiveness prevailing in the market at the higher levels evidenced from the sharp rise in India Vix, the volatility indicator, to 50 plus levels.

Inflation fell to new low level of 0.18% even though the market expected it to be much lower i.e. to hit negative zone.

Week Ahead?

All-important Quarterly Review of the Monetary Policy (RBI) will be published during the coming week. There is a divided view in the market whether RBI will cut its policy rates in this review. Even though the WPI inflation is hovering near zero levels, the more important CPI inflation is still in double digits. Market will look for fresh cues from the Monetary Policy.

US economic data and global markets may also be closely followed. This month alone, FIIs pumped more than Rs.3000 crores into Indian markets. Further inflow is crucial for the market to sustain at higher levels.

There is a divided view in the market on the direction here onwards. A section of the market players feel that Nifty has made a “Double-Top” pattern in the 200-day moving average zone and has fallen thereafter in the last week indicating that there will be good amount of correction downwards taking the Nifty to 3150 levels.

Another section believes that the bull phase has just begun and there will be a longer bull run at least till the election results are announced.

Technically Nifty has to firmly close above 3500 points to sustain the current rally. In such case, next targets will be 3600 points and 3750 points. If the Nifty falls below 3300 levels, the downward target will be 3150 and 2970 points.

Happy investing times ahead.

Cautiously Optimistic!

2009-03-29T10:05:00.001+05:30

Last week, it has been a stunning rally surprising even the hardcore optimists as the bull-run continued for the third week with a bang. Well supported by the global trends, Sensex rallied by more than 1,000 points and Nifty by 300 points. Sensex closed above psychologically very important 10,000 levels and Nifty closed above 3,100 levels.

FIIs turned net buyers for the week with inflows to the extent of around Rs.1300.00 crores. Frantic Short covering ahead of the F&O expiry also helped the market to rally further. Renewed domestic interest helped the market to sustain its gains.

As we discussed last week, there are hopes prevailing in the market that the American currency, to be released into the market shortly, would find its ways to equity markets (in particular, emerging markets) and commodity markets. Accordingly, US Dollar weakened against major global currencies including Indian Rupee. There was a strong rally in commodities as well, particularly in base metals.

Revision of the global financial sector outlook, helped Indian banks to post huge gains. Metal stocks also gained in a big way during the week thanks to the rally in commodity markets and better visibility of raising demand.

As the change in methodology for calculating the movement of Nifty was more favorable to Reliance Industries, it gained in a big way. Other Oil & Gas stocks also gained on hopes of increased demand. Nano release further lifted the sentiments of the market and Auto stocks were also doing well.

Inflation fell further down to 0.27% raising the hopes of fresh cuts in interest rates.

Week Ahead

There are views that the market has already found a bottom at around 2600 levels (Sensex around 8000) and may see an interim rally, which may last, up to 3600 levels (Sensex around 12000)

Even though, there are some reasons like renewed FII inflows, fresh domestic interest, bottom fishing etc, to support the above views, one should exercise extreme caution in taking a long position as there has already been a big rally of 500 points (Nifty) and the profit booking may emerge any time soon. Further, Rupee not breaking 50 mark creates doubts on any large FII inflows in the short term ahead. As we discussed earlier, 3200 points (Nifty) may be the next target for the market.

Coming week, there are many key events such as G-20 meeting, ECB meeting on interest rates and announcement of bailout package for US Auto industry. Markets will be keenly following the outcomes of the above events. Further, there are many economic data to be released from US.

With many Indian Operators becoming quite active again, the focus may shift to small and midcap stocks. “Akruthi” chapter reminds the small investors to be extremely cautious about the abnormal movements in small and midcap stocks.

One can accumulate stocks with good valuations and high dividend yields on every dip with a long-term view. Short-term traders may go long till 3200 points however with strict stop loss limits. A fresh view can be taken after 3200 levels.

Wishing a great week ahead.

