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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!