t-zAVW_utoTCRUo_lLxrx7MFn0Q

Monday, December 30, 2013

2014:Looking through Google Glass!

Despite talk of curtailment in US Government support for the economy,the latter half of 2103 proved decently profitable for market traders on India as well as Europe and the US.If there was no rapid improvement at least the economies of France,Italy and Ireland did not degenerate further.Kinda positively negative!
 
Indian equities rallied to their all time highs but it was an empty victory as most stocks(especially the midcaps) lagged and even the PEs of large caps remained modest.
 
Looking forward to 2014;Elections are the key.A majority for any party is critical for reforms,new processes and policies to be shaped.With the AAP win in Delhi legislative elections the picture for the Lok Sabha seems complicated.The BJP and Congress strategy to let AAP form the government in Delhi and (maybe)fail in keeping its promises is the main plank.
 
However that is a double edged sword.Even a 50% achievement of its electoral manifesto by AAP will make it a serious player without doubt.I don't think any political leader in India understood the depth of frustration of the middle class,both urban and rural.Not One!!
 
The RBI Governor showed his maverick streak and kept rates unchanged.Food inflation still shows no sign of abating.The Banking system as per RBI report is suseptible to fallout if a big corporate group bankrupts.Kingfisher Airlines was but one small example.
 
So risks in the system exist.The economy remains fragile.Political future uncertain.
 
On the positives,the exports have started climbing once again.Gold imports are under control and the biggest issue of them all:depreciation of the Rupee versus $.The Rupee has stabilized in the 61-64.50 range although I am sure the RBI would be happy to see it around 60.
 
 
Rural demand remains strong and going ahead Autos and Steel will see demand growth of around 10%.Infrastructure needs a push from the Government and many beaten down stocks of such look like a good investment but do read the Balance Sheets carefully for the debt stats!
 
IT might show some upward trends on currency depreciation only as otherwise there is pressure on margins and new contracts are shrinking.Midcap IT stocks -  Mindtree,Igate are better bets as they try to enter new segments of robotics,data analysis rather than the traditional outsourcing mode.
 
A large number of gourmet restaurants have thrived and those like Oh Calcutta that listed its holding company on the exchanges will be good investment with more urban and semi-urban folks enjoying their fine dining experience along with the Jubilant Foods which have been a craze selling Pizzas.
 
It promises to be a different year with a lot of news expected.Wars still rage in Syria and South Sudan.No big crude finds in 2013 and the slow emergence of electrical cars(which are yet to make an impact in India as we speak) will keep us guessing.
 
Happy investing...!!
 

Thursday, December 19, 2013

RBI:Hawkish tone but Dovish Actions

In the mid term review of the monetary policy,December 2013, the RBI left key rates unchanged contrary to our and consensus estimates(we expected a 25 bps repo rate hike) and left the CRR unchanged at 4%.  It seems like the RBI is talking like a hawk but walking like a dove.
 
Inflation-Core or Headline?
Over the last few years, retail inflation has been persistently high and also largely ignored which is one of the key reasons why the economy  is in the  present quandary of low growth and high inflation. High inflation finds its genesis in high food inflation.  For example, in November, food index under CPI grew by 14.7% while under the WPI index, food inflation grew by nearly 20%.  The other component that is keeping inflation up is the fuel price index (because of deregulation of fuel prices).  RBI has little control over both these factors and hence the argument that a rate hike might not be able to control inflation. 

 The Governor seems to be placing his bets on softening trends in food prices going forward and warned of acting if it turns out otherwise.  Our research shows us that good harvest and seasonal factors can bring down food prices in the months ahead.  Hence inflation on the whole might drop.  But only for a while - a temporary phenomenon.  It will come back to bite us soon after.  This has been the case for the last five years.  Hence why will FY 14 be any different?

Its noteworthy that the Governor does not mention core inflation?noteworthy because EM countries identify more with core inflation than with headline inflation.Why the ambiguity about the target?
 
Fiscal Deficit
 
High fiscal deficit is one of the key reasons for high inflation.  Between Apr - Oct FY 14, the government earned Rs 4641 bn but spent Rs 9220 bn.  Given that the increased expenses are more towards populist schemes rather than capital formation, these expenditures are not going to translate into sustainable growth and output.  If you look at the rural population whose incomes have risen by over 15% over the last five years (thanks to programmes like NREGA), their spending has increased more on food articles than on durables like cars, TVs etc.
 
We have now known for ages that supply side bottelnecks are the main reasons for food inflation and the sudden spikes in vegetables,onions,potatoes etc is due to supply not reaching consumers in quicktime even with a good monsoon.
 
The Governor has spoken like a hawk but his actions have been dovish in this policy.With time we will know if this radical strategy works because as far as food inflation is concerned it will come down but temporarily.



Wednesday, December 11, 2013

AAP Delhi Victory:Turning Point in Indian Politics ?

With all the predictive intelligence and software employed by news channels they still could not fathom the utter alienation of the 'aam admi',common man,hoi polloi - call what you may.
 
From someone taken as some kind of a joke,a non celebrity - Arvind Kejriwal became an overnight gaint killer in Indian politics.People have gone into social service in trying to alleviate poverty or educate the rural masses but here was  a man who looked at the urban 'poor'.
 
Statistics measure poverty through the BPL(Below Poverty Line) parameters but surprisingly there would be more urban middleclass 'poor' people than though and these are the truly neglected.Some who have job losses or become handicapped due to accidents find themselves at the bottom of the ladder without a source of sustenance.where they differ from the rural poor is that people in villages have some parcel of land no matter how small or divided where they can raise at least a minimal amount of food.
 