Currency is the King

2009-03-23T08:20:00.003+05:30

Last week, US Federal Reserve announced that it would buy back over 1 trillion dollar of government debt. Though it is a bad move for the global economy in the long run, global markets rejoiced the move with the hope that thus increased dollar flow would help in reviving the world markets in the short run. Our market also joined the global party with a second consecutive positive weekly close, which is rarity nowadays.

Buy back plan resulted in weakening of US Dollar against all other major global currencies. Gold and other commodities went up in dollar terms. Crude Oil crossed psychologically important $50 levels. Reports that China was piling up base metal inventories helped base metals to post gains.

In addition to the above, positive data on housing and employment from USA resulted in a global rally in equity markets too.

Indian markets also joined the rally on the hope that FII inflows would go up here onwards. Beaten down sectors like metals and realty were the major gainers for the last week. Barring Capital Goods, almost all sectors had a positive week. Highlight of the last week was the surge in small and midcap stocks outsmarting their largecap peers.

Though the fall of headline inflation to new low levels (0.44%) raised fears of a deflationary environment, there were fresh hopes of further cutting in interest rates also.

Thanks to the huge stimulus packages announced by governments/ central banks across the globe, there is a lot of money flow into the economy and some part of it may find its way into markets also helping them to stage a relief rally.

At the same time, Nifty closing below the crucial mark of 2810 points and the Dow Jones closing below 7500 levels show that the markets are not yet fully convinced about any major revival in the equity markets. Surge in CBOE Vix also indicates that we may expect some more volatility in the market in the coming week.

As there is no major economic event in India on account of General Elections, our markets may follow the global trends particularly from USA. There is a lot of economic data going to be published in US coming week, which may set the tone for the global markets.

As we told earlier, 2810 levels (Nifty) will continue to be a strong resistance. Traders may take long position once Nifty breaks 2850 decisively however with a strict stop loss limit.

F&O expiry for March series, due for this week, may add to the volatility of the individual stocks.

Rupee may follow the global trends and it will be difficult for it to break 50 mark because of surge in crude oil prices.

Happy week ahead.

A Bear Rally in sight?

2009-03-15T18:03:00.003+05:30

There was a positive surprise for the Indian investors last week who expected a narrow subdued trade for the week because of the two intervening holidays and ongoing election season. Profit shown by Citibank (unexpectedly) and its chairman’s assertion that the bank would no more require government assistance spurred the sentiments of the global markets. Our markets also happily participated in the global rally. Now, we have wait and see whether this rise will turn into a bigger “Bear Rally” taking Sensex to 10000 plus levels.

Though IIP (Industrial Production) numbers (-0.50%) were negative, markets took them as positive as the expectations were still worse. Similarly, inflation falling to multi-year low levels raised fresh hopes of another round of rate cuts by RBI.

Traders who were shorting the market till then caught unaware by the sudden upsurge of the market and started covering their short positions in a hurry, which resulted in further rise in the indices.

FIIs turning to be the net buyers and the breadth (Advance–Decline Ratio) being positive were the highlights of the week. However, trade volumes were much lower which is cause of concern.

Index majors such as Reliance, ICICI Bank and SBI led the rally. Stocks from the beaten down sectors such as Real Estate, Banks and Metals gained in a big way. Auto sector also went up because of their better show of sales numbers. Sizeable order for heavy vehicles from government helped Ashok Leyland and Tata Motors to post significant gains. Sale of shares (personal holding) by one of the top executives of Bharti Airtel impacted its shares negatively.

Dollar weakened against other major currencies including Indian Rupee because of fresh hopes of revival of economy. Similarly, Crude prices went up because of the fresh hopes of higher demand for oil arising due to the increased government expenditure under their stimulus packages.

Volatility indices like CBOE Vix and Indian Vix fell sharply giving the hopes of a stable markets in the coming week. It will be quite interesting to see whether bulls can come out of the bear-grip next week and take the Nifty to 3000 levels (Sensex 10000 points).

Last week, Nifty has closed at the strong resistance levels and it has to cross these levels (2730 points) to move towards 2810 points breaking which towards 3050 points. If, Nifty fails to cross the said levels, we may witness another round sell-off dragging the Nifty down to 2500 points once again.

