Readings: Dancing with the Devil ?

The subprime troubles in the US shouldn't have troubled our economy / markets, but they have. Why? and what's next ? Mr. Ajit Dayal of Equitymaster.com explains this nicely in his article - Island of Sanity. A brief excerpt of the article is as below:

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Email your friends, cousins, children in USA. Ask them to walk around their homes and make a list of all the things that they own. Request them to note down in which country that item was made. And what that item cost them. Add it up, get a total for all the “things” they have in their homes: the beds, the tables, the sofa, the chairs, the kitchen appliances, the TV, the stereo, their clothes, their shoes. Now ask them: how much of these “things” they own have a “Made in India” tag.

If the people you sent the email to are of Indian origin, chances are that they have some Indian furniture, the pressure cooker to make rice, and a few Indian paintings on the wall. The total value of “Made in India” products may be 5% of the value of all the things they have in their home. If the people you sent the email to are not of Indian origin, the chances are that the total value of “Made in India” products is likely to be zero.

India, as a country, is not an export-led economy.
India had nothing to benefit from the massive build out in new home construction in USA.
India should have nothing to lose from the massive decline in new home construction.

A recession in USA should have little impact on India’s economy.

Yet, the Indian stock market swoons and twists to every piece of news on the condition and health of the US economy. Blame our lust to Dance with the Devil for that.

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Read the entire article here [Link].

Drivers of stock prices - p/e expansion vs eps expansion

the chart depicts indexed movement in the P/E and the EPS of NSE's Nifty index...it is quite a useful chart to monitor...

"What if's" for today's US Fed meeting?

It seems that the financial world has more or less factored in a 50 basis point cut in the US federal funds rate. But, what if the Fed decides to cut the rates by only 25 basis points or maybe not cut the rates at all?

The trouble is that even if the fed funds rate is cut by 50 basis points, what do stock market participants do - given that the same has already been factored in...

looks like being in cash and taking some of the profits off the table on days of sharp bounce-backs or the so-called relief rallies (provided they are there for the taking, which is most likely to be the case with people who have been in the markets for over a year now)

A few more things may have also changed in the past few weeks -

- new found respect for words like "risk & return"
- sharp drop in investor expectations
- importance of asset allocation, etc.

Indian stock markets collapse; take global cues

What a few weeks of trading it has been....since the beginning of 2008. The benchmark indices in India, and across-the-globe, has crashed by anywhere between 15-20%.

BSE Sensex: -17.6%
BSE Midcap: -27.5%
BSE Smallcap: -26.7%

Most retail portfolios (cash folios) are down by anywhere between 25-40%. F&O traders that were long would have lost their shirts though.

Who did what during this period:

		Cum. MF	Cum. FIIs	Sensex
1-Jan-08		183.5	142.3
2-Jan-08		478.7	-102.2	0.8%
3-Jan-08		968.7	622.9	-0.6%
4-Jan-08		1585.3	1131.7	1.7%
7-Jan-08		1615.3	1050.8	0.6%
8-Jan-08		1627.8	2104.2	0.3%
9-Jan-08		1426.6	2378.8	0.0%
10-Jan-08		1472.9	1748.0	-1.4%
11-Jan-08		1198.7	1861.7	1.2%
14-Jan-08		647.3	2036.1	-0.5%
15-Jan-08		127.8	2261.9	-2.3%
16-Jan-08		68.3	-17.7	-1.9%
17-Jan-08		529.2	-2203.7	-0.8%
18-Jan-08		258.0	-3559.8	-3.5%
21-Jan-08		2256.2	-5985.5	-7.4%
22-Jan-08		5034.9	-10250.7	-5.0%

Clearly, global market cues and a concurrent pull out by FIIs have had a big impact on the markets. So far they have pulled out more than 2.5 billion dollars, that too in five straight trading sessions. However, a pull out of a mere USD 2.5 billion dollars is really small when one considers the overall inflows and the total market cap of Indian markets.

Where to now?

US Federal Reserve in an extreme step reduced the overnight federal funds rate by a sharp 75 basis points, to 3.25%. This has had a positive impact on most emerging markets with Brazil and Mexico recording over 5% gains overnight. Some of the major Asian markets open in the green too. Each of the three major indices - Nikkei, Hang Seng and Shanghai are currently up by anywhere between 2-5%.

Indian markets are therefore expected to open in positive territory this morning. However, will the gains sustain over the next few days? Maybe not. Given the kind of drop we've seen in the past few days, a lot of people would be looking to exit on rallies, simply to balance our their positions which are currently tottering deep in the red.

theIPOguru has a nice and apt article on "Greed and Fear". Here's the article ...

It was flattering to receive all those calls and SMS’s yesterday and again, this morning, after the stock-market did the ‘Humpty-Dumpty’ act.

Most of those of you who called had seen my article titled ‘A Sense of Déjà vu’ which appeared in the HT ( Delhi and Mumbai edition ) and was also posted on the blog.

