Market Matrix – India saw one of the worst market downfall

Friends,

RBI has not met expectations of markets and India saw one of the worst downfalls and Nifty closed down 359 at 2520 points. There was no further release of money into market by RBI while it was observed by RBI that Indian economy is on track. The other markets did not help either, after weak Asia and weak European advices the US markets have also tumbled down today. While there is no limit to up side down side should have some limit. How in the world would one sell assets worth much more, far cheaper, just because these assets happen to be marketable ie represented by equity shares.

I find govt lacking in its duty today, back in eighties and early nineties, the govt used to direct the institutions to come for support of market, when ever there was undue pressure. Mr Pherwani of UTI used to be called big bull. He had contributed a lot to the development of capital markets. Such directives from govt are missing today.

Govt should direct banks to pick up good quality stocks without hitch. Any enlargement of crisis will make matters worse for all finance sector entities. One reassuring sign is that there is no payment crisis in markets. The banks are doing business as usual and this is a great thing.

I was surprised last year at all asset classes going up simutaneously and deducted that the world would face some crisis. Today reverse is happening while all asset classes are going down. This may be due to the rewinding action and may be this would make world healthy again. Why should all this happen, is some thing that should be found an answer for. I maintain that the supply and contraction of money in hands of central banks is the cause of it.

In India, so far, the credit off take is normal, banks are lending. The crude is further down to 64 dollar/bbl, the inflation number in coming down and only gradually, the infrastructure funding is increasing.

There hasn’t been redemption of mutual funds on an alarming scale. FIIs have sold just Rs 1450 crs worth of equities today and under what design they are selling it so cheap is again a question. While picking stocks they were seen to be doing thorough home work and why while selling no home work is being done.

The cash rich companies should have announced their ‘buy back shares’ plan. They should have done it in hoards, a few have done to. Isn’t it just proper for every good management to postpone the expansion plans and utilise cash for the share buy back. This will reward the shareholder very handsomely. But it is not being done because may be the smart management are happy for the falling markets and would pick stock for themseleves at these prices.

If only the right things were done by right people at the right time,the world would be much more prosperous. Since this does not happen, the reverse is that some in position are out to profit at the cost of general public. It is a relief that India’s 80 pc population is still in traditional style exchanges and not entangled with the new age trading style.

The fall without a matching event taking place is surprising enough. How will the truth come out?. Since the abnormal times were in every body’s knowledge, the excessive trading is not there in any case to warrant such falls.

HariOm,
Krsna Khandelwal

BIRDINFO Stock Rx – A prescription for stock market

Market Matrix – Fall of US market by 36 pc and UK market by 39 pc over the year

Friends,

In the aftermath of the second week of bad performance by all world markets, there is loss of thinking power to some extent for the logic is being defied by the fear psychosis in the thinking space of mind. Let us recount some of the facts of the day.

The UP govt has declared SAP (state advised price) for sugar cane for this season as 140 rupees/qtl (up Rs 15). This should be digestible rate for the mills because the sugar rates this season are pretty high and would remain so because the sugarcane production this year is going to be only 120 m/t against 160 m/t in previous year. The unorganised sector is already offering price of cane purchase nearly at the level of SAP or more. There are 132 sugar mills in UP which were operational last year. There will be fierce fighting amongst some of the leading ones to have greater share of cane-crop although there are some rules specifying the area for each mill. The industry would be back in black, and there is no doubt. You should buy your sugar scrip before its too late (please refer to my earlier posts).

Those involved in the accident seem to be hurt less than the bystanders otherwise how would one justify fall of US market by 36 pc and UK market by 39 pc over the year while Japan losing 48 pc and emerging Asian markets losing close to 55 pc. The reverse is going to happen, today or tomorrow. Asian stock will out perform the other markets. I told you earlier and say it again with supporting numbers.

Asian markets performed poorly (26 pc) over the last week while the UK and US markets went up by 3 pc and 4 pc. Shouldn’t therefore markets in India be better this week after losing more than 50 pc from peak. The RBI will have a formal occasion to bring back cheap money policy because loss of jobs and lower economic activity are worse than some extra dose of inflation. As I have been telling time and again, it is utmost necessary to let unearned incomes go down in value but the earned income can not be given a worse treatment. The pensioners too can only share, in whatever proportion, when there is going to be production. The whole economic tension the world over is on account of this factor. Those who follow this site would recall that this analogy was put forth long back and is finding endorsement all this while.

Asian markets have been mixed this morning, may be India performs with some strong opinion favouring bulls.

The latest week did confirm that value buying is emerging as BSE Bankex went up by 4 pc and FMCG,Healthcare and Realty did not lose any further ground in the week gone by.