Traders may initiate long position in case Nifty breaks 2730 levels firmly in Monday’s early trade, however with a strict loss limit of 2670 points. 2550-2600 points appear to be a strong support for the market. PSU Banks look attractive as majority of negative news flows have been factored in.

Indian Rupee may strengthen against US Dollar depending on the further rise in the global markets. However, it will be quite difficult for it to break 50 mark.

As of now it appears that the markets may be cautiously bullish and look for further direction from US markets. Bulls have to keep in mind that the “Bear Rally” cannot last for a longer duration unless there is a major turnaround in the global economy.

Wishing you a happy week ahead.

Uncertain Times Ahead!

2009-03-01T22:14:00.003+05:30

Our market has shown a remarkable resilience in the last week by defying the weak global trends particularly from US and China. Even though, Rupee fell below its lifetime low levels on downgrading of rating by S&P, equity market was not affected much. Weak GDP numbers also had a limited impact on our market as the lower GDP numbers coupled with multi-month low inflation raised fresh hopes of interest rate cuts by RBI.

Duty cuts by the Central Government, rate cut hopes and better than expected results from Tata Steel saved the market from the above said negative factors. Further, there was a good amount of short covering ahead of F&O expiry due for the last week helping the key indices to post modest gains. At the same time, sell-off continued in the small and midcap segments and the overall breadth of the market was negative.

As we mentioned earlier, 2700 levels for Nifty proved to be a strong support for the market. Auto stocks were the major gainers due to the rate cut hopes and launch of Nano Car. IT stocks also gained for the week, because of the Rupee fall. Realty sector continued its downtrend. Banking stocks also fell significantly during the majority part of the week though they covered a part of their losses on the last day of the week on rate cut hopes.

Week Ahead:

Falling inflation and the pressures on the Central Government to do something before the elections may prompt a rate cut by RBI in the week ahead. Rate cut may help interest rate sensitive stocks. Reliance Industries – RPL merger may benefit RIL shareholders and the RPL shareholders may be hit. Further, raising trend in Crude Oil may help, Oil producers and Oil Refineries. At the same time, Special Audit on NIFTY Companies announced by SEBI may have some negative surprises.

To conclude, there are equally strong positive and negative news flows to the market and it may continue to move in a narrow range. It appears that there has been a lot of action in F&O segment at the Nifty levels 2700 and 2800. 2700 levels for Nifty continues to be a strong support and a firm breach, if any, would lead to a massive sell off. Similarly, 2800 points will give stiff resistance to the Nifty and in case it breaks 2830 levels, there will be a rush for short covering, taking the market further up towards 2900.

Happy week ahead.

Break out is possible?

2009-02-08T19:40:00.001+05:30

Our market has been hovering in a narrow range of 200 points (Nifty) for many days now. Second stimulus package to be approved by US Senate and the Interim Budget to be presented in Indian Parliament in the coming week are expected to take the market beyond the range upwards.

Week that was

Worse than expected US GDP data resulted in a negative opening for our market. With the corporate results were almost over, the traders were clueless on the future direction for the Nifty. Hence, market was stuck in a narrow range. Trading volumes dried up. As expected, Nifty took a strong support at the levels around 2750 points.

Sudden spurt in inflation in the previous two weeks surprised many market pundits dampening the rate cut hopes. Stocks from Interest rate sensitive sectors like Auto, Banking and Realty were sold off. Worse than expected results from DLF affected the realty counters further. There was also profit booking in the counters, which rose significantly in the previous week. FIIs sold last week in cash market however in a small way.

At the same time, cement counters were shining because of better than expected consignments. Interim judgment on KG gas favoring Reliance Industries Ltd helped the index major to post gains for the week. Nifty and Sensex ended the week with marginal loses and the breadth of the market was negative.

