Market Matrix – Have a good night sleep today

Friends,

Emerging out of the cabinet meeting yesterday our FM said firmly that while India may suffer due to the world crisis, there is no dearth of instruments with RBI which may be used to do the necessary to impart required liquidity. There would be no shying away from the responsible proactive formulation of the financial policy.

He went to length of recounting the statistical numbers in the same breath. He said our banks have capital adequate ratios between 10 to 13.65 pc, well above the Basel norms. The indirect tax collections are over the target and growing by over 14 pc, the September custom collections are higher than average of Apr-Aug. Direct tax front shows personal income tax collections have grown by 23.4 pc and corporates have contributed 35.3 pc more, he added. The GDP numbers have not suffered too much loss of growth so far. The export performance is up 35.1 pc in apr-aug and the imports have kept pace at +37.7 pc. Railways have carried +9.4 pc revenue earning traffic. Liquidity is coming from many quarters. He has meant all is well here, the panic is misplaced. I think it may be by design of some in some ways.

The bear has had an edge but has not found opportunity to get out of his positions at profits so far, he will be a bigger bull by compulsion than the bull community.

Last day’s losses of US markets have been recovered in DOW Futures, Heng Seng has added 500 points to yesterday figure, the Nikkei was the biggest loser yesterday but today remains flattish, Kospi is up only slightly and Shanghai is confused in narrow range but Straits is straight up by 62 points while Taiwan is losing ground. We will have keenly watch the Euro zone performance today. The shallowness of trading in India should be making it oscillate in wider but positive territory.

The much awaited N-deal has been signed by Bush with fanfare, not out of love for India so much as out of necessity for the ailing US economy. If any thing, pseudoism is the main policy plank of America. Let us be magnanimous in our attitude after all the mantle will have to be borne by India eventually for at least the middle,south and far east Asia.

Would you now have a good night sleep today!

HariOm,
Krsna Khandelwal

BIRDINFO Stock Rx – A prescription for stock market

Market Matrix – Welcome thing for the Indian economy

By krsna Khandelwal – A veteran market analyst

Friends,

The employee salary bill for the central govt. in India costs now 2% of GDP. It was higher at 3% in 2001.

This is a very welcome thing for the economy which has expanded a lot since then. The concern for the poor and the concern for defense are no less than in 2001. The terrorism also keeps the govt. on the toes. In this light the wage bill of govt. should have gone up but it is down. This may have happened for two reasons i.e. firstly the communication has become cost effective and secondly the improved job market has made the govt. jobs less attractive.The political leaders do not have pressures from the masses to have more openings in the govt. sector. We should feel that this situation is good for the markets.

Hari Om

BIRDINFO Stock Rx – A prescription for stock market

Market Matrix – Watch smart money, it will be seen getting in to stocks

By krsna Khandelwal – A veteran market analyst

Friends,

The present times have been most confusing in the Indian stock market place as well as in world’s other markets. The cross currents are very many and no two analysts are in agreement with each other. I am in fact looking at things in slightly different light. You may have noticed my bearish bias from later half of the year 2007 and you may be thinking as to why I have turned bullish in spite of the many matters that have been mostly seen as not very good for the markets. I give my reasons below:

Firstly, my idea about the market is bullish on account of the basic strength of companies in India which has grown in the last two to three years of high profitability and retained profits.

Secondly, the inflation that has made the entry for the new players rather costly.

Thirdly, the high oil price is a dampener but has lost its future impact for it has been there for far too long. If any thing changes in the oil sphere it may only change for better.

Fourthly, the real interest rates are very nominal in India because while the inflation has gone up interest rates have not been raised here in view of cheap money policy being pursued in USA.

Fifthly, the rate of saving is very robust in India . The FD interest offered by bank does not cover even the erosion in value of rupee and is taxable. No rational person would therefore be comfotable to keep funds with banks and would be happy taking slight risk of fall in market but would go for equity investment. This at least makes him owner of some concrete assets and gives some money back through dividends.

Sixthly, the markets have fallen and hence the dividend yield has become respectable and is tax free.

Seventh point is that the rupee weekness of late has made the Indian industry less prone to competition from out of India . This has also made the IT scrips far better placed now.