Call it premonition, or simply the wisdom that comes with hair turning grey over the years spent at the bourses, but at the end of the day, that’s what I have believed investing is all about. Its all about Asset Allocation, Re-Balancing and lots of Common Sense.

Fundamentals cannot be ignored . As good old Abe Lincoln once said ‘ You can fool all the people, some of the time; Some of the People, all the time; But you can never fool all the people, all the time’.

Will the markets rebound after this hammering ? They certainly will. When ? Ask the FIIs ( or should it be the world’s richest brothers ? ).

Like I mentioned, fundamentals cannot be ignored forever.

So my friends, keep the faith, consider buying at successive declines and play the waiting game. The rewards will come.

Patience, like I often mention, is a great virtue.

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Here's the link to the entire article.

As for me, I've been buying (with whatever little money I have...) some of the stocks that I'm bullish on:

- Crest Animation
- Monsanto India
- Dish TV
- Patel Integrated Logistics

It's a sea of red on Dalal Street...

It was a sea of red on Dalal Street today......but i think this is temporary...and feel that mkts will resume their north-bound journey in sometime. But for a global meltdown, or a some other major crisis, Indian markets may remain firm, atleast till the Union Budget 2009 is tabled.

A vertical fall is unlikely till the Reliance Power's IPO

Indian markets ended on a weak note yesterday. The weakness was, however, not to be seen if one were to look at the BSE Sensex and the NSE Nifty. Both ended in the green.

It was the midcaps and the smallcaps that bore the brunt of selling pressure. The BSE Midcap and the BSE Smallcap indices have lost close to 5% over the past few days. Is it a good time to book profits? Probably Not. Till such time as the high profile IPOs such as Reliance Power are out of the way, market sentiment is unlikely to get disturbed. In fact, Market Sentiment will be 'maintained'.

Another important indicator to look at is the options market. If there are more PUT options outstanding, then there is a good likelihood of the markets ending in positive territory or around current levels and vice versa. Reason.

Currently, the number of PUTS outstanding exceeds the CALLS outstanding by over 40%, thereby implying that the markets are on a reasonable wicket and are unlikely to witness a steep level from the current levels.

However, it might not be a bad idea to start booking out of 'over-valued' stocks (e.g. the entire power generation & equipments pack) starting next week (i.e. as we move towards the Reliance Power IPO, which will end on the 19th).

Markets are looking frothy at this point of time...and it is about time one did a fundamental check (Valuations v/s Potential) of his/her holdings.

Back to Blogging & a New Investment Plan in Action

It's been more than 3 months since I last blogged. During this hiatus, I made a whole host of new investments and am currently working on a few more ideas. Will share each of these over the next few weeks. Have altered my approach towards money management too. The focus now will be to keep a well-balanced portfolio, that includes both growth investments and value stocks. The ratio I am comfortable with is around 60:40, in favour of growth stocks.

Growth stocks - Stocks that are currently under-researched or are still evolving but offer great promise in the long run. The two key factors here are - scalability of business (growth potential) and the management (growth engine).

Value Stocks - These are mis-priced stocks available at significant discount to their 'current' fair value. The key factors to look here are - P/E, P/B, [ lower the better] and Return ratios (RONW or ROCE) [higher the better]. Some of the investments in this category may include stocks that are currently undergoing some kind of a restructuring, which is likely to yield results at a later date.

The ratio 60:40, in favour of growth stocks, will primarily work in this way - profits out of value investments will be pumped into growth stocks, given that most of the growth investments take time to mature.

Further, instead of investing in lumps, I've started investing in a more systematic manner. The rule is 10% of my monthly basic salary is put into stocks.

I hope my new and fine-tuned (or so I think) investment plan works fine, it has done so far in the past few months, but then 3-4 months is too short a period to gauge any performance.

So here we go...

No More Blogging, atleast not for sometime.

Taking a long sabbatical from blogging. Will be back after a few months. Have learnt a lot over the past few months from a lot of you. Thanks for all those who subscribed, commented and read this blog.

George Soros' Quantum fund turns big seller in Indian Stock Markets

George Soros' Quantum Fund was a big seller in Indian markets today, at a time when the Sensex crashed by 600 points. Is it just a beginning of a bigger outflow from FIIs? Or is there more to this than what meets the eye?

Quantum Fund's transactions that were reported on the BSE today were:

> Ansal Infra 1,391,912 shares @ 267 = Rs.37 crore
> Apollo Hospital 762,551 shares @ 488 = Rs.37.2 crore
> Aurobindo Pharma 2,211,710 shares @ 636 = Rs.141 crore
> GVK Power 2,254,150 shares @ 532 = Rs.120 crore
> Shriram Transport 3,200,000 shares @ 160 = Rs.51.2 crore

> TOTAL = Rs.386 crore (close to USD 100 million).

one of my all-time fav movies - Wall Street...njoy the snippet

Sea of Red on Stock Markets across the globe

Almost a no-brainer that the Indian equity juggernaut will receive a jolt today. Equity markets in India held on nicely in the last two days. That, I think was primarily because of yesterday's expiry on the F&O market. As the top traded options were primarily put options they had to expire worthless and they did. Read my previous blog entry on this.