Week Ahead

Inflation resuming the falling trend and the announcement by RBI head brought back the hopes of another round of rate cuts. As said earlier, US stimulus package brought huge expectations from the markets across the globe. Similarly, interim budget due to be submitted in the coming week will be closely monitored by the market. There are expectations of stimulus measures in the interim budget to revive the economy. There are market expectations that the Nifty range (2700-2900) will be broken this week upwards and the next targets for Nifty are 3050 and 3200 points. At the same time, market may continue to be volatile. Traders may take long positions in Nifty and largecap stocks however with a strict stop loss limit of 2750 points.

With the emerging markets posting gains for the second week in a row, Dollar is expected to weaken against the emerging currencies. Base metals and crude may strengthen based on the US stimulus measures. Gold may weaken in case the stock markets do well.

Wish you a happy week ahead.

Disclaimer: This is only for information and not a recommendation to buy any stocks. Investments in shares are subject to market risks and investments should be on own risk.

Positive Surprise

2009-02-01T20:03:00.003+05:30

Last week, our market surprised many pundits by its sharp pull back ignoring many negative factors such as poor results from corporate world, resurfacing of inflationary concerns, no rate cuts by RBI, looming economic recessionary concerns and Satyam Issue. The sharp pull back was triggered by a positive surprise in US homesales data. Traders returning after a longer weekend were caught unaware of this development had to square their short position in a hurry leading to a sharp bounce back particularly in the largecap indices which is evident from the fact the beaten down sectors (Metals, Realty and Banking) of the last F&O series were the major gainers for the last week.

Positive global cues (barring US markets), return of FIIs though in small numbers and heavy investment by Mutual Funds helped in sustaining the pull back and crossing the crucial fifty days moving average of 2850 (Nifty)levels. At the same time, the rally was not a broad based one and the small and midcap stocks under performed their largecap peers. Inflation moved marginally up to touch 5.64% and was largely unnoticed by the market. As we have been mentioning in the earlier posts, the range around 2700 points stood as a firm support for Nifty.

Week Ahead

US economy has contracted worse than expectations as per the data published therein on Friday, which may drag our markets down in the opening trade of the coming week. Our market will also look for cues from other Asian peers. However, there are expectations that our market will have a bounce back after an initial fall as the underlying sentiments have turned mildly positive because of the last week’s developments. Further, there are reports of fresh addition of long position in the new F&O series, which may help sustaining the pull back rally. The pull back may even take the Nifty to 3050 levels but 2880-2900 levels may act as a stiff resistance. Traders may accumulate Nifty futures and major stocks such as Reliance, SBI and ONGC around 2800 levels with a stop loss limit around 2750 and 2660 levels. At the same time, in case of further bad news, if any, from US/Europe may drag the market below 2800 levels, which is negative in the medium term. Trading View on few stocks is given below.

Stock Target 1 Target 2 Support 1 Support 2

Reliance 1375 1430 1215 1110
SBI 1188 1227 1084 1018
ONGC 675 698 624 580

Wish you a happy week ahead.

Disclaimer: This is only for information and not a recommendation to buy any stocks. Investments in shares are subject to market risks and investments should be on own risk.

Obama - The Change

2009-01-18T22:54:00.002+05:30

Coming week is going to witness a historic occasion of Mr.Obama, swearing in as the President of United States of America. For quite some time, we have been only hearing bad news, from USA, such as recession, job losses, bankruptcies, liquidity crisis etc. This is the first good news for the world from USA after a long time not just because a person, from the community that has been exploited for centuries, is becoming the head of the most powerful country of the earth but also because he is the person who won the elections by promising a “Change”.

Week that was

Market opened negative this week because of worse than expected US labour data and indecisiveness of our government in bailing out Satyam. Further, poor results from Bank of America and the decision of Citibank to sell its own parts had a negative impact on the global markets. Many Global markets being down this week on account of recessionary fears and financial crisis were not going well with our markets.