Eighth point is that govt. has relaxed the investment by foreign entities in debt paper and this would see funds flowing in to India.

Ninth point is that while there is choppiness at the surface, there is bullish current underneath. The markets have not broken to new lows in the last three months.

Tenth point is that the slow down expectations have receded over the last three months as the fourth quarter 08 has not given bad result on average. The first two month of the current quarter have so far passed peacefully in spite of every attempt by the politicians to upset the applecart.

Eleventh point is that the corporate taxes, personal taxes as well as the indirect taxes are low when seen in historical perspective.

Twelfth point is that China has failed to impact the Indian industry by supplying goods cheaply and seems to have seen the folly in going for too aggressive export policy which has made inflation high there.

Thirteenth point is that the infrastructure spending is keeping pace and has not subdued.

Fourteenth point is that salary hikes will be moderated by the industry in times to come .

Fifteenth point is Indian banks have not been too badly impacted by the sub-prime crisis in USA and luckily the same kind of scenario is absent here as the property prices are holding firm and the housing mortgage business has not come under threat here.

Sixteenth point is that the loans advanced for purchase of two-wheelers and four-wheelers have not seen defaults of menacing proportions and the banks have become slightly more choosy in the mean time.

Seventeenth point is that the food inflation will moderate with coming crop.

Eighteenth point is that sugar is aplenty and the cane growers are not going to get too high prices for cane as they did in past. This will see transfer of some of the cane area to other crops, helping both fronts i.e. the sugar front and the grain and pulses front. You may see how the inflation in food prices and the glut in sugar was invited by the wily politicians. They are out to do the similar thing in the area of cement of steel by meddling in free pricing which is so necessary to ensure the balance in supply in times to come.

Nineteenth point is that the next elections are likely to throw up a majority commanding party (or compact combination of like minded parties) unlike the compulsive adjustment of pseudo rightists and pseudo leftists.

Twentieth point is that the govt. has comfortable tax revenue which will be sufficient to take care of some spending for populist causes.

Twenty first point is that the organisation of Indian stock market place is near perfect and it responds to the new needs in a smart fashion. There has a near absence of the scams.

In the end suffice is to say that if you keenly watch smart money, it will be seen getting in to stocks rather than going out of it. The correction from top of the order of 25% is no small thing to happen. This has happened during the period when the profits or sales of companies actually did not suffer. Market was wrong in the month of Jan 08 at 6000 plus Nifty level and the market is wrong at sub 5000 Nifty level just now.

Hari Om

BIRDINFO Stock Rx – A prescription for stock market

Market Matrix as on 18 Jan 2008

By krsna Khandelwal – A veteran market analyst

Friends,

Asian,US and European markets are all in a mood to take a dip. Sensex suffered a good fall and is settled below 20000. I expect a worse scenario. I place the right value for Sensex at 17500 and for Nifty somewhere at 4800 . Any higher point is a higher risk and lower reward. Let us see what is actually in store. The future events may force me to further down grade the performance of indices.

Our Mr Man Mohan is shaking hands of Chinese leadership in Beijing during his visit to China but handshake with Chinese leadership will never be with a warm heart. He is also attending meetings for the resolution of border related issues but this is only to postpone the time to come to brass tacks. Actually both are overwhelmed by the business prospects and therefore would keep at bay other worries and remain confused. Only thing that China feels secured under its military might and its ability to give marching orders to forces at will and without preparatory diplomatic work unlike India.

What are the options for India to remain free from dragon breathing up its neck. I think the best is to not bring to fore any concerns at all and just allow the Indian businessmen and Chinese business interests to exploit every business opportunity available, without helping it and without curbing it. Let Chinese authorities take their own stand . This may eventually prove to be state of entrenched business interests on both sides and leave the border related matters as of least importance. However, there would always remain a need for India to keep building up its military might and remain in state of preparedness. It is also to be followed for reasons of remaining prepared of USA’s adverse stand in future and also from a combination of Pakistan plus others. Needless to say that in the new order India has to emerge a power block itself and not just catch coattails of some other big power .

IBM posted better profits on the strength of weak dollar. The falling USA market at one point may turn fit for investment against emerging markets.