Cities overun with migrants who have sold their village land and moved with family and lost whatever they possessed before finding a source of income is common.Yet there isn't one single Government iniative to change the status quo.
 
Secondly,all that politicians look for is a shortcut.Pay doles and get votes in return.Look at all the sundry 'Reservation' schemes running across India and across the various political parties!
 
Is there any party that runs education or basic job skills programmes?

No.


That brings us to the AAP.Heartening that their candidates have experienced life - a journalist,an unemployed,a commando who fought terrorists.People who can understand the pathos of daily living.Who know what a struggle day to day life is for most of us.
 
Understanding that most of India will be living in cities in the coming decades.Social issues,issues of communication.No more fiery oratory before elections.A proper report card on how the varios MPs,MLAs,councillors perform.Pipe dreams?
 
At least this bunch of activists turned politicians who have made it their mission to bring some amount of accountability to mainstream issues is a breath of fresh air.Will it sustain?Will innate human greed for money and power destry the innocence of AAP?Will the leadership be able to hold onto their ethics?
 
These are some fundamental questions that only Time can answer.
 
Till then let us enthusiastically welcome this new found zeal to become a more responsible Nation that first improves its own conditions through its own people.That is true 'Swadeshi'.
 
Arvind Kejriwal,Manish Sisodia,Kumar Vishwas&Team.Salute you Davids for taking on mighty Goliaths.May This Courage Never Wane...!!!!!

Saturday, November 30, 2013

Sachin Tendulkar Was A Long Term Investment

So farewell to a glorious career.Farewell to Sachin Tendulkar.Dignified man who let his deeds on the cricket field do all the talking.His place in history is secure.


Sachin Tendulkar had a 25 year career.When he started playing the price levels were:-

Rupee versus US $ was 19
The BSE Sensex was at 800
Petrol prices were Rs 9.85 Ltr
Diesel prices were Rs 4.10 Ltr
Gold was Rs 3100 per 10gms

If you had bought some of these financial assets the returns would be:-

Rupee versus the US $ today is 62
The BSE Sensex today is 20790
Petrol today is Rs 74
Diesel today is Rs 57.50
Gold price today is Rs 30440 per 10gms

Do the maths?Tear your hair out.Whatever.

If your investing career had been as long as Sachin's,it might have been as glorious for you as it has been for Tendulkar!!

The good part is that its never too late(or never too early)to start.Go to your nearest financial advisor or  you might see a similar message when Virat Kohli retires a few decades hence...!

India and China.

Let me give you an example.The Congo river drains an area of 3.7 milliom kilometres known variously as the Congo basin which consists of Tropical Rain Forests spread over 178 million hectares.It is so large that it creates its own climate.The evaporation from trees is so vast that it forms clouds that drop their load over the wide area at an annual average of 650cm per year!

A billion consumers in Indian and a little more in China can create a vast business cycle of maufacturing to consumption of goods and services that is self sustaining.

There is no need for esoteric,complex investments.Just look around you and you will find companies that make profits from you,products that you use in everyday life.

Tuesday, November 19, 2013

Season of Laggards...

The Nifty has made a new near high.The Sensex already did that.So how many of those who invested came away winners?
 
Very Few.Most stocks are still languishing at 2011 levels and that is especially true of mid caps.Those who invested in 2009-10 and did not average are stuck with stocks which are as yet 15-40% below their buy level.
 
Retail participation is at all time lows in Indian equities and few have the taste for fresh investments.Fewer yet have the courage!
 
Analysts have been talking on how important infrastructure is if India as a Nation has to develop economically and challenge the USAs,Chinas etc.In a decade the vaulations have tumbled for stocks and even mighty companies a la Larsen&Toubro,Bhel and a few others have had prices come down from stratospheric heights.

This Five Year chart of L&T is a good example:


The present managers of India have been caught in too many stings,corruption scandals and sheer weariness to do much.If the BJP comes to power then infrastructure looks set for a fillip as their economic policy is very traditional,their support base being mainly from Infra,textile and the general merchant class.
 
Additionally what this correction has done is to very brutally factor in the over leveraged Balance Sheets,longer duration of realization,increased project cost -  till most of the firms prices fell to 30-50% below Book Value(BV)
 
For the long term investor it still isn't the best  price to buy and forget.Offcourse these days its difficult to reccomend such buy-and-forget ideas as the Global and internal situation is so fluid and just a surfeit of news and occurrences.I mean,President Obama might 'find' WMDs in Iran to take focus of his internal issues with the Congress,Prime Minister Nawaz Sharrif might send in Peshmergas into Kashmir to prove to the Pak Army-ISI combine on how tough he is.India's food inflation with daily rumours of some shortage or the other.
 
Tough call.But buy the following stocks  as they look set for 10-20% rally in a market where the large cap leaders have already moved up leaving few gaps for a profitable trade:-
 
JPinfrasture   cmp 19
HCC              cmp 14
JPAssociate   cmp 49
IFCI               cmp 25
 
Other stocks that one can look at NBCC, JSW En,NCC.Afterall its a trader's market!

 

Monday, November 4, 2013

Agenda for 2014...??

The Sensex hit a new all time high last week.The investors I talk too across the country are still holding 75% stocks at inflated valautions that are still far from breakeven.After factoring in inflation the Sensex is still down 12%.And I am not even talking about the midcaps,smallcap etc
 
 
The RBI Governor has injected a sense of focus on the economic barometers that he wishes to tackle and has had a positive affect.The Quarterly numbers have been better than expected.PSU Banks that got beaten down ralled 2-3% and so did the Nifty.
 
This rally in Indian equities have again brought out the "experts" from the woodwork and I heard someone predict that the BJP led coalition victory in 2014 elections was factored in...!!
 