But with the new expiry beginning today, markets are quite vulnerable to global shocks....and today is likely to one of those days. Hang on to your seats as we see volatility take centre stage over the next few sessions.

Readings: Bill Gross and Gavekal

> Interesting note on the subprime debacle and its 'possible' effect on equities by Gavekal. (Got the link from Kaushik Gala's blog.)

> Investment Outlook by the bond king - Bill Gross of Pimco.

Inflation (WPI) up marginally at 4.27%....

The inflation numbers were released this noon. the Wholesale price index recorded an increase of 4.27%, slightly higher than the increase recorded in the previous week. The WPI, however, remains lower than the RBI "act_now_trigger" level of 5%.

Read a detailed note on today's inflation numbers from CMIE here.

Indian Equities - Where do current valuations stand?

Not too expensive, not cheap either....Indian equities continue to consolidate...

L2 exams finally happened in India....

Thanks to some sane brain in the Delhi High Court.....the CFA exams finally took place in India. Really don't understand the logic behind AICTE blocking CFA institute in India......i did my MBA(Fin) from a college which did not have any AICTE approval...and there are literally hundreds of other MBA colleges (offering Post Graduate degrees), both in Mumbai and outside who do not have any kind of AICTE approval, and yet each one of them is happily offering MBA courses at sky-high prices. When I did my MBA, the per annum cost was around Rs.32k, today the same college charges close to a lac.

L2 Exams On 3rd June...

....no blogging for now !!

Its Showering Takeover Deals !

1). Barclays takeover of ABN Amro - USD 91 bln

2). AstraZeneca to buy MedImmune - USD 15.6 bln

3). Bank of America to ABN's LaSelle - USD 21 bln

4). Mittal Steel takesover Sicartsa for USD 1.4 bln

Control Raj making a strong comeback?? (First commodities, industrial goods and now cricket)

Here's the [BANNED] list (pls add more in case i've missed out a few):

1). Raw jute futures
2). Export of Pulses
3). Sugar exports
4). Futures trading in Tur & Urad
5). Futures trading in Wheat and Rice
6). Freeze on Cement prices

There is also a [pending] list:

1). Futures trading in Maize
2). Natural rubber futures
3). The Big One - Ban on futures trading in all commodities

Well, if we thought that control-raj is restricted to agro-commodities and industries goods, think again! The Board of Control for Cricket in India recently released a few guidelines, primarily to save its face following the humiliating defeat of the Indian cricket team at this year's Cricket World Cup. Some of the guidelines, which are similar in nature to the above cases are:

1). No. of endorsements per player restricted to THREE
2). No brand can hire more than two cricketers
3). Players to take prior permission from the Cricket Board before signing endorsement deals

What the BCCI aims to do by this is really questionable?

Because, the problem of non-performance in no way can lie with endorsement deals. Cricketers who get a lot of endorsement deals are the ones who are seen as good players or who have performed well in recent times. So really speaking if a player aint playing well, will the sponsor still continue paying top dollars to the underperformer? I think not. Its simple advertising economics. And to top it all, if the Cricket selection committee were to think that a player is not giving his best and is instead concentrating more on sponsorship deals, then they can simply DROP HIM from the next series. Once dropped, a player holds not much of a brand value for the sponsor. Earnings from sponsorship deals will automatically drop and the pressure to perform will mount.

But ofcourse, the BCCI needs to be seen to be doing something....and thats precisely what it is doing, much like some of the Ministeries at the Centre.

CONTROL RAJ coming back with all the expected (read: Anti-Market Economy) effects!

Where is India's current state of economy in this Liquidity Cycle?

Blog reading becomes more interesting: Mark Cuban v/s Google

Blog reading has become even more interesting. Over the past few weeks I've been reading this blog by Mark Cuban. The guy has been after Google for sometime, ofcourse not in the usual "I need publicity so let me take on someone famous". He is quite a celebrity himself and has been writing a lot about Google and Youtube on his blog. His observations are not only very interesting but are also very insightful.

Read and enjoy. Here's an excerpt of his latest blog entry -

This past week I decided to supoena Google to get the names of users that were uploading copies of our movies. I have no intention of pulling an RIAA and suing the users. I do have every attention of sending supoenas early and often to get the names and emails of users uploading our content they have pirated.

Why ? To learn.

I expect that the users will have given fake information, but i want to confirm that is the case. It will be a useful data point. I find it hard to believe that when there is ultimately a legal battle, that the courts will allow a company that I suspect that from time to time we will get the emails and actually be able to make contact with users. That is when it could get interesting. I want to ask them some simple questions. The first of which is why ? Sure there are a lot of possible and obvious answers, but maybe the will tell me something new or interesting that I can learn from.

The 2nd question will be whether they were induced by Google in any way to upload the video. Not that I think Google coerced them in any way. I don't. But I want to know if they feel that Google endorses and supports uploading and streaming of pirated content. I want to know why they ignored the warnings that are on the video upload page.

...continue reading the entire thing here.