Peak power deficit hit highest point in Dec 07 for the year 2007 at 156% due to burgeoning demand and less than targeted addition to capacity. The peak demand was at 106184 MW during Dec while supply was 89620 MW.

Citi Group Inc posted biggest losses in 196 years history due to write down at $18bn.

Infosys forays in to Indian BPO market. This is going to be a big stabilising factor for Infosys in future. India outsourcing market has been growing at 56% and would grow to Rs 36000 crs by 2010.

Digby Jones, the British Minister for Trade, is not pleased at the manner in which RBI has treated application for opening of 100 rural branches by Standard Chartered Bank. Bank would like to spread some micro finance in villages enabling inclusive growth but RBI’s protectionist policy in not allowing it open branches is sen by him not right under the circumstances.

Apollo would put tyre unit in Hungary at an investment of Euro 200 mn.

PM’s Advisory Council has recommended slashing excise on consumer durables. I think this is not right thing to do. There should be reasons for the govt. to forgo revenue otherwise it will spur so called growth. While it is 16% , the service tax on tele-services is at 12% and this is contributed by mostly the poorer sections of society. If the revenue is not required better reduce the service tax on tele-services.

SBI has 2 lac employees , 9500 branches and operates in 32 countries. SBI is thinking to offer ESOPs to its employees which will form about 0.7% of the capital. Not a bad idea but it has come pretty late in the day.

Goan protests against SEZs and the state govts’ sympathetic stand has forced the central govt. to find ways to scrape the SEZs midway. Center may allow scraping the SEZs if the amount spent so far is compensated by the state govt. This idea is not bad considering the possibility of setting right a wrong. That SEZs concept was faulted one was mentioned in these columns long back when govts were busy giving clearances. SEZs happen to be for the benefit of industrialists and the Neta/Babus. The public does not see any benefit coming to them in general.

Hari Om

BIRDINFO Stock Rx – A prescription for stock market

Market Matrix: this is not a blip, it is beginning of a slow down

By krsna Khandelwal – A veteran market analyst

Friends,

While the IIP growth in Nov 06 was 15.3% , it is only 5.3% for the Nov 07. Infrastructure growth also plunged to 5.3% in Nov 07 (9.6% in Nov 06). Rajiv Kumar, Director and Chief Executive, Indian Council for Research on International Economic Relations said :

‘ this is not a blip, it is beginning of a slow down. Domestic demands hit by high interest rates and external demand is hit by rising rupee. This is double whammy. This could represent a turning point in business cycle. The govt now needs to get in to the act as target of double digit industrial growth for the fiscal will not be achieved.’

Following Gujarat, Maharashtra also would be abolishing octroi. 22 Municipalities in Maharashtra gathers Rs 5572 crs as octroi.

Wheels of big economies once turning slow can not be put to accelerate in a short time. They may whine to even a slight reverse turn and then only get to turn spinning in positive direction with acceleration.

Hari Om

BIRDINFO Stock Rx – A prescription for stock market

Market Matrix: Weekend Economic News Analysis

By krsna Khandelwal – A veteran market analyst

Friends,

You may recall that you were advised for acquiring sugar stock a few months back. Since then the sugar stocks have appreciated between 40% to 140% . The reckoning is that with ethanol blending, co-generation benefit and slight firming up of sugar prices, the sugar companies may breathe easy. It is now advised that the sugar stocks held should be partly sold off.

The annual growth of retail portfolio for banks was over during 2003-06 which will moderate to about 22% over the coming years. A CRISIL study says that the retail loan portfolio of banks at Rs 6 lac crs would have NPA of about 4% by march 09 as against 2.7% in march 08. Credit Card loans and personal loans are riskier and form 17% of the outstanding retail loans.

Gold has topped the $891/OZ mark and may still go up as demand from China is expected to emerge.

Growth in six core industrial sectors has come down to 6% in Apr-Nov 07 from 8.9% during Apr-Nov 06.

Mobike sales have come down by 11.4% in Dec 07 while car sales jumped by 8.8%. It is only a matter of time and car sales would se lower growth. With the Tata’s mini car having taken shape and to the liking of people there would be who would like to postpone car purchase by a few months waiting for Tata’s car to be out in market. Tata Car has ruffled many feathers in cap and reality has proven to be more disturbing than the expectation. Maruti sure would have to counter the challenge otherwise their lower end cars would find no takers. There is however the cost of maintenance factor that may still go down in favour of Maruti besides the saleability of the used car. Should they be able to reduce price for the entry level car by 10% they can still come out winner.