Wow...!!
 
Does anyone know what the agenda of the BJP for 2014 is or will be?
 
Will they want to build a 'Ram'Mandir at Ayodya?
Will they give a stipend to all the priest,mahants,holy men in the country?
Will they go around building giant sized statues of their ideological ancestors?
 
I mean,in a country with the highest infact mortality rate,starving people,people below poverty line,people without homes and not counting those victims of myriad Cyclones,storms,floods,droughts.
 
And the 'would be' Prime Minister wants to build the world's highest statue of one of India's founding fathers...!!Is that the agenda?
 
Its shocking that the industrial policy has not been defined other that to say that the 'Gujarat Model' will be followed which means land given to industry at cheap rates to create jobs without counting environmental cost or the loss in agricultural acreage.
 
It was the same party's government that handed over terrorists after the Air India hijack at Kabul.Can they be tough on border issues with China or Pakistan?
 
Do they have the statesman or the leaders with experience to deal with a country of diverse cultures frustrated by corruption,apathy,ineptitude.Bad roads,poor electricity,high food prices.Its a real tower of Babel.
 
Right now it is tough to figure out the way the dice will roll.I for one am pessimistic that even after the elections the situation may not change and if it does it will have more to the Global factors than any inherent measures by measly politicians.
 
Will we be able to change the leaders who quibble over flood relief measures,throw chairs in Parliament,browbeat citizens,grab government grants for individual favours.
 
The danger from terrorists,Pak army,floods,cyclones is much less than these greedy 'self appointed'guardians of Indian morality...!!
 
Will they change after the 2014 Elections?
 
Me thinks NOT.

Tuesday, October 1, 2013

Bhisma

The legendary son of King Shantanu and uncle of both the Kauravas and Pandavas from the epic Mahabharat.
 
A man who took his vow very seriously,immensely knowledgable and blessed with long life.He once fought and bested his guru Parasuram,a great archer.His original name was Devavratha but came to be known after the bhishana pratigya-TERRIBLE OATH to remain out of running to become the King.
 
Why the lesson in Indian mytholgy?
 
Dr Manmohan Singh has striking similarities to Bhisma.A trained economist who fought the closed Nehruvian-socialistic economic policies and won for it capitalistic freedom and now finds himself redundant in a political free for all.All pay lip service and call him their leader but each group tries to win its share of power.
 
He has remained stoic while Pakistani forces beheaded Indian soldiers on the LOC.China came halfway into Ladakh,the CAD shot up to its highest level in two decades,GDP fell to a decade low,exports dried up,onion prices went up 300%,the opposition called him everything short of an epithet and even that!
 
He has remained stoic.What does this man think?
 
Without a shred of doubt he has led this Country marvellously and with dignity.Yet the sell by date seems over.His loyalty to his team has left him ridiculed.The suave Montek Ahluwalia is a pale shadow and probably mentally retired from the Planning Commission.Other than excuses he has not contributed anything.Pawar as Agri minister is too busy nursing his constituency in Maharashtra and his pet sugar lobby to bother about the price rise of food products especially vegetables and legumes.
 
The Home minister keeps putting his foot in his mouth.The ex-telecom minister just secured bail for allegedly favouring licences!!The list just goes on.
 
The young scions of former politicians talk well but that's about it.Not one has the guts to step forward and do the right thing without having an eye on some vote bank or the other.
 
Never has the Leadership cupboard looked so bare in 60 years of Independence.The ethics,honesty,trustworthiness.Gone.Gone in the face of expedience.This time in 2014 the choice will be between the frying pan and the fire!
 
The choice is between an authoritarian politician with a professional PR machine and a 3rd rate team and the incumbent would be heir without experience of Governance.Those who have read my blog so far will I hope understand why I am not bullish about the post 2014 market.Yes the industrialists and some part of the media have already anointed the successor and I am sure they will get their shylockian due.
 
Bring me the Atal Bihari Vajpayee of the 80s with his theme...
 
Na Har se na Jeet se
kinchit nahi bhaybheet mein
Sangarsh path per jo Mila
yeh bhi sahi
Woh bhi sahi
 
Even a Nehru would do with his sheer passion for the Nation,his conciliatory style.
 
My main fear of a Modi win is his attitude of trying to steamroll  dissent will lead to an outpouring of frustration which will lead to conflagration if any attempt is made for a fascistic suppression?
 
Today on the eve of another birthday of the supposed 'Father of the Nation',I say again.India is an idea.It is the feeling that makes us Indians.If that is lost then the Nation is lost.
 
Sar Zameen-e-Hind par
asfag e alam ae Firaq
Kafile baste gai
Hindusthan banta gaya
 
Even politician indulges either the Hindus or Muslims or businessmen or some votebank or the other.Quota,Reservation - anything that gets an extra vote.All morality has been lost to the vote.
 
India remains a Utopia.Bapu are you watching?

Tuesday, September 10, 2013

Will RBI's Kipling Quoting Pied Piper Be Enough To Lift Indian Markets?

The best reference in the whole speech given by Mr Rajan was his mention of Dr Rakesh Mohan and his 'lazy banking'.Arguably the best man never to become Governor of RBI,an erudite,thorough gentleman who never made a hoopla of not being raised above the Deputy Governorship and someone who just quietly slipped into the American academia.



If you can trust yourself when all men doubt you, 
But make allowance for their doubting too:Rudyard Kipling


So said the new RBI Chief.A dynamic gameplan that has lifted Indian equities even as I write but will words be enough after the euphoria has worn off?

