Markets round Up-
Nifty cheered both 4550 & closed at 4750 during the week ending 23rd Dec 2011.
During the week we had a game changing event of the whole debt crisis in Europe at least for the time being. The fear that EU will collapse has been subsided as the ECB (European central bank) pumping nearly half trillion Euros(489 billion) Euros into their banking system. The loans provided to the banks by ECB are for the period of 3 years so the problem of liquidity & sudden stop in financial markets has gone(and obviously its affect to India`s service sector mentioned in my last blog has also been delayed)Unfortunately the only thing which dithers us to be clearly optimistic is that out of these 489 billion Euros 347 billion Euros are still kept by the banks as deposits in ECB, which shows lack of Industrial confidence in EU. This also indicates that there is no Industrial demand for money as the consumption is sliding in EU
This alone has the power to cheer the equity markets up in Emerging Countries & has the power to absorb most of the bad news which might prop in near term because of downgrading of AAA rated countries. So net in net we might see a little bit of blip in markets when the rating downgrade happens but I feel that markets have overdone in terms of stock prices going reasonably down for value buying to come as liquidity problems erode. I foresee a huge opportunity in terms of few stocks which are trading almost equivalent to their book value & having a good dividend history to jump back sharply to a reasonable level(remember these jump backs can be in the range of 30-50% from current levels without overall Index moving up substantially). Also our view on Ruppee mentioned in my blog need to be tinkered as global liquidity crisis abates for the time being. Value buying can be done in Capital Goods sector & Power sector as the risk reward ratio seems to be working in favor. Stocks which are overbeaten will perform. The major problem is lack of visibility of uptrend in commodities which will pick up only when industrial demand picks up & without commodities picking up we can’t say that we are out of woods. An uptrend in commodities will clearly denote that the bad times are over, but now since we are focusing in value buying the only part what we can do is to accumulate value stocks gradually with low exposure avoiding Commodities space.
Coming home to India
RBI`s policy meet in 3rd week of January will play a important role and one can expect a moderate view(25 basis points cut in Repo/Reverse Repo) as Inflation data suggests. Also elections in major states will force Central govt. to take moderate view. One has to keep in mind that if at all Inflation falls in India we need not be bullish on Equities as falling inflation also suggest falling demand and more importantly if inflation is falling from it peak from Double figure to single figure it can’t be taken as matter of rejoice, instead it’s a matter of concern that with demand slowing down & prices coming down how will the economy survive. In fact my view is that it’s a period of rising inflation(from low level to median level) one should invest in Equity as rising inflation denotes rise in demand as well as rise in prices whereas the situation in which we are in is a total reverse of that situation. So according to the terminology in economics I should say this as deflation rather than falling inflation. So in such a situation, one should wait for inflation to settle at a median level & interest rates in an economy to have a downward trend for meaningful investment to be done. Alos looking to Government of India Fiscal Deficit figures we can`t be aggressive in calling that Interest rates will start their downtrend even if RBI cuts rates this time .But yes, atleast we can call it a STOP to rising Interest rate regime. The best one can do in these stages of economy is put their money in G-Sec`s and related securities to earn double digit return with less risk.
Obviously one needs to relook at his Asset allocation strategy as per the prevailing economic trends, if not done wisely and with proper advise, there is no second thought in my mind that most of us repent on time.
Monday, December 26, 2011
Saturday, December 17, 2011
Investonomics-ManFina-Series 3
The week gone by:
Indian Markets particularly Nifty closed@4650 almost down by 8% from 7th Dec 2011 when I last posted. The clear caution based on our fundamental analysis had already cautioned against this downfall. During the same period we found that Rupee trading at its historical lows against Dollar at 54+. The trend seems to be continuing for a while. We find that Rupee has to touch56+ on a worse case basis and Rs 60 on best case basis. This I think will be reached either by April-October 2012.Most of my colleagues argue about why the Indian Currency is falling against Dollar. Avery simple layman answer to this is “Flight of capital” & “Lack of confidence”. As we have been knowing India has been an Investors Paradise for so many reasons & One of them was India was recognized as a Demographic Dividend, i.e if nothing else will work, the population has capacity to consume so much that all foreigner will be able to sell their products. But how many of us, especially the youth has ever thought that from where we have got this money to buy? Well, to let you recollect,30% of our exports come from Service Sector, meaning that if people in West don’t work we can reasonably presume that people in Service sector will get unemployed and will have a cascading affect on demand of goods and commodities & thus lesser consumption. We will certainly have to pray that these unwanted situations don’t happen.