HariOm,
Krsna Khandelwal

BIRDINFO Stock Rx – A prescription for stock market

Market Matrix – Angle of value in shares quoting low

Friends,

There is some change in the scene today, at least for India. Nifty is trading at 3430 and Nifty futures command premium of 40 points. I am happy to have put forth the angle of value in shares quoting low. If overseas (European) advices show positive movement and the effect is carried forward to USA, there can, perhaps, be an equal and opposite action in market against what happened last last week. The gloom will further disappear with the results of companies that would be coming out in a flood in about a week.

There were some people making hey while the sun was under the cloud last week, I mean the acts of bear cartel at spreading rumours. ICICI Bank was targeted by some entities related with Motilal Oswal Group. It has been clarified that it was doing of some individuals but many a names are being spoilt in this way. In fact people lending ears to rumours should be blamed more for they put life in to rumour. The ICICI Bank has even gone to the extent of filing a police complaint.

It may be that there is overplaying of the tune of disaster and something is being orchestrated by some groups. It is for this reason that at the end of such big drops the further trading happens to be at higher levels even if the bearish times continue. In present case I perceive no weakness of the sort that is being made out for the Indian corporate sector. I would dread only the nose diving of the profitability continuing in to loss making over a year or two. If there is slight drop in earnings and no other technical threat to a company of the type that its technology is getting obsolete,its products are going out of fashion and use or there is rot in management, there should be not much worry.

This however is true when the prices are at low point already. When the stocks sell for fancy prices and at high PE discounting level I do not consider it wise to stay for a minute. Those who care to read my posts in Oct 07 and later would see it as statement of fact and not just a claim after the event.

HariOm,
Krsna Khandelwal

BIRDINFO Stock Rx – A prescription for stock market

Market Matrix – There is some change in the scene today

Friends,

There is some change in the scene today, at least for India. The Nifty is trading at 3430 and Nifty futures command premium of 40 points. I am happy to have put forth the angle of value in shares quoting low. If overseas (European) advices show positive movement and the effect is carried forward to USA, there can, perhaps, be an equal and opposite action in market against what happened last last week. The gloom will further disappear with the results of companies that would be coming out in a flood in about a week.

There were some people making hey while the sun was under the cloud last week, I mean the acts of bear cartel at spreading rumours. ICICI Bank was targeted by some entities related with Motilal Oswal Group. It has been clarified that it was doing of some individuals but many a names are being spoilt in this way. In fact people lending years to rumours should be blamed more for they put life in to rumour.The ICICI Bank has even gone to the extent of filing a police complaint.

It may be that the overplaying of the tune of disaster tune is being orchestrated by some groups. It is for this reason that at the end of such big drops the further trading happens to be at higher levels even if the bearish times continue. In present case I perceive no weakness of the sort that is being made out for the Indian corporate sector. I would dread only the nose diving of the profitability continue in to loss making over a year or two. If there is slight drop in earnings and no other technical threat to a company of the type that its technology is getting obsolete, its products are going out of fashion and use or there is rot in management.
This however is true when the prices are at low point already. When the stocks sell for fancy prices and high PE discounting level I do not consider it wise to stay for a minute. Those who care to read my posts in Oct 07 and later would see it as statement of fact and not just a claim after the event.

HariOm,
Krsna Khandelwal

BIRDINFO Stock Rx – A prescription for stock market

Market Matrix – May be there is some method in madness

Friends,

The t/o at NSE was at a low point for the fortnight at Rs 47 K crs (derivative) and Rs 10 K crs (cash). FIIs have pulled out Rs 39 K crs from market during 2008 so far. The FII t/o is on the higher side, meaning thereby that they have greater comparative share in trading volumes for the day. At a time of lower rates its implication is much greater. May be there is some method in madness.

Surprisingly, when the liquidity crunch is talked about the call rates have come down to 11 pc from high of 15 pc. Not only this the 1 year govt paper yield is now way lower at 8.10 pc. The negative rate of return for the purchaser of the dated security is now higher as the inflation is no less than 12 pc. A very stark situation is reflecting today ie there is no pocket where you could have positive returns, be it commodity futures, bullion, stocks, property or debt. Last year I had expressed my surprise at all asset classes moving up together and was certain that some tsunami type of situation will be faced by the world. I think it was due to last ditch attempt by the trapped investment bankers of US who hoped that rising prises will bring forward buyers. The reverse happened, it brought seller as usually happens. The situation is just the reverse today. All asset classes are losing values. This will not bring in new sellers but will bring in buyer. The best asset class in today’s times would be, at least in India, to go for equity investment. It is any easy asset to hold, has productive use of assets, is immune to inflationary damage and gives post tax returns by way of dividend and capital gains. It has historically given best of returns too. Its cyclical behaviour makes making fortunes easy, if the entry is at low point, which is the case here. Its owner ship does not require any expenditure, its liquid enough asset and does not require redeployment of funds on maturity as is the case with debt instruments. The risk between debt and equity is only one step ahead or behind. When there is corporate failure.