I feel the whole pessimism was overdone as was the fall in the Rupee vis a vis the $.English being a funny language yet I am a big fan of all the aphorisms."There is a silver lining in every dark cloud".I do believe.Will it tempt Indian manufacturers to up production?To try and compete with China?That is where the great depreciation in the Indian Rupee has brought us and woe betide if such an opportunity is let go.

The China model that favours mass over quality is a failure.Not sustainable.If Indian industry can produce even mediocre quality at quality price then the trade competitiveness will overide the lack of infrastructural support.

That is why I have always been a supporter of Growth measures over the inflation fighting policies that Subbarao was solely thinking about.Creating employment,raising exports is the best option of earning Forex,social stability and bring down the CAD.Ain't those the main headwinds to the Economy?

Its Thailand more than China that has flooded Indian markets,upto such a point that Indian industry has become too lazy to produce and is comfortable being just a 'Middleman'sourcing from Chinese-Thai makers to dump it here.Easy money.No red tape.No licences.The Thai baht is now worth 2 rupees.Even 5  years back the reverse was the case.

Rather than impose capital controls,raise interest rates,devalue currency the measures proposed by the new Chief and the sheer focus on increasing liquidity,freeing NRI rates,taking banking rural,Inflation indexed Savings Certificates have been a very positive intent.


The stock markets might become illogical at the top and bottom but the almost 4.5% rally in the Nifty over the past week shows that the market reacts to logic and senses the will in the Government to try and stem the apathy.

Global factors will keep markets nervous but as a trader(if you are one!) its a sweet spot to be in with quality stocks quoting below book value,getting a 5% beating on bad days being a no-brainer BUYs...!!

Tuesday, September 3, 2013

Soros` Shadow on Indian Rupee

Watching the mayhem in Currency markets reminds me of the 1990s and a certain George Soros and his Quantum Fund that caused a bloodbath in the Thai baht and made him 'persona non grata' with Mahathir Mohammad's Malaysia.
That led to the meltdown of the so called 'Tiger Economies',a million job losses and reduction of millions more into poverty in Thailand,Indonesia,Malaysia and some other parts of South Asia.
The similarities to the current Indian situation are uncanny-a huge Current Account Deficit(CAD),trade deficit,low GDP and lack of assesment at high administrative levels of the knockout effects possible from this combination.The only dissimilarity was that the Thai baht was pegged to currency levels against the $ and the Thais did not wish to devalue their currency.
The response was similar to what the RBI did last month.Raise interest rates to curb money supply.
 
Now,sophisticated traders will analyze prices and move them to their efficient level.Taking a negative view,traders lack the muscle to enforce price efficiency and knowing the limits of their power prefer to ride trends rather than fight them.
India is lucky that major hedge Funds are not allowed the freedom to use leverage to take positions and push weak currencies beyond the point where central Banks cannot hold them back.If the true or real value of the Rupee vs $ is 60-61,why was the RBI trying to fight the depreciation?
Thankfully there dont seem to be any bubbles although hindsight is the best way to spot bubbles in the economy!Major sticky point is the corporate debt scenario and an example from today's news is the default of Yash Birla group which has CDs of 100 cr open.
"The market can stay irrational longer than you can stay solvent"-John Maynard Keynes
Although I am not a Keynesian fan yet these lines strike a chord as I see too many traders try to go against the trend rather than go with it and lose their entire capital in the process.If top hedge Funds like Tiger and Quantum,which in their heyday had a combined capital of approximately $ 20 Billion could sustain loses and not be able to buck the trend then you as an individual hardly stand a chance unless you get seriously lucky.
I do not wish to repeat my earlier post on trading the VIX.The other way is to remain hedged in this market-could be equity vs futures,options,pair trading or across Nifty and USDINR and Gold.
Simplistic one way trading is a recipe for a loss.With 2-3% swings in the Market intraday this is a difficult time to predict the trend for tomorrow!
The nifty will go down after trading in bands i.e. 5500-5700 band broken,next 5200-5300 level.5000 is the critical level to watch.Value is there already in Metals,Mining and the push for Ultra Large Power projects although their debt to equity ratio is totally skewed out of kilter.
Downgrades in earnings,limited strike on Syria,corruption in China and finicky growth numbers from Europe will keep the markets volatile.

Thursday, August 29, 2013

Will coming Reforms Turn Tide For Indian Equities?

The storm generated by the fall of the Rupee against the $ does finally look like churning this UPA Government out of the apathetic lethargy it finds itself in the last two years.
 
 
The statements by the Finance Minister and the Prime Minister today show a new resolve.All that filibustering on TV and school debates have reached Race Course Road it seems!
 
What can we look forward to?
 
a)Allowing exports of iron ore and other base commodities
b)Incentivising Exports with new segments being added to the List
c)Softer approach on 'green'clearance to environmentally sensitive projects
d)Injecting a sense of urgency into stalled infrastructure projects
 
These are likely post the monsoon session of Parliament ending 1st week of September.Although it may not added to corporate results immediately any such action is likely to have a positive impact on sentiment.
 
The biggest fall has been in sentiment regarding Indian equities and currency!An improvement there will shore up the big players and play a role in the coming festive season or so I hope.
 
Globally,notwithstanding the hullabaloo over US attacking Syria,my strong feeling is more of a surgical NATO strike with the blessing of the UN rather than an all out invasion.The US army is tired,dispirited after the Afghan Campaign(as all successive campaigns have been in Afghanisthan since Alexander) and with all that vaunted technology not leading to the capture or death of Al-Zawahri or Mullah Omar.
 
I would not be surprised if American Military Command rebelled against another foreign war.That means that all my trader friends long on Gold and Crude need to wind their positions down if they intent to capture the recent gains.
 
Again I am being a contrarian on India.
 