At the same time, to the surprise of many pundits, our markets found strong support at around 9000 points for Sensex (2700 points for Nifty) thanks to the strong rumours that Ambani brothers are nearing a settlement in the KG Gas sharing issue. Further, speculations of KG gas production starting any time soon and supply of gas to NTPC helped the markets to cap the losses for the week. Reliance Pack was the star performer for the week. IT stocks did well mainly because of the positive surprise by Infosys quarterly results. Sharp fall in inflation raised fresh hopes of one more round of rate cuts. However, Realty stocks continued their downfall. Bank stocks did badly during the week despite good results because of the negative outlook on the global financial sector. FIIs were the net sellers for the week.

Week Ahead

As said earlier, Obama factor may help the markets to have a small rally in the beginning of the week. However, the gains may be limited because of the strong underlying bearish sentiments across the globe. Satyam Scandal and doubts of Corporate Governance of the Indian Companies may haunt our markets for some more time. Resumption of FII outflows may also hit the sentiments of the market. To sum up, our market is likely to be highly volatile this week with the indices moving wildly on either side.

Resistance levels are

Sensex - 9500-9600, 9900-10100,
Nifty- 2900-2930, 3000-3030

Support levels are

Sensex - 8950-9050, 8400-8500,
Nifty - 2700-2725, 2475-2525

Traders may initiate short position in case Nifty closes below 2700 levels and long position above 2700 levels on a closing basis however with strong stop loss limits.

Investors may consider investing in top Public Sector Banks and Public Sector Companies with proven credentials (in case of market fall) on a long-term basis.

Rupee is expected to weaken further against the US Dollar and move between 48.00 and 49.50 on renewed FII outflows. Its direction will depend on the factors discussed above.

Happy Week Ahead

Satyam Shivam Scandalism

2009-01-11T21:24:00.001+05:30

Just when it appeared as if everything is all right for the New Year 2009 and the market heading for a solid recovery, Satyam Scandal spoiled the party. Sentiments of the market were totally shattered by the Satyam disclosure which is evident from the 1000 points fall in just two trading sessions. Government initiated certain measures to revive the Company after the trade hours on Friday. Hence, the market reaction for the measures will be closely followed in the next week.

Week that was

Market opened positive for the week because of stable global outlook and bullish local sentiments. Sensex hit a seven-week high and more importantly the small and midcap stocks were performing quite well. As said earlier, Satyam Scandal came as a shock to the market and the Sensex lost as many as 1000 points in no time. Breadth of the market turned extremely negative. Market started looking suspiciously many companies who are on the edge. Delay by the Central Government in initiating action against Satyam Promoters has further dampened the market sentiments. 10-month low inflation data and fall in crude oil prices did not get noticed by the market. Realty sector was the worst hit for the week followed by Consumer Goods sector and IT sector. Cement sector and Auto sector were the better performers for the week. Satyam stock was the worst hit which lost more than 86% in just one week.

Week Ahead

I expect that the arrest of the Satyam ex Chief and formation of new Board of Directors by the Government may improve the market sentiments to some extent. However, worse than expected labor data in US may not go well with the market. Resumption of FII outflows may also hit the sentiments of the market. Quarterly corporate results will be viewed hereafter with distrust only. IIP data due to be announced next week may have a limited impact unless there is a positive surprise. To sum up, market is likely to be heading downside next week unless there is any miracle.

Resistance levels are

Sensex - 9650-9750, 10200-300,
Nifty - 2940-2970, 3130-60

Support levels are

Sensex - 9100-9200, 8650-8750
Nifty - 2780-2800, 2675-2700

Traders may initiate short position in case Nifty closes below 2780 levels and long position above 2950 levels on a closing basis however with strong stop loss limits.

Investors may consider investing in top Public Sector Banks and Public Sector Companies with proven credentials in case of market fall on a long term basis.

Rupee is expected to weaken 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

India Resilient?

2008-12-14T22:24:00.003+05:30

Rescue Packages announced by the Government of India and Reserve Bank of India helped our market to post significant gains during the last week despite the negative IIP growth and Rejection of “Bail-out Auto Package” by the US Senate. Global cues particularly US cues were generally negative during the last week.