HariOm,
Krsna Khandelwal

BIRDINFO Stock Rx – A prescription for stock market

Market Matrix – Nifty closed nearly at 3600 level

Friends,

Last week has been one of the most action packed and still has passed without any historic single day fall in any of the markets around the world with an exception of DOW which lost maximum in a day for the past eight year period, if not all time.

Today markets in India have lost further ground, so much so that Nifty closed nearly at 3600 level. This level gives Nifty a PE discounting of just 15.43 and P/BV ratio just 3. These are best ever ratio in the past five years. The analysts used to be talking in term of not the current discounting but discounting at expected earnings for the year next when there was bullish time. I am basing my optimism solely on the asset values (revalued) which are now way up above what is represented by the present share prices in case of most companies barring the Pharma and FMCG. Pharma and FMCG have some intangible assets in terms of brands and patents. If these intangible assets are given values too, there would be the similar case in respect of these sector scrips too. So things are pretty much in favour even after the future being termed as not so rosy from the earnings angle. Besides, the additional capacities would be coming to production in case of commodity players and for the service sector the markets are expanding on a continuous basis.

There is a welcome and timely development that the RBI has announced reduction in CRR by 50 basis points and banks would be reaping rich rewards for the money released in their hands will be without cost and they would be able to lend all these funds at very favourable rates to industry starved of funds. The rupee has weakened further and is going to act as shield for the domestic industry on one hand and would get more rupees in hands of IT companies for the billing in dollars. Exporters will be advantaged too.

The quantum of money is not any lesser in the world of today but the crunch is being felt due to slowing speed of money. This situation has come about due to the mutual distrust of banks. When the money does not revolve fast, the transactions are settled quickly and remain pending. This unnerves those who are out in market for exchange of their assets for money. The situation get gloomier when the need to sell is for meeting some commitment. This is what is plaguing the western world and have rever berations here. This is, however, not an affliction without cure. The US govt has acted very rightly in thoughtfully deciding to exchange money with presently non marketable assets. The central banks are busy increasing liquidity and once the balance turns in favour, which it has to, the reverse will be happening in all markets.In our country however the beaurocrats are reluctant to be bold enough for the fear of getting flak for deviating from the laid down practices. You would remember that I had warned about the hawkish stance of Reddy when the RBI was tightening money supply. The problem today is invited one. The inflation had nucleus some where else not in money supply. I was due to demand for oil and commodities from the growing economies of India and hence was due to a natural readjustment in relative pricing of all things trade able.

The SEBI has now thrown open the doors for the PN route entry for FIIs. The developments which will see markets stabilise are taking shape but the intervening period is frightening due to some rumour mongering and due design of some as always happens. If you take trouble to see the posts in Oct 2007 and Oct 2006, you will appreciate that how early in the day I gave warning signals,explaining things over and over again. I am doing it now also.

For India, exclusively, the cheaper oil would be a great help. The oil bonds released will be imparting liquidity in system.

So, there are a host of welcome developments, only thing is they have to have effect which usually happens with some time leg.

The puts have been offered in market at lower premiums and the calls command higher premium, on interpretation it would seem down the line the there is some hope. The results will further give direction.

HariOm,
Krsna Khandelwal

BIRDINFO Stock Rx – A prescription for stock market

Nifty’s level now and in 2004

Friends,

I have to tell some thing already told in other words. It is about Nifty’s level now and in 2004 when it was 2000 (Jan 04). At 2000 in 2004 the PE used to be around 20 and therefore the EPS worked out to 100. Now we know that during intervening five years there has been average compounded growth of 25 pc/year since then, it would therefore work out to be over 300 EPS now for the Nifty companies universe. Discounting 3820 Nifty ( 3rd Oct 08) at 300 EPS , the PE would be around 13 . This pretty reasonable even in wake of some slow down fears. The presently offical PE for nifty is 16 and is pretty close to our working as there are three month to go before the year is out.

In light of above, it is not for no reason that the Nifty has rebounded four times after touching around/below 3800 level in last four months (latest on 3rd Oct 08).

It is a good point for taking risk. The tranche of Rs 20,000 crs is going to be released in favour banks against farmer’s loan waiver. Further, the RBI may show some efforts at cheaper money availability as the corporates are experiencing fund crunch. The US govt has demonstrated that the monetary crunch should not make jobs disappear, inflation or no inflation. The historic bailout bill was passed with this in mind and ‘main street’ has been spared woes on account of ‘wall street demeaners’. Also, Russia has released one trillion Roubles in the system for this very purpose.