The Goverment is capable at reigning in the CAD at 4.8% of GDP.
India is a net exporter bar fuel bills.
The Forex reserves are nowhere near as depleted as in 1991
The Indian Voter is wise and Elections will turn over a new chapter
 
The opposition party,the BJP is again shooting itself in the foot by raking up the 'Ram' Temple as their main issue and supporting fraudulent Godmen.If their expensive PR machine cannot come up with a coherent economic plan very quickly the urban middleclass vote is lost.The Muslim vote is lost due to 'Ayodhya'.The regional 'Dalit'parties will have a chunk of the 'caste'votes sewn up.Where does that leave the Saffron Brigade?
 
Let us hope for the country's sake that differences can be put aside and this recession that has swept in upon us will be responded to agressively.'Growth' is the only way forward.
 
There aint any other option this Time!
 
 
 

Tuesday, August 27, 2013

Using Volatility to Trade India!

The India VIX today is 28.71
 
Returns Up 92% on YTD basis.Up 54% on 6 months basis.
 
For those who are unfamiliar with this term India VIX is a volatility index based on the NIFTY Index Option prices. From the best bid-ask prices of NIFTY Options contracts, a volatility figure (%) is calculated which indicates the expected market volatility over the next 30 calendar days
 
Let me add that the India VIX has been at its highest since  5 December 2012.In the meantime the Nifty has gone from 5600 to 6100 without making a new high and then the break below 5700 that changed the trend.
 
 
What is interesting in the co relation between the VIX and Nifty is the fact that whenever the VIX has touched 28-30 ,the nifty either bottomed or it created a panic to drive 35-38 level where the Nifty needs a 5-6 month bottoming out period with bouts of huge volatility.
 
Patient traders will get opportunities to buy underpriced stocks of good companies in sectors that can rideout the slowdown.Neither is there any euphoria to give a 30-40% bounce back a la 2008 nor are there huge leveraged positions in the market to create major panic hence my assessment of couple of Quarters of bottoming out period.
 
What is clear is that the markets are in a downtrend and the derivatives players can look to go short n any 50-70 point bounce in the Nifty.Midcap banks with steady asset quality have been hammered so badly that an 8-10% rebound is likely.However,their valuation in the Banknifty is limited so do not expect the Index to perform.
 
Use the implied volatility indicator i.e.VIX to guage the direction and trend in the market and trade."The Trend is Your Friend" is an of quoted phrase across the Globe.This is the time to make use of it...!!
 
Amazingly the value buy reccomendation made in an earlier post in stocks like Tata Steel,Tata Global,ONGC are still in profit despite the market crash.Keep investing!

Monday, August 19, 2013

While the Nation Withers...

The massacre in the equity and debt markets was waiting to happen.An exception does not prove a point but it does break a generalisation.Generalisation-Debt markets are safer.They are not.To be witness to a historic day when the Rupee collapsed like not seen in 18 years.1100 points wiped of the BSE Sensex in  2 trading sessions.
 
Nero fiddled while Rome burned.By jove have we seen (Roman) history repeat itself in 2013.
 
What is the mishmash of harvardites,oxfordies and homegrown bureacrats thinking?For the last three years since inflation climbed and then GDP and Growth fell,then the CAD widened there have been statements and counter statements.The promise of action.Cannot our political leadership even use the fig leave of honesty and be truthful to the Nation?Say that they are incapable of handling the situation?
 
I think a time comes for an 'Occupy Wallstreet" kinda movement in India.It has to be directed against the political bureaucrasy that is only concerned with safeguarding its own interests and letting the country rot be it in terms of economic or even physical security inside its cities and its external borders.The 'Hindi-Chini' bhai bhai polity did not work in 1962 when Chou En-lai shook Pandit Nehru's hand and turned around and attached India in 1965.Prime Minister Nehru died a broken man as his trust was not reciprocated,yet the Congress has been trying the same strategy with Pakistan!
 
They bleat in front of China and still hope that there would be one leader in Pakistan who would see the longterm benefit of peace with India.But is there one such Pakistani?
 
Those who believe that an election would change things for the better are badly mistaken.Narendra Modi of BJP with his PR machine and dependence on statistics is posturing for Prime Ministership as its another high point for him.Gag the opposition,intolerant of any other point of view other than his own yet lacking the iron or the firepower to take on foreign policy or economic threats head on.
 
Does the BJP or the opposition have a coherent plan to pull us out of this morass?If you the reader know then do let me know.None of these leaders have the honesty to bite the bullet or see a viewpoint other than the one put forth by their own party.
 
The withdrawal of QE by the Fed is but a minor reason for the crash in India.It hids the bitter truth of a lack of depth in our markets,power in the hands of manipulators and politians.Can we afford to guarantee food to ONE BILLION people however noble that may sound?
 
These gimmicks happen before every election,the colour of the party in power changes never the ethos!!The need for the average John Doe's involvement in the day to day affairs of the country gets more critical.

Tuesday, August 6, 2013

Emerging Market Equities:Have Patience or Stop!


The eminent economist Mr Raghuram Rajan becomining the next RBI Governor is an indication that the Government will push the agenda of economic growth as the main lever of bringing the Nation back into the Trillion dollar Club more so in getting things working again.That according to me is a serious positive!
 
Unless Mr Rajan draws the shield of doddering practicality and keeps the present Governor's straitlaced policies intact.Stranger things have happened!
 
My previous post dealt with the fact that though the Nifty seems to be drifting a few percentage points below the all time highs the mayhem in specific stocks has left them adrift of the Index by a huge margin.
 