On a best case basis I assume that 50% people in Service sector are on the verge of loosing their jobs (the best part of globalization) if the crisis deepens & some banks/Government in Europe collapse. I know it sounds awkward but this is alarming situation for us as well. If this happens our Demographic Dividend will become Demographic Menace and we will be forced to go back to 1980`s level. For your kind information, developed markets of Germany & France are currently trading at 1980 levels (inflation adjusted).
Well coming to the point of Flight of capital again, I would like to mention that India as a country attracted Foreign capital because we projected to the worlds that as an emerging economy we will be growing at 8+% and off course in past we have shown this but now since we are growing at 6+% we should be ready to cut that extra flesh from FII kitty. Also don’t forget FIIs are just investors and they also take relative valuations in different countries to invest their money. Currently India is trading at 14PE on FY13 earnings whereas other emerging economies are trading at Single digit PE`s (China@7PE). Historically the gap has never been so much.
Now with our Fiscal Deficits surpassing our budgetary target of 2.5% of GDP to over 7-8% of GDP for FY 2011-12, it is obvious for a FII to take out his capital as Cost of funding for Indian Government will remain high because of high Deficits
With our Fiscal Deficit almost touching 1991 levels in terms of Debt to GDP(Central & State Govt combined) we shouldn’t be surprised our markets should also be seen at those historic levels(inflation adjusted though). Although you might argue about that “This time is different”. It is rooted in the firmly belief that financial crisis are things that happen to other people in other countries at other times, crisis do not happen to us, here and now. We are doing things better, we are smarter, we have learned from our past mistakes. The old rules of valuations no longer apply. Unfortunately, a highly leveraged economy can unwittingly be sitting with its back at the edge of a financial cliff for many years before chance and circumstance provoke a crisis of confidence that pushes it off.
The Million Dollar Question-How much the markets will fall?
While one can not define the momentum and intensity of fall or the period of fall, what we can define is How we can preserve our capital and build a portfolio not only in equity but also in Debt which will change according to the dynamics of time. However my studies show that Equity historically has to fall down to 70% of replacement value before any bottom picking happens.
For further advisory on our dynamic asset allocation model & how to preserve your capital, do mail me at manfinacorp@gmail.com.
Mayank Mundra
17/12/2011
Indian Markets particularly Nifty closed@4650 almost down by 8% from 7th Dec 2011 when I last posted. The clear caution based on our fundamental analysis had already cautioned against this downfall. During the same period we found that Rupee trading at its historical lows against Dollar at 54+. The trend seems to be continuing for a while. We find that Rupee has to touch56+ on a worse case basis and Rs 60 on best case basis. This I think will be reached either by April-October 2012.Most of my colleagues argue about why the Indian Currency is falling against Dollar. Avery simple layman answer to this is “Flight of capital” & “Lack of confidence”. As we have been knowing India has been an Investors Paradise for so many reasons & One of them was India was recognized as a Demographic Dividend, i.e if nothing else will work, the population has capacity to consume so much that all foreigner will be able to sell their products. But how many of us, especially the youth has ever thought that from where we have got this money to buy? Well, to let you recollect,30% of our exports come from Service Sector, meaning that if people in West don’t work we can reasonably presume that people in Service sector will get unemployed and will have a cascading affect on demand of goods and commodities & thus lesser consumption. We will certainly have to pray that these unwanted situations don’t happen.
On a best case basis I assume that 50% people in Service sector are on the verge of loosing their jobs (the best part of globalization) if the crisis deepens & some banks/Government in Europe collapse. I know it sounds awkward but this is alarming situation for us as well. If this happens our Demographic Dividend will become Demographic Menace and we will be forced to go back to 1980`s level. For your kind information, developed markets of Germany & France are currently trading at 1980 levels (inflation adjusted).
Well coming to the point of Flight of capital again, I would like to mention that India as a country attracted Foreign capital because we projected to the worlds that as an emerging economy we will be growing at 8+% and off course in past we have shown this but now since we are growing at 6+% we should be ready to cut that extra flesh from FII kitty. Also don’t forget FIIs are just investors and they also take relative valuations in different countries to invest their money. Currently India is trading at 14PE on FY13 earnings whereas other emerging economies are trading at Single digit PE`s (China@7PE). Historically the gap has never been so much.