HariOm,
Krsna Khandelwal

BIRDINFO Stock Rx – A prescription for stock market

Market Matrix – Equilibrium may be deceptive

By krsna Khandelwal – A veteran market analyst

Friends,

The ‘bailout’ package has been accepted by the congress and house of representative may formally clear it today or tomorrow. It has many new provisions with single most important one being the guarantee for bank deposits up to 250000 dollar against 100000 dollars . It is a very good thing to do for return of confidence in banking system but basic work for really ensuring it will have to be done in all earnestness and speed. There has been a luke-warm response so far to the developments in terms of gain in indices in Asia and European markets so far in the day.

I had voiced concern about Indian authorities keeping at a time when they should communicate with public and luckily they are now doing so. The PM said that he does not expect the India remain unaffected by the cross currents of economic flows. I am surprised that why he does not find a solution towards the problem of high interest being paid by credit card holders and other loanees. The banks are happily increasing the family of such people who are likely to become their bonded labourers after some time. There would than be defaults and there would bank failures for after farmers,these people and than the industry business people and the house mortgage-wallahs would out of necessity or by design come in to default. We may harshly blame the people running the failing banks in USA but the slide in property price was rather too sharp and too soon and therefore boomerang. Had it been after some years later or slowly, these very people would have been praised for they did for there depositors and shareholders. We are not too much in US like position but we definitely are in a similar position. The trigger may come in a different way or differing intensity. Should a PM acknowledging it not be acting in good time capping the interest rates chargeable. If interest rates are capped banks would themselves be more choosy and not rope in any soul in body in their marketing enthusiasm.

Indian exports went up 27 p.c. And imports by 51 p.c. Leaving a deficit of 14 Bn dollars for the August month.The auto sales numbers have been reasonable good and speak volumes for our economy being in health at least if not pink of it.

For the record please not a few rates in INR:

Steel Ingot(GZB/NCDEX)Rs 30510/ton.

Silver 19159/kg

Gold 1324/gm

Sugar (DLH/NCDEX) 1850/qtl

Call Rate 14 pc

10 Gilt yield 8.46 pc

Re/Dollar 46.61

Crude 97/bbl

Note Some Ratios:

Nifty(3950) 16.66 PE

PCR 0.69

Nifty PCR 0.92

T/O at NSE 48K Crs (F and O)

T/O at NSE 11K Crs.(Cash)

Every thing seems to be in its normal state even when the biggest ever drama is being played out in financial arena. This equilibrium may be deceptive. The sudden moves may be in any direction. I hope in India it is more likely to have upward thrust. I say this because there have too much preaching about remaining out of stock market crossfire and too much discouragement has been directed at listeners by the channels particularly. Our behemoth insurer LIC has shown profits of over 10 pc during last year. Our herd like behaviour as investors may in fact leave the safe point well behind in the next surge.

Let’s watch with fingers crossed for the night.

Hari Om

BIRDINFO Stock Rx – A prescription for stock market

Market Matrix – Newer bailout plan to take care some concerns

By krsna Khandelwal – A veteran market analyst

Friends,

There is going to be a second vote for a newer plan which would take care of the concerns of those senators who cried foul the first time. The gravity of situation is such that no skeptic can really afford to be solely responsible to see the bailout effort stopped in track as no body has an idea as to what would happen if the plan is not approved. The ones pressing for it have told that it may work and without it the disaster is awaiting. If is really difficult to fathom the depth of crisis or rather it is fathomable but the analysis would reveal such ugly facts as would not be likable to any body. Who wants to know the gory detail of rape scene and what has happened is no less than a gang rape of the financial system in USA.

How far is India going to suffer supposing the administration of the concoction fails to help the ailing financial world. I think India will be impacted but not in terms of corporate performances. The sell off may destabilise the stock markets for some time but since there has been too much harping on this subject that the stability will soon revert.There is another point to consider. India still is not a high cost economy and USA is. USA has to be economical in living style and production systems. In the end the present and future pensioner will suffer more because the values of currencies has to be diluted to save the world borrowers . The lenders have to accept some lower value returned to them while the countable currency not may remain the same. As I told a long time back the excessive saving pool should have seen the interest rates almost negligible as it happen in Japan but the lenders pressed loans with a view to earn higher interest from anybody who seemed to be welcoming the loan. Now its them to be ready to receive less in value terms. The housing prices have to improve which is possible with injection of capital or say raising of money stock. It will not only the housing prices go up it will make price of every thing go up. You may have noticed gold prices going up before even this has been done. Is it not dilution of value of money named as dollar, rupee etc.

Indian market as also European markets have closed better by slight margin. DOW open low, went down lower and is not at par at this very hour. About a few minutes from now the congress will start debating the fresh ‘bailout’ plan and vote for it.

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