The Confidence has crumbled literally.Just when it looked like Europe was recovering,the USA had got over the fiscal cliff,China was transitioning to a soft landing and India was managing to hold on the Rupee depreciated 27% nullifying the falling inflation,crude,Gold imports etc
 
 
The daytrader as a species looks almost finished in the Indian equity markets.The favourite midcap counters have fallen 30-60% on average,sometimes in one day!With all promoters overleveraged on debt,speculators have taken pleasure in bear hammering these stocks out of shape.Its so disheartening to see investors take daily losses and lose their capital.Investors who have been active since the early days of the 1990s.
 
I am seeing valuations emerge in Infrastructure and Metals.Nothing rejuvenates an investor than to find stock prices of blue chip firms quoting below fair value levels.My given target on the nifty of 5400(given  in June 2013) is nearly done.
 
1.Tatasteel 180-190
2.Hindusthan Construction 8-10
3.Tata Global   120-35
4.Britannia  around 705
5.Delta Corp  around 40-45
6.Reliance Industries-debt free company
 
The factors that were instrumental in the Calcutta Stock Exchange going bust have surfaced in the National Spot Exchange(NSEL) mess.Happens in emerging markets with new products and services coming online.Thats why the risk.
 
4-5 quarters of slow growth is not worrisome.The Rupee depreciation and the threadbare response of the RBI certainly are.Unless the USDINR finds a trading level of 54-56 we will continue to have frequent selloffs in the markets.
 
Find Value
 
Stick to your Belief
 
Keep the Patience
 
If pessimism swamps you get out of trading/investing.The Liquid and Income Funds gave 4% negative returns in July due to RBI suddenly raising rates.Buy these Debt side Funds if equity aint your cuppa tea!
 
 

Tuesday, July 23, 2013

Does Longterm Investing in Indian Equities make Any Sense?

I switched on the Television the other day and a well recognised 'analyst' was on air extolling the virtues of long term investments in the Indian market.Talk of investing now as valuations made sense from a 3-4year perspective.
 
Weren't the same words used sometime in 2009?If you followed the Defty,which is the nifty in dollar terms the return for the previous six years is -8% against Nifty absolute return of 36%.Means that in the period 2007-2013 where Indian GDP doubled,Foreign investments trebled,most FIIs which invested in India got a net negative return in this period!
 
If we take the Nifty at its own value of 5 years previous and calculate the compound rolling returns since 1999,it works out to an average  return of 12.78%.Note that the major part of that return is concentrated in the 2006-2009 bull period.The average past 5 years return is closer to 7%.

All this after taking into account the volatility,the sudden crashes,big bull days,having the strength of conviction in the face of panic to hold onto your investments.The associated risks etc
Another Statistic:At current level of 6100 we are about 5% away from the all time high of the Nifty at 6300.If I adjust for WPI inflation(Note:WPI is substantially lower than CPI inflation) then we are around 44% lower than the highs.Amazing!!
 
Those who have asked me in the past few weeks why their stock holding is in most cases 30-40% lower than Index value-I hope it satisfactorily answer your questions.

Tata Steel        January 2008 closing price on NSE     Rs 735
Tata Steel        July 2013                   price                   Rs 235

Reliance Industries Dec 2007 closing price on NSE   Rs 1443.75
Reliance Industries July 2013             price                 Rs   922

Does it not make the argument for long term buy and hold theory more suspect especially when the inflation,crude,lack of governance is threatening another reversal in Nifty and Sensex.Even accounting for Dividend or Bonus I am sure it won't affect the negative returns by more than 2%
 
Advise to Traders I have watched many traders and seen their clients lose money(more likely hemmoraege!!).Too many are specialists in their functions or set in their way.Even with the rupee yet non convertible the international price movements coupled with currency volatility and Demand Supply data mix is leaving most clueless.
 
Use the interplay between Commodities,Currency and equities to create positions that are flexible.Having in depth knowledge of sectors,political conditions and backing your beliefs is the need of the day...!
 
Abraham Lincoln

Reason why I quote Lincoln and not Warren Buffett is my feeling that this moment in the investment markets across the globe belongs to the Hustlers!Too many variable-Growth,Inflation,War,Terrorism,Political instability.


Wednesday, July 10, 2013

Nifty 5400 in July Series?

God is angry.The tragedy in uttrakhand is Himalayan in human and economic terms and an added burden over and above the Current Account Deficit already there.
 
 
Everyone is bracing for the worst Quarterly Corporate results.Prediction of profit growth of around 5% on average this time.As described in an earlier article by yours truly the Rupee vis a vis US Dollar cracked below the psychological level of 60.
 
It will soon come to a point where investors will start doubting whether to get into equities after a year and in many cases a couple of years of losing money.Emerging markets are down 18-21% from their peaks and their currency has depreciated by the same percentage in the last One month alone!
 
Highlights of the Month:China is warning of a slowdown.The USA and Eurozone has shown some encouraging 'green shoots'.The Fed threatens to cut down on the free supply of money.JLR  union in UK votes for a strike.Crisis roils Eqypt.Oil spikes above $100.
 
A time of Flux.The slowing of Commodity prices was negated for the Indian economy by the fall in the Rupee.I feel that going forward the main triggers for India will be the two Cs-Currency and CAD.The political leadership is still more in lacunae and the only positive is an expected rise in Government spending before next year's general elections.With a disjointed opposition and no major agenda or leader capable of guiding the country out of the economic morass its likely that things will drag.
 
No sector in India looks proof from recession.The huge ECB by Indian corporates are weighing down balance sheets and in 80% of the cases no profitable deployment of the cash reserves has taken place.Promoters are under pressure to meet obligations.China slowdown to impact the metals and mining sector most as exports will get hit.FMCG needs price hikes to counter Rupee woes.The List goes on.
 
Right now the beaten down gems&jewellery segment looks best bet for next two months on the back of growth in the US which is the export destination for most Indian GG firms.
 