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.

Week Ahead

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

Will markets be stimulated?

2008-12-07T23:01:00.004+05:30

Government of India and Reserve Bank of India have announced their stimulus packages to revive our Economy. A detailed review of the stimulus package will be made soon on the same blog. For the time being let us discuss about the direction of the markets for the coming week.

This link can be clicked for the detailed report of Government Stimulus package and this link can be clicked for the detailed RBI report.

Week that was

Though, our equity market opened positively for the week, it was not able to sustain the gains because of the negative cues coming from global markets. Global recession particularly that of United States has become a reality now. Further, negative growth of sales reported by Maruti impacted the sentiments of our market which started sinking down. At the same time, expectations on the stimulus packages, rate cut hopes, fall in inflation (8.40%) and fall in international crude prices helped the market in averting a big fall. IT stocks were the major losers for the week because of th expectations of "less order intake" on the backdrop of global recession. Metal stocks gained in a big way because of the better than expected results from Tata Steel. Banking and Real stocks were the other major gainers on the expectations of rate cuts. Power, Capital Goods and Infrastructure stocks have also gained on the expectations of government's investment in infrastructure. For the week, key indices closed with marginal losses.

Week Ahead

Sensex closing above 8900 is a positive sign for the market. We can expect that there may be small rally in the market. Technically it may face resistance at 9350, 9950 and 10200 levels and there are supports at 8350 and 7700 levels. Traders may initiate long position in case Sensex closes above 9350 levels however with a strict stop loss limits.

Auto, Banking and Real Estate stocks may be considered for trading on account of cut in interest rates. Infrastructure, Capital Goods and Power stocks may be considered on account of government stimulus package.

Indian Rupee may appreciate against US Dollar in the coming week on account of the government and RBI measures as said above.

Wish you all a Happy Week Ahead

Tomorrow Never Dies

2008-11-30T23:57:00.002+05:30

Even though, Mumbai was attacked by the Terrorists, our Stock Markets have shown remarkable maturity and the F&O settlement was quite peaceful.

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.

Week Ahead

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.

Sleepless Nights

2008-11-23T17:35:00.001+05:30

Crisis in the “Never sleeping Citibank” brought sleepless nights for the equity markets across the globe. There were speculations in the markets that Citibank was about to become bankrupt any time soon. Such speculations were not without reasons. Citibank announced that it would downsize its workforce by 53,000. Its share price crashed in US markets in the last week. Announcement by the US President elect Mr.Obama that the Head of Federal Reserve Bank of New York would be the Treasury Secretary of his cabinet brought some cheers in the market on the last day of the week.

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.

Week Ahead

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.

Slope of Hope?

2008-11-16T14:45:00.003+05:30

A classical Bear market always keeps the “Hopes of Recovery” alive by not allowing them to become a reality.

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.

Week Ahead?

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.

First Phase of the Downtrend is Over?

2008-11-09T19:12:00.002+05:30

Till some times back, every thing looked all right. Stock markets were scaling new highs. Real Estate prices were hitting the sky. Employees were enjoying hefty bonuses and huge pay hikes. India was talking about double-digit growth.

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.

Week Ahead

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.

Interest Rate Cuts are in the Interest of the Nation?

2008-11-03T18:00:00.001+05:30

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.

Light at the End of Tunnel?

2008-11-02T16:12:00.002+05:30

October 2008 has been one of the worst ever months for the Stock Market with its key index (Nifty) registering a huge loss of 26% on a monthly basis. FIIs sold around 15,000 crores worth of stocks during the month alone. However, the last week of the month has raised few hopes of stability returning to the stock markets.

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.

What’s ahead?

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.

Dwindling Forex Reserves

2008-11-01T12:24:00.001+05:30

Forex Reserves of our country has shrunk by $15.47 billion (approx.Rs.77,000 crores), its largest ever fall, to $258.415 billion in just one week (ended 24.10.2008)

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.

Review of Monetary Policy

2008-10-31T17:30:00.000+05:30

Diwali Crackers were already exhausted

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.

