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 – Nifty gained 112 points yesterday, the DOW lost good 230 points

Friends,

While Nifty gained 112 points yesterday, the DOW lost good 230 points. This morning is showing that all the Asian markets are weak. The point that has been in mind all the time while judging the markets here is whether the disconnect between the USA and Indian markets is finally there. I hope so. The July-Sept quarter results have been a mixed bag. This is due to the slow down had occurred much earlier and some industries were affected first than the rest. There is going to be coming out of slow down mode for some now and therefore in India’s case there would be balancing act in place, in no small measure on account of govt’s alertness and timely action. According to above logic and earlier strong points mentioned, there is no place but to becoming a share-holder yourself in India’s well managed companies,less profitable at the moment or not. Profitability is of little importance, the management quality is more important because if the management is not fair to minority share-holder why be a partner there. Haven’t you seen the more than expected melt down in case of companies under managements with poor image. The extra-ordinary movements may be due to their own ill designs also.

As I told you that the forces behind the attack on market to take it down below the reasonable level had to have some scheming at its back. The matter is out in the open. There has been lending of physical stocks by FIIs to some out side Indian space of regulation and which was pressed as sales in market. This activity is going to boomerang on the operators.

Let’s now enjoy the markets dance.

HariOm,
Krsna Khandelwal

BIRDINFO Stock Rx – A prescription for stock market

Market Matrix – China has shown GDP growth figures of 9 pc for the III qtr

Friends,

There is positive outlook around the world. After DOW closed up by over 400 points yesterday, the Asian markets have started to see reason to shed fears.

China has shown GDP growth figures of 9 pc for the III qtr. In fact US recession has more to do with China than with India excepting for the fact that India requires capital flows from there but China has surplus dollar pool and now does not need capital from outside as much as we do. China’s exports to US are major cause of its GDP growth and now it will have to raise domestic consumption which can come only when its leaders are ready for putting incomes in the hands of workers and labour. This can be done only by making the cost of production high and would further make it less competitive in international market place. So, what had to happen is happening. Indian corporates have been under pressure to raise salaries through out the boom period of last four/five years and would be able to contain wage bill this year. If you recall, I had mentioned that the year 2008 will put China under some kind of slow down.

It is good that we have a PM who is an economist too. While I objected to Reddy’s hawkish stance on every occasion when he tightened the supply of money for the fear of inflation going out of hand. My contention was that when the inflation is not due to local factors why put the productive machinery to do with lesser money supply and strangulate it. Luckily, he has been replaced with somebody who listens to govt head , PM has seen to it that the delay does not mar the industry. His timely intervention has done the needed repair to the damage done by Reddy.

Also, now, our PM is stronger PM because the lesser ones have thought it fit not to do anything by speaking absurd thing in this period of turmoil. Do we not see the Paswans and even PCs keeping cool and giving back leadership to PM. Our FM has understanding but likes to tease before he does some thing likable. He has to moderate the impact of STT and service tax which is making India loose business to Singapore like places as far as the security trading goes (Singapore now accounts for 40 pc trade in Nifty futures).

The PM has been so careful as to reassure that further steps would be taken as soon found needed. These words should be music to the ears of trade and industry. The matter is so simple, the money supply has to be at level where there is optimum production, inflation or no inflation. The simplest tactic to keep inflation off is by keeping the govt expenditure limited to revenue earned and let it be met by deficit financing, any attempt beyond this is bound to have ill effects on this side or that.

In my opinion it will be prudent to bring the repo rate down to 7 pc and CRR down to 5 pc and this is not some thing extra-ordinery to do, we had CRR of 4.5 pc and repo rate of 6 pc in the year 2004. The sole factor for the slow down in India will be a defective monetary policy and nothing else. This is needed also because the banks and financial institution have to be provided help that would make them stronger and look stronger too. This is in fact in everybody’s interest after seeing what happened in Western world.

I invite your views through comments columns, its so easy.

HariOm,
Krsna Khandelwal

BIRDINFO Stock Rx – A prescription for stock market

Market Matrix – Repo rate cut by 100 bps

Friends,

RBI has, in a surprise move though in line of expectation, reduced the repo rate cut by 100 bps. This will affect interest rate scene in good measure and the bank would be also moderating rates on advanced for house purchase and other purposes. This is first cut since 2003.

SEBI has not taken kindly to lending and borrowing of shares for short sale out side India. He thinks that this practice not right and needs to be curbed but after further study of the matter. Stock lending in India has not taken off as was expected. He seems inclined to stop short sales by FIIs. There has to be some thing black at the bottom for market do not ordinarily behave the way they have recently.

FM gets parliamentary approval for fertilizer subsidy and for oil bonds etc of more than Rs 1.05 lac crs.

Nalco cut aluminium prices by Rs 5000/ton.

Kotak Securities says market is at near bottom.

Manmohan Singh expects that economy will be affected but would be posting higher rate of growth of 9 pc once the matters settle.

Renuka Sugar buys 67 pc stake in Gokak Sugar for Rs 69 crs. On second thoughts the sugar scrips will be good investment.

Paswan says Sail expansion will be on track. Also there is a possibility of removal of export duty on steel.

Nifty close up at 3122 and Sensex is back at over 10000 mark. The Asian markets were better today and the European markets are also doing fine. The DOW futures are better today. All in all the sentiment is improving but slowly.