Hero Group will introduce electric three wheelers jointly with Ultra Motors of UK.

Bajaj jointly with Renault, is going to put in market a small car by 2010 which ill be a fuel efficient one, running 34 KM in a litre .

Ford too is investing $500 million for a small car project in Chennai. The car would come in two years . In light of new small cars coming , govt. should raise duty on large cars so that in the mean time the flooding of large cars is stemmed.

M & HVs have suffered on sales front, selling 5.3% lower numbers.

Tata Steel has just enough ore reserves to make steel for another 20 yrs at 7 M/T capacity at Jamshedpur. Clearly Tata Steel now has no edge over a green field project. Both have to have raw material surety and the green field project would have better security due to fresh mines being reserved for the them.

S&P/Case-Shiller Home price index which measures home values in 20 cities in US shows that home prices have fallen an average 7% since peaking in June 2006. Actually price to rent ratio is real determinant about the buy-sell decision where mortgages are involved. Rent to price ratio is OK around %% but is rests at 3.5% presently. US employment figures suggest that the prices would have to down rather the rent going up and therefore the US Sub-prime crisis can not be wished away.

China is seeing extraordinary rise in food prices and is worried. It also has the inflation at eleven year peak at present.

ICICI Bank would unlock value by listing four of its businesses separately. Indian Life Insurance Companies are increasingly becoming face of Indian investors in terms of investment in equity markets. They have pumped in $4b to $6b in to market this quarter, leaving FIIs behind.

Markets can go up only be more destablised , there is already a volatility of high order in the markets. You should lighten some burden at this stage for the sake of prudence.

Hari Om

BIRDINFO Stock Rx – A prescription for stock market

Market Matrix: Current Economic News Analysis

By krsna Khandelwal – A veteran market analyst

Friends,

Information Technology Department has drawn mega-city plans which are identified as investment regions for hardware an software companies.Land acquisition and development of the region will be done by the states. The IT sector is preferred child of govt , no doubt.

Govt suggested to oil PSUs to issue bonus shares who have in turn declined to do so on the pretext of under-recoveries which will make it difficult to maintain yield post bonus issue. Both parties are have reasons but I have many a times brought before you the requirement of a firm predetermined policy regarding oil pricing rather than whimsically acting in that direction. This is one area that should be immediately paid attention to.

IOC want govt to raise petrol prices by Rs 8-9 per litre to meet Rs 120 cr deficit per day, a tall order either way. In West Bengal , petrol at refinery gate is Rs 20.39 per litre while motorists have to pay Rs 46.86 per litre at pumps.

Singur is abuzz with activity and the Tata Motors would change the face of region without doubt and would establish West Bengal back as an important automobile manufacturing state.

Four Indian banks , namely, SBI,ICICI,BOB and BOI have to book mark to market losses for exposure in US Sub-Prime securities. BOB has however clarified that it may not have to do it.

Licensing for banks may be done away with in India . RBI says there is now no need for it as the banks are opening branches in rural and semi-urban area on their own initiative. The license free regime for the banks will be hotting up competition in profitable centres and thereby will affect profitability of banks.

Hari Om

BIRDINFO Stock Rx – A prescription for stock market

Market Matrix: Recent Economic News Analysis

By krsna Khandelwal – A veteran market analyst

Friends,

The rupee may have appreciated by over 12% against dollar over the year but the REER (real Effective Exchange Rate ) against the basket of currencies of the trading partners of India does not reflect that much strength of rupee. It is for this reason that Indian export performance is alright so far.

Realty sector is estimated to have grown by 13-14% over the year but cement dispatches during the last quarter show just 2% improvement and hence some kind of slow down in realty and much hyped infrastructure sector can not be wished away.

