Market Matrix – Positive reaction to statement by US President

By krsna Khandelwal – A veteran market analyst

Friends,

The US President made a public statement just before the market opened in US. He has conveyed to all and wishes help from congressmen to support the bailout plan as the US is in utter need of it. He said economy has to stabilise so that jobs are there and public interest safeguarded. He assured the tax payer money will come back surely.

Market in US has reacted to this in positive manner is trading at plus 359 points at 10860 (DOW). Our closing at 3921 Nifty was with 71 added to last days closing. The European markets have closed up after touching low points during trading hours.

I hope you had time to go through my last post. This is a time when many are going to change view. The technicals chartists have now expressed view that market has made triple bottom which going to take the market up in coming time, they say trend may still be bearish in longer term. The ifs and buts, only to confuse. I take chart readers advise only with a pinch of salt.

Govt would raise RS 1000 crs through public offer of Cochin Shipyard.India-France have signed N-Deal. I remember a comment by a French Premier in seventies about our Hindu Rate of growth of 3 percent under the five year plan system that this is a rate of growth that is achievable by any country normally,plan or no plan. He mocked at our planning exercise but now with planning becoming a routine exercise and growth being higher than in EU countries, the gentleman would have to respect India.

Hail India!

Hari Om

BIRDINFO Stock Rx – A prescription for stock market

Market Matrix – Bailout Bill voted down by US Congress

By krsna Khandelwal – A veteran market analyst

Friends,

The bailout bill presented for voting yesterday in US Congress has been voted down due to some Democrats voicing concerns about its use for the tax payers. The President has expressed his anguish at the failing of it which he sees as a must to the stressed American economy. Had it been in India that a finance bill presented for voting by treasury benches fails to get passed, the govt would have fallen. It may be put up for second time for voting and by that time Democrats may be convinced about its need. In any case if Bernenke is looking for its passing too, in case of its failure he can well help the matters by lowering interest rates etc.

The DOW got a very bad treatment in wake of these happenings and lost good seven percent to close at 10365. The Asian markets are down this morning but not too much for they had lost yesterday too. You can’t keep discounting some thing everyday by a greater margin which represents not only assets but also an input by way of managerial effort in organising businesses that make the assets owning companies value generating machines. This makes the asset acquisition through equity ownership more desirable than simply buying some assets here and there.

Also the equities’ returns are post tax where as the returns on dated securities are taxable. Thirdly, the inflation does not eat in to equity values but it may make the investment value go down over years very substantially in other case because the real rate of interest is lower in USA as it is in India and else where.

The great depression of 1930 was when gold standard prevalent. Today, there is scope of increasing money supply at will in the hands of govts and central banks. They are exercising their powers readily. Who on earth can afford to keep the equity market down. It is powerful and influential people who happen to own most stocks, so they may not shed tears for values lost due to inflation but would surely mind the decline in stock prices.

The bad conditions in stock market help as in such times the future competition is put off. Also when the speed of fall is great, the speed of rise would be great too. I reminded our people in govt to take stock of situation before its too long and keep a contingent plan ready. Those who are used to be vocal at drop of hat are silent and this is not understandable. Time has come to impart liquidity here also, the CRR as also SLR (if possible) should be reduced in October month exercise by RBI.

Let’s see what unfolds in next 24 hrs. Those who are not leveraged should have no worry, those who are should hedge.

The crude prices were first factor that had made market in India getting a beating,today it rules at just 96 dollar/bbl. This would at least see the oil under recoveries manageable and inflation under check.

The realty stocks have lost so much values that they are not capable of doing much damage by their poor performance. The IT scrips have lost excess values and now are near their value points. The auto stocks are again in the same category. The FMCG and Pharma stocks behave differently in any case. The infrastructure sector is saddled with a lot of orders to execute. The banking sector in India hardly has an affliction of the US kind. Steel and Cement have shown resilience as they had shed flab during the down ward times June/July. Sugar sector is behaving in an absurd manner but erratic behaviour at low point in price level lays foundation for the sudden upward move. Retailing is not yet a mature industry and I have been advising to keep out of it.

I have largely drawn a picture before you and now be your own master and take decisions. The result season has arrived and you would get post-result ‘panch-tattva points and strategy’ for most Nifty companies. You may individually ask for scrips of your choice.