Now with our Fiscal Deficits surpassing our budgetary target of 2.5% of GDP to over 7-8% of GDP for FY 2011-12, it is obvious for a FII to take out his capital as Cost of funding for Indian Government will remain high because of high Deficits
With our Fiscal Deficit almost touching 1991 levels in terms of Debt to GDP(Central & State Govt combined) we shouldn’t be surprised our markets should also be seen at those historic levels(inflation adjusted though). Although you might argue about that “This time is different”. It is rooted in the firmly belief that financial crisis are things that happen to other people in other countries at other times, crisis do not happen to us, here and now. We are doing things better, we are smarter, we have learned from our past mistakes. The old rules of valuations no longer apply. Unfortunately, a highly leveraged economy can unwittingly be sitting with its back at the edge of a financial cliff for many years before chance and circumstance provoke a crisis of confidence that pushes it off.
The Million Dollar Question-How much the markets will fall?
While one can not define the momentum and intensity of fall or the period of fall, what we can define is How we can preserve our capital and build a portfolio not only in equity but also in Debt which will change according to the dynamics of time. However my studies show that Equity historically has to fall down to 70% of replacement value before any bottom picking happens.
For further advisory on our dynamic asset allocation model & how to preserve your capital, do mail me at manfinacorp@gmail.com.
Mayank Mundra
17/12/2011
Wednesday, December 7, 2011
Investonomics-ManFina-Series 2
Heard on street-Markets rejoicing on co-ordinated effort by Central Banks of Europe and FED on bailing out EU. Dow was up by 7% this week and Indian markets to rejoiced by gaining 6 %.Nifty at 5050.To me it seems to be a stone thrown against the wind anticipating that the wind will change its direction.The US and EU has entered into an arrangement that the payment obligations by EU to US will now be paid in January 2013 which was to be paid in Jan 2012. Its merely extending deadline for payments. Yes its a temporary solution to avoid Big Bang, but for how long as in Jan 2013 we will have more amount to be paid as compared to Jan 2012 because of Interest amount added to it.And who`s gonna pay this?Probably this action was taken because the EU leaders were not able to decide amongst themselves that who is going to default first? Greece? Spain? France or Italy?and everybody is looking out for the other country either to default or to get out of EURO first.
Coming down to our own country that data which were published last week were absolutely pathetic to any Fund manager/Institutional Investor. Our GDP growth at 6.9% against 7.7% and then statements by our honored PM & FM that India may go into recession. What an irony?We are rejoicing for a Big crash avoided overlooking our own data.But i would like to caution against this pullback as this is not a solution to the problem but will make a bigger problem causing a Snowball Effect...Equity Investors beware as FIIs are not fools. Reduce exposure in Equities earlier it was till June-Dec 2012 but now till June-Dec 2013.
Coming down to our own country that data which were published last week were absolutely pathetic to any Fund manager/Institutional Investor. Our GDP growth at 6.9% against 7.7% and then statements by our honored PM & FM that India may go into recession. What an irony?We are rejoicing for a Big crash avoided overlooking our own data.But i would like to caution against this pullback as this is not a solution to the problem but will make a bigger problem causing a Snowball Effect...Equity Investors beware as FIIs are not fools. Reduce exposure in Equities earlier it was till June-Dec 2012 but now till June-Dec 2013.
Investonomics-ManFina
With GDP slowing down to 6.9% i feel that RBI will start thinking about cooling off in Interest rates. Inflation data also suggesting cooling off. India moving towards stagflation(economy slowing while inflation remaining high)which will help asset class prices like Property & gold on the higher side while being Negative for Equities. major challenge here is whether our economy will grow from current levels or will remain constant. This is the time wherein we should rethink our asset allocation and start investment in Bond markets where risk is low and one can anticipate decent returns. Also contrarion call can be to invest in Mutual Funds-Infra sector as we find there is peaking of Interest rate regime & GDP already slowed down while this particular sector performed very badly.
For further guidance on how to generate decent returns & protect capital in economic downturn,do let me know !
For further guidance on how to generate decent returns & protect capital in economic downturn,do let me know !
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