Other Highlights

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.

Diwali Discount Sale

2008-10-26T23:50:00.001+05:30

During last week, Stock Market was very much generous to its customers unheard in any other market to offer many stocks at huge discount (80-90%) to their previous year’s prices. For instance, one can buy entire pack of real estate stocks (one each) within the price that was paid for one single real estate stock last year i.e. DLF Ltd. I was telling my friend that he could buy many big names at the cost of a biscuit packet for his child.

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.

What’s ahead?

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.

Enough is Enough!

2008-10-19T21:38:00.004+05:30

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.

What’s ahead?

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.

Weekly Review as on 12.10.2008

2008-10-12T14:38:00.001+05:30

Week that was…

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.

What’s ahead?

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”

Weekly Review as on 05.10.2008

2008-10-05T20:28:00.006+05:30

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.

What’s ahead?

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

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.

Subprime Crisis - An Indian Perspective- Part II

2008-09-28T18:30:00.012+05:30

Last week, our stock market suffered one of its worst ever weekly losses.

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

Rising Inflation
High Interest Rates
Terrorism
Infrastructure Bottlenecks
Energy Shortage

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.

New Investment Vocabulary

2008-09-24T19:44:00.006+05:30

Bull Market:

Random market movement causing any investor (Layman) to mistake himself as a financial genius.

Bear Market:

A time period (duration unknown) during which, children get no pocket money, wife gets no jewels and the husband gets no sex.

Momentum Trading:

The fine art of buying high and selling low.

Value Investing:

The finest art of buying low and selling much lower.

Stock Editor:

The person who scratches his head wondering why his every prediction goes wrong.

Managing Editor:

The person, who does not know any thing and accepts that by telling every time, “I don’t know”

Rating Agency:

The firm, which has just downgraded your stock.

Analyst:

The person, who tells you to buy at higher levels and sell at lower levels.

Broker:

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

Mutual Funds:

Managing your funds in such a way that NAV always goes down regardless the market movement.

Retail Investor

Missing. Will be rewarded in case any one finds now.

CEO:

Chief Embezzlement Officer.

CFO:

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.

Multi-baggers:

Stocks that will make you (multi) beggar.

Future Stars:

Stocks you have to search for (in the sky) after some time.

Hidden Gems:

Stocks, which will be hiding from you (or you may hide from it) after some time.

Online Trading:

Internet Account of which, the password has been forgotten.

Tele Trading:

Phones switched off.

P/E ratio:

Percentage of price correction after your purchase.

EBITDA:

Earnings Before I (Industry) Tricked the Dumb Auditor.

Buy, Buy:

Taxi-wala giving tips.

Standard and Poor (S&P):

Lifecycle of an investor in a nutshell.

Stock split:

Your former wife and her lawyer split all your assets equally between themselves.

Market correction:

Day after you buy stocks.

Cash flow:

Movement of your invested money down the drain.

Subprime Crisis - An Indian Perspective-Part I

2008-09-17T23:05:00.026+05:30

Genesis

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".

(Source:http://www.whitehouse.gov/news/releases/2001/09/20010927-1.html.)

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.

First Blink

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.

Liquidity Crunch

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.

An Open Letter To The Terrorist

2008-09-16T20:18:00.048+05:30

Oh Terrorist!

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

Big Bang Theory and Small Unanswered Questions

2008-09-14T20:05:00.006+05:30

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?

Laymen Brothers versus Lehman Brothers

2008-09-13T21:35:00.040+05:30

The entire world is now talking about the Lehman Brothers Inc., which is the latest American Bank to fail. Experts are now discussing how the bank, which boasts itself the cream employees from world best universities, could have failed.

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.

Happy Ending

Now it is left to the Reader to decide what's right and what's wrong with Layman Brothers and Lehman Brothers.

Rupee Fall

2008-09-10T21:20:00.004+05:30

Rupee started falling against US Dollar in January 2008 and lost around 15% since then.

Causes

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.

Implications

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.

Future beckons

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