Hari Om

BIRDINFO Stock Rx – A prescription for stock market

Market Matrix – Nifty lost 135 points

By krsna Khandelwal – A veteran market analyst

Friends,

Our bench mark index Nifty lost 135 points to close the day at 3850. The DOW is trading at 10887 down 255 points at this hour today. In the mean time the bail out package has been okayed but the whole money will not come in a rush but in tranches. This is good in a way otherwise there would have been a rush kind of situation and the ammunition for future would have been missing. This way the speculators will have to watch step.

I may tell you that the problem arose because of the leveraging and parties held to positions in belief that they would get through at some point while others may suffer. All had to suffer because the counter parties were seen to shaky and could not be destabilised for fear of exposure earlier than necessary. The assets became worthless as no body could come forth to buy them up even at bargain prices because liquidity dried up.

The action by the FED and US govt. is in right direction. The common man does not understand the nuances and is afraid to do any thing trying to come to neutral ground. There is no question that liquidity injection would save the day and there after clamour for acquiring equities may ensue as has happened in case of bullion which is way up now than it was a fortnight back roughly +15%. In the mean time a British bank has been taken over by govt.

Our PM is in France and may sign nuke related agreement there. Our people in govt. should be coming forward to clear the atmosphere of uncertainty on a daily basis for the rumour may be spread by the interested parties and public may get mis-guided.

This time the best strategy for any body eyeing the investment in market would be to enter only with two way order ie if he buys stocks of choice he should buy Nifty put (out of money) so that the confidence is not lost. The panic strikes one who walks out without an umbrella while the sky is overcast.

I am sure that the rights and public issues would be now kept on hold so further supply of paper would not be there for some time to come. It will reduce demand for funds in markets. Freight rates are at lowest point for the year. Crude again is under 100 dollar mark. Cement and Steel shares were least affected today and hence it may be said value buying is on. Sugar shares were down in an excessive way and it would sow seeds of eventual big move in this sector. In times of flux I prefer to discuss things thread bare rather than fight shy of speaking what I must.

Hari Om

BIRDINFO Stock Rx – A prescription for stock market

World Matrix – US may eventually finalise the rescue package

By krsna Khandelwal – A veteran market analyst

Friends,

US senators may eventually finalise the rescue package before long. The dissenting parties have understood the need although they have their own ideas to put forth. It is remarkable that while the country is besieged of the problem, its politicians are not eager to put blame on any body in a hurry and are only more concerned with immediate remedial measures and are in process of finding the best solution. This is a hopeful sign for everybody connected with the financial markets, this way or that, the world over.

I think that we in India should be now initiating a plan on the lines of pooling a kitty by a charge on every kind of financial transaction by institutions and banks. For this purpose the STT levied by Mr Chidambaram may be now transferred to such kitty instead of its enriching the exchequer. This will also set right the disenchantment with this levy which is felt to be burdensome so far. The pooled fund should allowed to be used in future as per the recommendation of an standing committee consisting of eminent economists and parliamentarians and govt officials when they see a need for it to subside any turmoil in the financial markets. The member should hold office for no more than nine months and may come back after a lapse of eighteen months. The strength of the committee may vary between seven to eleven members.

The integration of world markets may put the financial system of any country to strain without much notice. It is also possible that there are problem due to deliberate acts/acts by design of some. There is therefore a need to have an enactment where the key management people pay back to respective failing companies/institutions what ever they have received by way of remuneration and incentive during the current and previous one year. Since there is no ceiling on pay packages, it may also be possible that some enrich themselves seeing the forthcoming financial tightness. An act on the lines suggested above would ensure some balance. It may also be useful to disallow the tax concession to companies on payment to one individual beyond a certain ceiling. This will ensure that only those who are indispensable and utterly important for a company are paid very handsomely.