B Mthuraman of Tata Steel is afraid of Arcelor Mittal getting share in the mining of Chiria Hills for ore in Chattisgarh on the ground of its not having enough experience in green field site development . This is an argument coming more out of fear than fact. Tatas in fact are worried about the raw material availability of their brown field expansion taking capacity ten million tonnes by 2010 in stages with an out lay of Rs.22000 crs ( the cost per tonne of Rs 4400 crs per million tonne capacity is not much lower than for Arcelor Mittals green field site projects ) . I do not think that the share price for Tisco at 925 is justified as it is over three-four times the book value.

Against previous high of Rs 45 k crs in 2007, the year 2008 would command IPO raising at Rs 75 K crs according to Prithvi Haldea of Prime Database. The ready to shoot is Rs 35 k crs already and the pipe line holds Rs 190 K crs worth of issues, At this rate of infusion , I expect Indian M/Cap to scale up to Rs 200 lac crores by 2015. If you are not OK with this scene than of course be ready for a fall in Indices which are at the most stretched point.

India Bulls Financial Services is to raise $ one billion and why not when the public is offering cash with out asking too many questions. I may remind people that in early eighties , the leasing companies of every shape and size made hay and raised funds from public and now almost all have disappeared. Be wary of finance and broking companies , they may vanish more easily.

Hari Om

BIRDINFO Stock Rx – A prescription for stock market

Market Matrix: Recent Economic News Analysis

By krsna Khandelwal – A veteran market analyst

Friends,

I would like to make my readers aware that the transactions under F&O section on the stock exchanges in shares and securities , subject to complying certain conditions, shall give rise to business income as these would not be considered speculative in nature in view of the specific amendment effected to section 43(5). The losses here fore will be adjustable against income from other sources. This is as per my understanding of statute and you may cross check with your consultant too before relying on this opinion .

Uttam Galva would raise $150 million from international market .

Ashok Leyland would launch multi-axle trucks shortly. M & HCV segment is growing at 20% CARG. There is scope for Indian players to now export these larger trucks as the cost of production here would only be lower than other advanced countries.

Japan and India set up a $ 6 billion swap facility to ward off future financial crisis. This is a good arrangement and should be increasingly adopted with many more countries . India’s economy is still at a nascent stage and may come under threat for so many yet not known reasons.

Hari Om

BIRDINFO Stock Rx – A prescription for stock market

Market Matrix: Current Economic News Analysis

By krsna Khandelwal – A veteran market analyst

Friends,

Some analysts suspect that IT spend will be lower by banks etc. from USA due to sub-prime crisis. I have a differing view and I think this can not afford to limit IT spend as it will further impact their operations and profitability. Even otherwise the IT solutions have not reached perfection and require to be improved upon , IT applications are now covering even larger areas of business now and new vistas are getting opened up every day. Even if the growth is slower for the IT sector for Indian companies , the EPS growth will make PEs for most of leading companies much more comfortable and their investments in land and building have appreciated a good deal. This protects them from the down side plunges in share price. IT sector investments are now safer comparatively.

Some cities in India have relaxed the FAR (floor are ratio) for buildings and in Hyderabad a 100 storey building is going to come up under ADA Group’s lead at an outlay of about Rs 6000 crs. Some cities in the world allow FAR between 4 to 40 while in India the norm is about 2 FAR.

Consumer durable firms are set to raise Fridge and AC prices by 10 to 12 % . Cost push is compelling companies to such measures to maintain margins.

Prime Database expects 170-175 IPOs to hit the market in 2008. Macquaie Bank , researchers and analysts, say 2008 will see many spin offs and sell downs . All this has bearish implication for the markets as liquidity chasing equity will find another avenue to park funds.

The direct tax collections are ready to cross the targeted 11.8% of GDP mark this financial year and FM is upbeat about it. The govt now has a duty to mitigate the hard ship of helping the lower income people by spending the extra tax rupee for their benefit rather than go for tax reduction. The tax rates are already not very high so need not be tempered with.

Merchandise exports during November month have been higher by 27% to $12.42 b . India is catching up fast with China and China is busy bringing friendly policy changes for workers and labourers. This is the juncture when China would not want its working force to be restive right when the Olympics would be held.

Indian markets are displaying too much of volatility. Today Sensex swung both sides by a margin of 200 points and closed just under 1% for the second day in the new year.

Hari Om

BIRDINFO Stock Rx – A prescription for stock market