Banks have not taken the signal from the Finance ministry to lower rates and with Rupee volatility the RBI is not going to be in a rush to change the situation.So with the risk free rate of return around the 6-7% mark seems the best destination for your money in this Quarter.
 
Domestically the 70% increase in imports and 30% reduction in exports on YoY basis is frightening for an economy that is getting licked by the Chinese manufacturing glut.I have consistently maintained that the factors slowing India are macro in nature.
 
Until manufacturing,exports,infrastructure expansion figures become positive,we will not be able to break out of this downward spiral.Quibbling over Growth being 5% or 5.6% as is happening politically is not the answer.
*Apeda figs


When measures to increase jobs,capital goods,exports is the need of the month,the BJP,supposedly the alternative to the UPA government starts campaign by promising to build a temple at Ayodya.I mean how stupid or cynical one be to inveigle the voter to bring in a government that goes to astrologers and Sadhus for guidance?Bad portents.
 
I would not be surprised if the long only Funds start liquidating their positions in Indian equities because there seems to be no silver lining on the horizon!!
 
The Food Security Bill in this month is a major negative for markets.I would not be surprised if a combination of factors-interal as well as global can take the Nifty to 5400 in the July series.The Bears are in front with my expectation of the Index not rising above 6050 even with positive tides.

Thursday, June 13, 2013

Cooper Tire and Rubber Company...sign of Indian appetite?

...Now bought by Apollo Tyres in the largest M&A of India's automotive history.The all cash transaction valued at $2.5 billion would leave the Ohio headquartered firm in Indian hands.
 
At a time when global risk appetite is low,this deal signifies a bold new initiative for a company that is familiar to Indians but not that big an international 'face'.The leverage will substantially increase the debt:equity ratio of Apolloto 1:4 on consolidated basis,  which currently stands at 1:1.In times of strained cash flows and high interest rates its a risky move.
 
Banking solely on opening doors to the mature American market where Cooper Tire get 70%  of their revenue from,as well as providing a base for the entire South Americas.It makes the Apollo+Cooper entity 7th on the global list of biggies behind leader Bridgestone and just behind Pirelli.
 
The bold move of the Tata Motors  buy of Jaguar-Landrover has show on balance sheet of the parent company this year.Less hyped was the Hindalco buy of Novelis for $6 billion and two smaller buys in Australia to secure supplies for its copper smelters.
 
Is it more important to find new markets or secure the raw materials or supply pipeline?The Chinese have been very clear about finding new markets for their products after having sewn up 30% of the raw materials from across the world.


Indian businesses have been generally risk averse and conservative.The few exceptions eg.Bharti,Tatas etc have faced shareholder pressure,bad press and regulatory hurdles.Assuming the Indian economy growing around 5% will still leave substantial cash flows on company books for them to leverage their balance sheets and buy profitable assets.
 
No other Indian behemoth signifies this conundrum more than Infosys.Holding a  mamoth 22000 Crores in cash without seeking options to deploy has left the Infosys stock down 35% from its peak,a high attrition rate and the need for a former star to try a comeback.
 
Do comebacks works?Thats another story.
 
But the Infosys example should guide perception of business leaders in india to seek new ground.Sometimes the risks are worthwhile.
 
As for Apollo,hindsight will be the best judge.

 

Wednesday, June 5, 2013

Rupee vs Dollar....The Big Rumble

The journey of the Indian rupee has been fascinating.Not just for those who follow money,but everyone who has been born and uses value of measurement for the exchange of goods and services.Since Harappans of the Indus Valley Civilization minted coins.The Rupee has not just changed in value but also in appearance.
 
 
A student of economics thus describes the various factors that influence a currency,"The value of a currency depends on factors that affect the economy such as imports and exports, inflation, employment,interest rates, growth rate, trade deficit, performance of equity markets, foreign exchange reserves, macroeconomic policies, foreign investment inflows, banking capital and geopolitical factors".
 
An Indophile tracking the tracking in the last decade would have seen two major cycles of depreciation.While inflationary pressures started the slide in the Rupee,the deficit in balance of payments and the Current Account deficit(CAD) of 6.7% have been an additional burden.
 
The rupee fall has been scary.Given the noises by Mr Bernanke of tapering off QE and a strengthening of the US dollar versus other currencies,yet the way the Indian currency has reacted negatively points to a deeper reason.While we were looking at the GDP and PMI and inflation,global commodity prices etc to deflate,the positives for the economy from falling crude and base metal prices has been undone.
 
In a way the South Asian equity markets hold a small clue.Thailand,Indonesia,Vietnam which were the top performing equity markets in Asia have turned out the 3 bottom nations as part of the carry trade was unwound by FIIs on news of the QE tap being turned off sometime in the near future.
 
I have always been a proponent of the the theory that US investments at some point will flow back to their own country on assets becoming seriously cheaper than their Book Value(BV).The recent uptick in real estate prices in US seems to back my view.Will growth hold?
 
This is not the time or place to mention the many strong US listed companies trading below BV having good fundamentals,product cycles and market share globally.
 
I have also in previous blogs stated that a fall in Gold prices will lead to increased demand in India.Headlines in The Economic Times dated 4th June have borne my view.
 
Yes May and June are seasonally the worst months for trade deficit because  the monsoon sowing season increases import demand for fertilizers,chemicals and crude.Gold and silver imports surged 138% on falling prices last month.That does not do a lot for the trade deficit!
 
Although I am still bullish on the rupee,my target for december end is around 52-54 rather than the earlier 47.In the short to medium term there will be more pressure and the rupee breaching 60 against the dollar is quite likely.The RBI tried to deregulate NRI interest rates such as the FCNR,NRE rates and despite record NRI inflows the balance of payments situation is still critical.The rate of 55-57 is here to stay for some time.
 