Hari Om

BIRDINFO Stock Rx – A prescription for stock market

Market Matrix- The bail out package of 700 billion dollars

By krsna Khandelwal – A veteran market analyst

Friends,

Its after a week that I have occasion to address you. The markets are very volatile and exceptionally so. The bail out package of 700 billion dollars for the rescue of the giant in USA is finding some blocks on the road and this may have triggered the fall on Friday along with the N-Deals still not through with the US congress approval. It is also that the slow down in retail and realty sectors is now more real and has been responsible for the shattered nerves. Should than we decide against the funds into equities! My view particularly in respect of the Nifty universe is that the slow down possibility in earnings for most companies is reflecting in the prices while the asset values of the companies (ie book values) will resist the prices from going down further. In other words there is very little scope for the fall in prices even if the earning actually take beating.The pharma and fast moving consumer goods sector which do not have the support from assets and rather are given values for the brands and processes, are not getting beaten down in any case (leaving exceptions). The whole thing is that when the weather is declared to be inviting, the catching of bus will be difficult and to save this situation we can only stay invested and ignore the lurking fears.

The central banks of US,Japan and EU have declared injection of funds in system and it totals up no ordinary figure, it may be some thing like Rs 50 lac crores in Indian currency. If this liquidity is made available there is no gainsaying that the triggering of bullish times can not be stopped. There is direct correlation in the two. I have already told you the present times are no ordinary times and have no parallel in history and equally true is the positioning of India in the whole economic scenario. My visit to west confirms that the technology is Indian’s second nature and the west has to imbibe it. If this statement is not generally true, it is true at least in respect of populations that are in the forefront of economic participation, here and in rest of the world.

Indian middle classes have an exceptionally good head start and are bound to maintain it. The oceanic proportions of every thing in India including possibilities are great. The elephant may not hiss like dragon but with keep covering ground in its beautiful gait. Why should we leave sight of these facts. I may be proved wrong but would not change stance unless I see some convincing developments to the contrary.

Hari Om

BIRDINFO Stock Rx – A prescription for stock market

Nifty and Fibonacci time distance

By Sharad Khandelwal – A veteran market analyst

Date….. Nifty.Fibonacci Days..Low
08 Jan 2008 6287
21 Jan 2008 4899 013 Days Low 1
11 Feb 2008 4857 034 Days Low 2
4-6 Apr 2008 4647 089 Days Low 3
28 Aug 2008 4214 233 Days Low 4

In this sequence 19 Jan 2009 and 9 Sep 2009 are important as these dates are 377 and 610 days away from all time peak created on 8 Jan 2008. The Fibonacci series 0,1,1,2,3,5,8,13,21,34,55,89,144,233,377 and 610 gives time target up to 9 Sep 2009. It is interesting that every alternate series number does not create a low but indicates a break point. In this respect 3 Mar 2008(55) and 31 May 2008(144) are significant. The low (Nifty at 3816) created on 16 Jul 2008(13+89+13=115 Days) is also a significant point. It can be expected that 19 Jan 2009 may create a local peak and 9 Sep 2009 may create another low. The peak of 19 Jan 2009 will be lower than 8 Jan 2008 peak and may indicate a long bear phase.

Hari Om

BIRDINFO Stock Rx – A prescription for stock market

Market Matrix – DOW closed with 400 plus points

By krsna Khandelwal – A veteran market analyst

Friends,

George Bush has come out with the statement that his govt. will not remain unmoved when the Wall Street is reeling under pressure of the melting financial world. His words of solace have done a magic trick and the DOW which was lower than last closing during mid-session had rebounded by such force as is in line with the import of the statement of the US supremo. DOW has closed with 400 plus points. There would be knee jerk reaction around the world and India should be no exception. Those who have held on to their long positions bravely would reap rich reward.

I would be on a tour to the continent for a few days and may be I address you after some gap. The basics remain intact and you should take stock of situation on the basis of the matters discussed heretofore.

Hari Om

BIRDINFO Stock Rx – A prescription for stock market

Market Matrix – These times have no parallel in economic history

By krsna Khandelwal – A veteran market analyst

Friends,

These times have no parallel in history because the economies were not all this big, the communication was not so effective as to let news travel at the speed of light and the trading was never so costless and organised as to impart everybody interested an opportunity to trade in any kind of market ranging from currencies,equities,dated security,interest rate futures,commodities and derivatives of every complexion. In such times and in spite of the regulation of high order (supposedly) the giant amongst all economies USA is facing the kind of financial turbulence of such high magnitude as can not easily be imagined. If things have come to such pass, there ought to be some people responsible to let it happen this way or some others were unable to stop it from happening. The truth and theories will come out only after the dust is settled.

