Investonomics-ManFina-Series 11

As I write today with Nifty@5350 almost the same level at which I had written my previous blog with various strategies to be followed as it was a period of various events falling in line. The latest event i.e. our Union Budget which came on 16^th March 2012 was as per my expectation which I have highlighted in my previous blog that this budget is going to be a highly inflationary budget. Various indirect taxes were raised and a little were given to public in terms of raising Income tax slabs.

As mentioned in my previous blog that I expect this budget to be negative for majority of Sectors barring Agriculture and FMCG.A bit was spoken about Infrastructure sector as Govt allocating RS 50,000 crores for this sector and out of this Govt wants at least 25,000 crores to come from private sector, meaning thereby Govt would contribute only 25,000 crores. I feel this allocation of Rs 25K crores to be too little for country with 125 crores of population. A reasonable estimate for investment needed alone in power sector is Rs 10 lac crores in next 8 years if we want our country to be self sufficient in terms of giving power to every individual. So if Government believes that they are going to give proper infra to their citizens then this figure of 25000 crores which they have given in this budget is too little or negligible. And also who is going to put another Rs 25K crores in this highly inflationary environment and in current high interest rate scenario. For last 2 years now there are no news on Project expansion and new capital formation. Curse to Global Economy or Higher interest rates for this but this is the truth

Unfortunately this budget neither allocated appropriate funds for current development nor gave any vision for further development in Infra sector investment.

Looking to the amount allocated for infra sector and lack of vision for further investment I am forced to assume that investors should exit Infra sector for at least next 2 years. As an investor we should exit investments in this sector as I believe Infra companies will not be able to get positive cash flows from this sector as their basic raw material Cement & Steel prices are going to go up whereas Interest rates are not going to come down aggressively in next One year as Inflation is going to stay for a longer period. The reasons why Inflation is going to stay for a longer period are:

1. Fiscal Deficit-As per budget Govt would contain Fiscal Deficit to 5.1% of GDP which doesn’t include Rs 2 Lac crores Food Security Bill. The same Government projected 4% Deficit target in 2011-12 and ended at 5.9% Debt to GDP. So with reasonable certainty even if Govt says that they are going to contain the deficit to 5.1% without including Food Security Bill then what would be the status if this is included, we know it all. Higher the deficit, higher will be money printing and higher will be the inflation. One should remember that High Inflation is Negative for Equities barring FMCG sector and Positive for Real Estate, Gold or anything which is not money but Money’s worth.

2. Crude-As indicated in my previous blogs if Crude prices remain high because of rising Geo Political risks then being a net importer of Oil we may face unexpected High Deficit and a depreciating Rupee. Also current trend in rupee suggest we may see Rupee around 54+ levels shortly. This will be again negative for Equities as an asset class for investment.

3. Election-The latest reason is Governments own credibility and standing in Parliament. Looking to the kind of threats the government faces for getting resolutions passed we may also see unexpected event in the form of early Loksabha Poll or Third front forming government. This event can be very disastrous for Equity markets in India. Global cues may remain strong as US is recovering but we have to look into our pockets first.

So, overall we can say the risk reward ratio is highly negative for investment in Equity as an asset class. The current scenario will be very positive for Exporters and equally tough for importers (mostly Capital Goods Sector).Equity markets may fall at least 10-15% from current levels in next 3 to 6 months where we may see some value buying to happen. There are many more points in this Budget whose repercussions needs to be discussed and highlighted which I will do in my next blog. Till then enjoy investments in Debt Markets, Gold and Properties & reallocate in Equities.

For Asset allocation strategy and further advisory, you may contact me on my mail manfinacorp@gmail.com

Investonomics-ManFina-Series 10

March-The Colorful Month (from Holi to Union Budget,2012)

From Who moved my Cheese TO Who can move my Cheese?

As I write today with Nifty @ 5360 there’s going to be huge drama in stock markets in next 15 days as we have a slew of events coming, right from Election results in state assembly in UP & Goa on 6^th March 2012 to RBI policy on 15^th march and Union Budget on 16^th March while the international events to be watched for will be Greece debt rollover on 20^th March 2012 along with various data’s on Inflation,GDP growth etc etc which will determine future course of action of Economy and obviously Equity & Commodity markets going forward. I have already cautioned my readers and had already written about trimming their portfolios. Also the use of Options has paid us largely by restricting our losses and increasing our profits. Now is the time to for us to take a view one by one on each event and its resultant effect on our money/stocks.