I expect the US $ to strengthen further when the Fed announces a timetable for withdrawing QE.The Government decision to cut withholding tax by15% will boost demand for Indian Bonds and we may also see a rate cut.Weighed against this is the CAD,Trade deficit and lack of resolve on the political side to push through reforms in the insurance sector.The various scams are not helping.
 
If the Monsoon is 98% of normal rains,especially in water starved Maharasthra and Karnataka as predicted by the Meteorological Survey of India,the fall in pulse and vegetable prices will check inflation.How much that will impact the Rupee is an open question.
 
All the currency bulls out there should be prepared for a hairy ride...!!
 
 

Saturday, May 25, 2013

Indian Banking Sector-A Deeper Malaise

The State Bank of India declared its results on 23rd May.Profit was down 19%.NIM was stable near 3.3%.Fee growth was lacklustre but what was shocking was the slippage in asset quality/recoveries that led to higher than expected provisioning.Delinquecy ratio of 3.5% was far higher than average. 
  
Financial Summary
Y/e 31 Mar (Rs m)FY12FY13EFY14EFY15E
Total operating income576,426 602,942 691,205 803,660
yoy growth (%)19.2 4.6 14.6 16.3
Operating profit (pre-prov)315,736 318,790 370,113 437,616
Net profit117,074 148,742 166,069 193,438
yoy growth (%)41.7 27.1 11.6 16.5





EPS (Rs)174.5 217.2 242.5 282.5
Adj.BVPS (Rs)1,015.3 1,065.0 1,229.3 1,423.1
P/E (x)12.7 10.2 9.1 7.8
P/Adj.BV (x)2.2 2.1 1.8 1.6

Quantum of net NPAs for the sector as a whole have increased 55% while credit growth has increased by just 15% till December 2012.While some amount of increase in NPAs during a slowdown are justified,the sharp rise has left many unanswered questions.
 
The Infrastructure sector has mean a major player in this.Lack of last mile clearance,theUltra Large Power Projects(ULPPs) not taking off due to unavailability of raw materials(read Coal),priority sector lending to farm sector have left Indian Bankers holding the can.
 
De-growth from 8% to sub 5% and onstnacy of RBI to lower the CRR aggresively means deposit growth has outstripped credit demand in the last two years.
 
To get around this and secure profits the Banking segment is once again turning to consumer finance as a medium to make money.2007-2008 was a bloody year for assorted financiers,credit card issuers due to high defaults.There does not seem to be an alternative?In such a competitive market big players like RBS and even Citi are finding it tough to find profitability.Morgan Stanley has agreed to sell its private banking business to Standard Chartered Bank as per reports.
 
The problems in the manufacturing sector(GDP at 5% but IIP .5%) are the systemic issue.The big boys of Indian industry are just not borrowing and if they are then there are problems with repayment.The shadow of Kingfisher Airlines bankruptry looms large on SBI,PNB,Indian Bank and a few others.
 
Indian promoters issued FCCBs(Foreign Currency Convertible Bonds),hoping that three or four years down the line they would get lower rates,converting it from debt to equity.Unfortunately the kind of valuations the promoters wanted never came to play and the FCCBs became a debt.Its scary that almost 71% of all FCCBs have been restructured and quite a few promoters are fighting bondholders as they have not been able to agree to a rollover.
 
Manufacturing,Agriculture and Aviation are weighing heavily on Indian Banks.With few opportunities for consolidation,strict RBI regulations it seems that the sticky issues will take some time to go away.
 
Afterall when a large infrastructure project takes an average of 47 years to break even(according to a Mckinsey Report 2012),what chance of a Banker making any profits in the short term!!                  

Saturday, May 18, 2013

The Silk Road:India,China A New Begining

The Chinese Premier Li Keqiang visits India after 27 years of what was a friendly and positive meeting.Let us hope that after years of rancour,border disputes,both countries will put a new perspective on a relation since the times of Marco Polo...

206 B.C-220 A.D.The caravan comprised of seventy Bactrian two humped camels loaded with jade,lapis lazuli.Silk was yet to be discovered.And the name ‘Silk Road’would not emerge until at least the 8th Century.But Asian banking was at its zenith!The  camels were but a means of ferrying goods and culture that at a very early stage in human history united the Hungarians,Persians,Turks,Egyptians,Chinese and India.

In Medieval times the discovery of sea routes and the rise of the West led to the disappearance of this famed corridor of Mid and Central Asia.

The importance of cutting costs in transporting the huge manufacturing out of China to western markets would be easier if such a road could lead to the port of Kolkata(Calcutta) over the now open for trade Nathu La pass in Sikkim straight onto the Bay of Bengal for transhipment to Europe ,Africa and the Americas.

Major ports in China lie on the eastern seaboard-Dalian,Zhenjiang,Shenshen etc much further east than Kolkata.The only shorter route would be if the arctic passage could be opened up and Canada allowed the Northwest passage?

Political compulsions are making China skirt India and try and use the Pakistani port of Gwadar and develop deep water capacities in Myanmar as per 2011 news reports.

With a slowdown in global GDP and the need to find efficient systems for distributing finished products globally it makes sense for a “NEW” Silk Road to be established.Synergies with Kazakstan,Krygzstan and other Baltic republics rich in mineral wealth could be moved through pipelines and would be cost effective for energy starved India,Bangladesh,Pakistan,Nepal and Myanmar.

Every economy in South East Asia needs that boost.But will complex politico-military compulsions come in the way?


Sun-Tzu

Let us hope that is true for all of us on the planet.