Investonomics-ManFina-Series 7

Markets round up

Nifty ended at 5200+ levels for the week ending 27^th Jan 2012 nearing our target of 5250(recommended in our last blog)-200 DMA for nifty which currently is at 5208. The week also had bought a sigh of relief in many investors mind as this was week where RBI had cut CRR(Cash reserve ratio) by 50 basis points which was more than expected move by the central bank and due to which market sentiments improved and we saw all-round buying in all type of stocks(Large cap,Mid cap & Small cap). Particularly where the stocks were beaten down has risen up almost 80% from there recent lows. This phenomenon was already highlighted in our earlier bog wherein we have mentioned that the time is of value buying. Investors who have bought as per our recommendation have hugely participated in this rally with a decent return in their pockets

Also we have been able to take a call on currency markets correctly by letting our clients booking the dollars forwards@52+ levels as we were seeing a great strength in Rupee because of Dollar inflow in the country as per reasons mentioned in our Series -4. Particularly capital goods sector was recommended in equity only because of this reason. Our investment in G-Sec also gave returns of 15 to 22% in last 1 month wherein we still remain bullish with exposure increasing in G-sec and Fixed instruments like Tax free Bonds while we will now start reducing exposure from Equities.

The love of liquidity-From USA to India Via Europe

A look at the previous months events suggests that while the love of Liquidity continues with all the political leadership & the central banks across the world, the new thing which happened in India is RBI also jumping into this bandwagon of providing liquidity in the system by cutting CRR by 50 basis points and managing an inflow of almost Rs 32000 crores into the system.

There are some questions which come to my doubtful mind as to why there was a CRR cut rather than a Repo cut which could have helped a high interest paying reeling industry. While I find that pushing liquidity into system has been a common practice  in EU & US as they poses a systemic risk/chances of collapse of banking system due to liquidity in there respective countries, does RBI  also foresee/fear this risk in India due to shortage of liquidity? A question might arise in your mind that how can India have shortage of liquidity. Well, you might be aware that 40% of our exports come from 2 regions-EU & US & the share of EU & US in world total trade is roughly 35% of total trade done, so any crisis in EU or US or both will lead to world being lead in to depression due to shortage of liquidity or in other terms lack of confidence in currency or currency crisis due to sovereign debt problems.

To make the above lines more simple we must know how much of my money is at risk if the EU crisis occur? Simply put it 30 to 40% of money or expected export realization for exporters from India. Such big is the cause of this crisis & Central banks all over world are pushing liquidity in the system just to avoid this crisis

Markets beyond 5200

While FIIs have pumped in large chunk of money since 1^st week of January & their investments have earned them far superior returns as Rupee also has appreciated by almost 10% from 54 to 49 levels till the time I write this & Nifty going from 4700 to 5200 levels and at the same time I do not find any major event in EU/US till February end there is a reasonable certainty that markets have a potential to go up by 5-7% more, might be Nifty at 5400-5500 looks achievable. Also reasons as mentioned in my earlier blog like Indian Budget Session might also help sentiments in good shape. This last leg will be very widespread with stock prices going up like there will be no tomorrow, I caution my readers not to get attracted by this fancy & reduce exposure at these levels.

I expect the coming budget to be a highly inflationary budget & a Pro-Public budget rather that Pro-Industry budget. Also if our Finance Minister has to resort to Fiscal discipline then this budget is sure to raise Indirect taxes which will again hit Industry . Will highlight some more issues in my next blog. Enjoy the rally!!!

Investonomics-ManFina-Series 6

Markets Round up-

Nifty cheered 4875 in today’s session and sensex crossing 16200 mark clearly signaling a good pullback as mentioned in my Series-4 on 26^th December 2011.Especially the value buy proposition paid much more. Stocks in mid cap have moved up significantly (20-40%) as compared to 26^th Dec rates. This pullback can last up to 5250(200DMA for Nifty). At these levels we need to be cautious as further trends will be decided by the news and events prevailing at that time.

Expectations from Finance Minister Pranab Mukherjee will also start building up by the end of Jan 2012 along with the much expected Interest rate cut by RBI. I feel that these events will more or less keep Stocks in India to behave in a more resilient manner than in world. Also Govt of India’s plan to raise funds from pledging shares has also subsided short term liquidity problems faced by Government and due to which 10Yr GOI rates has gone down to 8.3% from 8.8%. This has also generated Positive returns to the investors who have started investing in G-Sec as per my recommendation in Series-4. Also I feel investment in Long term G-Sec papers to yield better risk/reward returns going forward as ample liquidity available in World markets. Majorly, I feel these money will chase more of Debt(G-Sec`s) across world as compared to riskier asset class like commodities or Equities, but one cant rule out rally in Equities , only question is how much rally and till what time?

