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.