My whole purpose of feeding this blog is to help the ordinary class of investor and money managers on one hand and to record the current economic affairs with equity arena as main reference point for future reference along with my own interpretations and logical conclusions. In this light I observe the following viz a viz the happenings:

-the banking and financial institutions failure in USA has triggered a down slide in equity markets around the world (this is natural outcome of such and event in an integrated world but when it stop and equal or more fierce rally should take place for the such failures necessarily require the central banks to increase liquidity to save the day for the banks etc on brink. The liquidity eventually will take all the markets shooting up)

-the commodity markets have seen bearish times (it is again in the same way that eventually commodities and commodity producers will see brighter times for the demand from consumers is not going to go down, on the contrary the people will find it more desirable to consume more rather than see their money’s worth going down)

-the lending and borrowing for projects will be affected (this will delay the commissioning of the upcoming production facilities hence future competition will be postponed)

-speed of money is reduced because of distrustful atmosphere and disruption in chain (this is one factor that is seeing absence of deployable fund and liquidity crunch in spite of liquidity injection by central banks and this rough patch will be soon removed and normal times will be restored)

-the losses suffered by the bulls are forcing them to offer held stocks to make up for losses on positions and drying up their monetary resource (this proves that further supply of stocks will be diminishing)

-the cheaper crude will be helpful in surplus creation in hands of all (again a good thing for the markets and will keep govt finances in good shape)

-the dollar is strong now (for Indian companies it is an incentive to export more and and import less which is sort of a good factor for share price rise)

-the FII holding in companies is being liquidated ( this is a major cause of Indian markets sliding but this can not go on and would have to stop when prices are lower as PEs would become too attractive for buyer and would create demand and absorption of stocks)

-the deluge is continuing, DOW has lost 449 points on 19th Sept 08 and at today’s level it has lost over 25 p.c. over its Oct 07 high.For economies of low interest this is huge loss which be recovered over decades if the stocks are converted into money and converted in bonds/deposits (India also has lost 40 p.c. Since heady days but there is chance to recover money in both streams ie equities or the dated securities)

-in US too the inflation is high and therefore equities which are falling only may recover lost ground and save your money from loosing value over time (this is true for Indian investors too,gold,real estate may at best appreciate as much as the inflation or less and bonds will not return even an equivalent of the erosion on account of inflation.Here it will be the equity universe that will ensure safety of capital in medium to long term in terms of value.the other benefit comes in form of tax savings which have to borne in other cases)

-the PE for Indian equities on average has come down to about 15 after seeing high of beyond 25 (this is the ticket to secure investing for if the PE goes further down the value of the company concerned will gain in value and if the PEs improve it will show that the re rating is being done.this way the prices keep improving. Supposing that the earning go down, it will see PEs improving rather than prices falling due to value of the enterprise giving support)

-Asian market this morning are in worse mood than DOW has been. This is case of bystanders loosing consciousness seeing an accident on the road. The fear is the worst enemy of the people as it takes away the thinking power in the same way as anger does ( one should think normally, calculate risk and take the plunge for these are special times to make money and provide leadership)

-the crude has demonstrated that it can’t be kept low and has rebounded to 97 dollar/bbl (the crude is now keeping range-bound trading at lower levels and this is just the best thing to happen . In fact present needs should comfortable be met and an incentive for the development of alternative energy sources should remain in tact too)

-Nifty PCR is at low of 0.82 and therefore there is low build up of positions in expectation of huge slide.It also says that put writers have been reluctant to write puts and premium on put has increased.It is therefore the time to enter the market with writing puts and save on cost and enter at a level lower than the prevailing albeit to stomach the premium,for further safety you may buy a lower put.you may sell in the money put option in nifty and buy out of money put option , this way you will gain in market going up but loose only a limited amount. (With your gain in hand you may buy a suitable call and sit pretty)

-when I look at the Nifty universe I find each of the company is a leader in the field and has tremendous asset treasure and in such lines of businesses that have future and the competition to these companies may not be offered by the new entrants unless the entry is with blessing from a company from amongst these.what is wonderful is that none of these companies too leveraged and has been doing with minimal borrowed capital)

-the result season is round the corner and the advance tax payment by corporates has been as much or higher in many cases (this is good tiding)

-there were plans afoot for the capacity additions and these capacities would be ready for operation this year or next ( this will see volume of sales of companies go much higher up,profits have keep pace albeit at lower rate of operating margin for the time being)

-our currency is only half the worth of 2004 when the nifty ruled at 2000 so in a way what we pay is the same value in real terms but hefty addition to companies reserves has taken place during last four years and half (this should make one a firm footed player in market.