The fundamentals of our economy remains as it were when I cautioned about India’s burgeoning Fiscal Deficit. The only good thing that has happened in last few days is Govt of India has been able to raise funds & since it has given free hands to banks to give NRIs the highest ever FD rates, it has for a while stopped dollar outflows from the country which has brought down Rupee to 51+ levels. I have indicated the same in my blog earlier in Series 4 itself. This whole exercise is of short term in nature and we cant say that everything is alright.

Results Season-What to expect from Corporate India?

January will be the season of results of Q3 from Corporate India. The results will be no different that you can expect as for the last few months we have been noticing Negative IIP, so not much expected as well, a dollar there and a pound here! Only some Fund managers work will be left as they will be churning their portfolio quoting some or the other reason. Q4 being the budget season as well, markets will start building unwanted expectations from the budget & RBI. This has happened many times and it happens every time. You may find some Rail Stocks and Fertilizer stocks going up.

The problem of plenty, The problem of NIL-Brain Re-gain!!

Unemployment in EU & US has caused unemployment in many countries, rather I will not blame EU or US but it is the sectors dependence on each other in Globalization that creates or destroys Outsourcing. Many Indians have settled abroad in last decade mostly in Middle East(as it was a tax haven and many companies invest in India through these Countries) and Some in US & Europe. Now since all the EU countries including the US has put a control on outsourcing, I think in a year or two we will be finding plenty of Indians will be returning back to India along with whatever money they have earned and more interestingly this is not because they want to come down to India but because they will not be left with any option rather that to come back to India.

Now this will be an opportunity for the us if taken in right earnest, but alas, do we have Infrastructure support to handle these elite traffic? Nay or NIL

I have found in some recent readings that this will not be a reverse brain drain rather we should call this as Brain Re-gain, but my little mind asks a simple question, whether we will be able to handle this Brain Regain efficiently or let these Brains go in Drain? A Trillion Dollar opportunity with a Billion Dollor Investment!! Is India ready to take this?????????

Investonomics-ManFina-Series 5

The story of four great bottoms in Equity markets---3 little monkeys!!!!(1929,1980,2000 & 2008) 

At the outset of 2012, an already much hyped year for various reasons, I would like to start the note with the above mentioned rhymes. These rhymes have been taught to us so that we may not repeat the mistakes again n again but its human nature to do the same.

Obviously our scholars have mentioned “To err is to human, to forgive is to divine” we may argue. Unfortunately, these 3 little monkeys have been with us in different phases of life and yes, even in stock markets. I would like to highlight to my readers who invest in Equity markets to make a note of these 3 little monkeys who jumps on their bed and when they fall down, they break their Owners head.

With my studies I have found these 3 common factors which were the primary indicators or precursor to the major falls in markets.
a. Auto sales declining continuously for 3 quarters
b. Copper prices declining continuously
c. Govt. Borrowing rates going up

So next time when you find all these 3 things happen simultaneously be the first one to get out of Stock/Commodity markets. At least we will be sure of not loosing money, to make money in such a difficult time is a different question altogether.
Although if you don’t track your investments because of lack of time, hire a Financial advisor who can do this for you. As earlier mentioned in my last blog, we are still not seeing recovery in commodities, especially copper, so I would like to caution my readers that till the time we don’t see any sustained recovery in Copper, avoid meaningful investments in Equities.

I will be highlighting some important Cycles (Waves) which we have gathered from History of stock markets, which will help the readers to enrich their knowledge and take wise decision. Out of all Cycles/Trends/Waves I will first highlight “The Most powerful Decennial Cycle”, a cycle/wave/trends which markets have been following since 1900. Fig. below by Ned Davis shows the average gains in the stock markets(DOW) over the last century.

The markets tend to peak late in ninth year, correct into middle part of second year, and then recoup modestly into the end of the fourth year. Most or all of the net gains then tend to occur in second half of the decade. By getting defensive in first 2.5 years of every decade, investors could have create greater risk/return benefits, so we can say that we need to be more defensive till mid 2012. The greatest stock crashes other than 1973-74 have occurred in early years of the decades: late 1919 to early 1922; late 1929 to mid 1932, late 1937 to early 1942; 1960-1962; 1970; 1980-1982; 1990 and early 2000 to late 2002.Similarly the greatest bubbles have occurred in the second half of the decade: 1914-1919; 1925-1929;1985-1989;1995 to early 2000; and 2005-2009.