UP election results-6^th March 2012

Case A- Govt formation by Congress or its allies (SP)

This will strengthen the position of ruling party in centre i.e. Congress and will help Rahul Gandhi to take a leading role in centre as by now he has proved his mettle in politics. Also Congress will be able to get support of Samajwadi Party (SP) in Centre which will help it to get passed certain regulations which as of now are kept in abeyance due to non supportive stance of BSP & Trinmool Congress

Effect- Markets will remain in bullish tone, Expect FII flow to remain till budget, no major correction

Strategy- Buy on Dips and keep booking profits

Case B- Hung assembly

In this case there will be two scenarios:

1. If Congress emerges as king maker i.e. if it gets more than expected seat an help any other party to form government then we can expect range bound markets for the time being with no major volatility in Equity markets and the eyes will again shift to budget for further course of action

Strategy- Avoid trading or investment

2. If congress doesn’t become a King maker then expect a sharp correction

Strategy- Buy Options (Puts) to hedge your portfolio or Sell on rise strategy

RBI Monetary Policy-15^th March 2012

Certainly I feel RBI is going to have a rate cut of at least 50 to 100 basis points on CRR as anything less that this will only be a drop in the ocean. Currently there’s a shortage of liquidity in banking system in the tune of Rs 1.4 lac crores and a 50 basis points cut gives Rs 32000 crores into the system which is neglible,so I expect RBI to tinker SLR also this time and a 25 to 50 basis point in SLR is also not ruled out with 50 bps in CRR. I think RBI will put at least 1 lac crores into the system allaying liquidity concerns. I don’t expect anything on Repo/Reverse Repo front, if there is any announcement to it, it will be a welcome sign but I do expect any decision on  Repo/reverse Repo front only after budget. We will make our strategy after the budget

Strategy- Anything less than 1 lac crores is not welcome. Exit long or reduce equity exposure. Sell on rise

Union Budget-16^th March 2012

Union Budget for 2012 will be a challenging budget for Finance Minister as he has to control Fiscal Deficit on one hand also give momentum to Economic growth on the other. Unfortunately the latter doest happen without the help of the former. So this time our FM has a very difficult task of making two shores of a river meet. To me it seems very unreasonable to expect from Finance Minister to do make a socio-capitalistic budget. I expect this budget to very socialistic budget wherein we may find social initiatives like Food Security Bill and other Agriculture related regulations which will help Government to showcase as a very populist government as I expect 2013 to be an Election year for our country and as such this budget to be last budget for the current government. I base my assumption on the condition that Congress will be a King maker in UP election results going to be announce on 6^th march 2012 and Rahul Gandhi to emerge stronger in Congress Party.

So, although this budget might give some relief to Public at large in terms of raising Income tax slabs but I feel this budget to be high on inflation as Government may increase the Indirect Taxes ,Corporate Tax and Wealth tax as it is falling short of revenues whereas its Fiscal deficit burgeoning. Moreover raising taxes mentioned above will also help Government to fund its social objective of Food Security Bill which would alone take away Rs 2 lac crores. So I feel this budget to be negative for majority of Sectors barring Agriculture and FMCG. The only thing which needs to be seen is that whether our FM says anything on Infrastructure development or not? If this time he doesn’t speak about this sector, then expect a great downside in this sector and avoid this sector for next 2 years. The fate of this sector, I feel, lies in this Budget. So, wait and watch!!!

Strategy- Reduce your overall Equity Exposure before budget. Wait for 2 days for market to settle. If this budget is going to be a game changer event i.e. a very positive event for Indian economy then we will not be left behind in this mega bull run as the run up from these levels in sensex or Nifty will be very high and we can expect even 7500-8000 Nifty in next 2-3 years, so there will be ample time to make money by leaving this last leg of 5% up in market in case this event is going to be a investment dampener event. In that case also don’t be fearful to look markets to touch lows of 2008.

Overall I feel, as a genuine investor I should always keep my Risk-Reward ratio favorable at the time of decision making. So, in short currently I don’t feel Risk reward to be favorable for investment in Equities in current scenario.

For Asset allocation strategy and further advisory, you may contact me on my mail manfinacorp@gmail.com