-elections are some eight months away but the time has come when the concealed war kitty of most politicians finds way in to markets and percolates, this will make liquidity crunch getting over)

-Chinese market is down 67 p.c. YTD and ours is only 37 p.c. (we stand better chance of negotiating any rough patch without injury)

-the DIIs are buying an equal or more worth of equities than is sold by the FIIs ( the balance when turned in favour by entry of retail people will see continuous up-trend)

-once again I tell you that the volatility at these low level would indicate that market is to shoot up (buy after you notice this phenomenon)

-’Prithvi Veer Bhogyaa’ (an Indian saying meaning the brave will enjoy planets wealth)

With best wishes to you being able to trade profitably with a cool mind and busy hand.

Hari Om

BIRDINFO Stock Rx – A prescription for stock market

Market matrix – All result of excessive liquidity

By krsna Khandelwal – A veteran market analyst

Friends,

My regular readers would recall that last year I had expressed surprise at all asset classes and commodities going up simultaneously. Then the world encountered the sub-prime crisis of no ordinary nature. In fact both have the same source responsible for such behaviour. It was excessive liquidity in USA (by liquidity I mean unabsorbed monetary stock with people around the world and denominated in dollar like leading currencies). The busting of positions in commodity market has seen that money getting lost, rest of it saw diminishing in the aftermath of sub-prime crisis. The final acts of drama have been played out in the episodes concerning Freddie and Fannie bail out, the bankruptcy filing by Lehman Bros and take over of Merrill Lynch by BoA. The AIG is now offer succour by US Fed. We in India saw the exit of FIIs not on account of prospects getting worse but because the overseas investors were under pressure of the not yet known financial pressure back home and had to willy-nilly get out of India. So the period of past 12 month is a period of unnatural trading patterns in equities,bonds,commodities,real estate and currencies. That’s why I have been advocating to every one of you to get hold of healthy productive assets represented by the share of a good company at reasonable to lower than reasonable prices.

It is 0730 hrs IST while I am writing this and Hengseng is up 283 points, Nikkei up 241 points, Taiwan up 141 points, DOW up 141 points, Straits up 10 points, Kospi up 45 points and crude is 94 dollars after seeing low of 91 dollars yesterday. Would not see the Indian indices opening gap up by 2 p.c. or so. Your chance is to gradually deploy your cash in market for there would be a day showing up swing of over 6-7 p.c. Along the bullish path and would make further investment difficult. The rupee is weakened to 46.88 and RBI would have to intervene by selling dollars which will mop up liquidity and therefore next policy may announce reduction in CRR and banks would have reason to rejoice.

Hari Om

BIRDINFO Stock Rx – A prescription for stock market

Market Matrix – A day after US financial troubles

By krsna Khandelwal – A veteran market analyst

Friends,

This is 920 hrs in Indian time and Nikkei has lost 565 points, Hengseng 1060 points ,Taiwan 263 points ,Shanghai 65 points and Kopsi 79 points since opening today.The DOW lost yesterday 503 points while all European markets also suffered. The crude is at under 92 dollar/bbl. Since an extraneous matter is affecting the market and the reaction is overly strong an equally forceful rally in a basically sound market may also be expected. Indian banking securities are loosing ground for reason as our exposure to US and foreign markets is minimal. The currency trading on NSE platform before full convertibility had given me a restless feeling and I would now cry foul for it. In these times of turmoil very many gullible people of ordinary class may have trapped themselves as nothing is happening in ordinary ways and on expected lines. I may, however, give a solid idea to you and it is that when the level of market is low after earlier weak times and you notice any thing of extraordinary nature i.e. too high trading volume, too high premium on options, futures either ruling at substantial premium or discount, cost of carry is either negative or too much, the put-call ratio is out side the normal range, the result season is around the corner, there is policy announcement expected or the trading is too volatile and the like, then the market would rebound shortly and you may go long and encash a quick buck.

So, once again telling you that gut feeling is more important and gutsy would win.

Hari Om

BIRDINFO Stock Rx – A prescription for stock market