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 – No effect of CRR cut

Friends,

Markets behaved extra-ordinarily by opening at low point and going still lower while there was a concrete development of CRR cut yesterday evening. This happening did not stay for long. A single day could see its demise. For certain other subtle happenings some time is usually required before the right status is achieved. I keep pointing out such matters.

As told umpteen times, one such matter is about the ridiculous price level for some stocks which have no negative company related or business related development of importance and which have good reserves (ie book values) and reasonably good prospects in the medium and long term. These stocks are bound to support the markets eventually and reward the buyers but prophets of doom have to get exhausted first after they have emptied their garbage cans.

The post-result ‘pancha-tattva’ analysis will sift the grain and chaff for you through out October, keep an eye on it.

DOW is stable at last day’s level while European markets displayed weakness but not as much Asia (other than India which covered all lost ground to wards the end).

Now, any important announcement from US authorities will make the US market move or else it will remain range bound.

HariOm,
Krsna Khandelwal

BIRDINFO Stock Rx – A prescription for stock market

Market Matrix – Some evidence of bear cartel at work

Friends,

The RBI has further reduced by 100 bps the CRR on top of earlier cut and this will release Rs 40000 crs in hands of banks. This will be not only making some extra buck for banks, it will spur economic activity to some extent. Not stopping here, the RBI has also allowed higher interest rate payment to FCNR and NRI accounts. There is yet more, the banks can borrow from their foreign branches up to 50 pc of tier-I capital. All this would have real good effect in all the markets in India, may be after some time gap.

Since these announcements came after the market hours, the Nifty could not make up the losses and has closed with a fall of 180 points at 3338. The US markets at the moment, are displaying weakness in line with Asia and Europe. What to make of such moves in unison is difficult. The only thing that comes to mind is the possible fact that the fire fighting is more focused than having the comparative study of markets and the individual companies. Let us see if the US govt shows any ace that is still up its sleeves.

The farm waiver related Rs 25000 crs also would be released by RBI to the banking institutions. The corporate bonds investment limit also goes up to 6 billion dollars from 3 billion dollars. If there is discomfort in holding equities here, now there is room for the corporate bonds purchase for the FII.

These will see easing of call rate, bond values going up and rupee becoming stronger.

The size of liquidity infusion is no less, it is already going to be Rs 1.5 lac crs extra circulating. I think there should be some very welcome effect down the line.

The results so far have been just OK, neither down or up too much. It has been the business as usual for the Indian corporates while much has been out to be the case of down turn. Is it the same as the euphoria of Dec 2007 and the climb down of Jan 2008 , only its direction may be different. The oil is down to around 75 dollars/bbl. It was oil and the commodity related inflation which made markets look expensive. Now when there the possibility of both hurting is less we have markets ruling low. The interest and liquidity also have been favourable lately but to no avail.

I have atleast found some evidence of bear cartel at work in making business channels blabbering about the impending crisis in Indian economy but without building up logic. Only the voice doom-sayers is made to be heard, when companies are talked no figures relating to their sales, profits and the realisation are discussed. Only the possibilities are spoken that too in a chosen way. When ICICI Bank cried foul it was not without substance.

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 – Risk of financial upheaval in India is much less

Friends,

The G7 finance ministers have decided on a five point plan in their meeting in US. The points are:

-Vowed to protect major banks and prevent failures.

-Commit to find ways to get credit flowing freely again.

-Support efforts of banks to raise money from public and private sources.

-Safeguard bank depositors who have become jittery.

-Revive battered mortgage financing market.

These are the assurances and measures which are the need of hour. In the noise concerning the financial field has drowned the news of corporate performance of other sectors. The coming out of the problems in financial field is going to surely check the recession in other fields because the basic affliction of the general recession is the contraction of money supply and high interest rate regime. The problem faced by the Banks and FIs has come first which used to be suffering pressure after the corporate borrowers used to feel heat. This time, the situation in western world arose not because of paucity of funds but because of excess of funds the business and industry could not absorb. The banks and FIs had to therefore lend to sub-prime borrowers and divert into speculative ventures where no production was going to take place other than one set losing and the other set gaining and may be after accounting for fees etc both losing. The money was best to be left in lying invested in Gilt
, albeit, it would have got them negative real returns due to inflation being more than the interest. There would have at least been the shelter providing safety due to govt’s taxing power to meet liability. This is repeat of the Japanese scene post 1980 and lesson is that there the interest rates had to dive to negative level for a long long period.

Talking of India, we know that the Indian corporates (particularly the big ones) did not borrow from the Indian banks and reduced domestic debt during last four years. Who ever still borrowed has acquired the equity in companies abroad and it is some thing en-cashable, in case of need. The servicing of borrowed capital is well within the comfort level as interest to earnings ratio has come down. The Indian banks, in the interest of earning high incomes, have taken exposure to risky advancing areas like personal finance and credit-cards. This has not posed problems because India has had a good run in salary hikes which have been the highest on percentage basis in the world. It has taken care of the servicing needs of borrowers. Further the necessity to save for tax purposes for relief under section 80C, has been responsible for such borrowing by individuals and is also going to keep them from becoming defaulters as the lock in period gets over in three/five years. There yet more to say about the safety here ie Indian households have large comparative investment in gold and this grows in value terms over time and makes for the financial stability of households here. There is yet another safe-guard for the banks and it is that the house-mortgage related lending is done by banks as per the income level and not entirely based on value of property on one hand and on the other there mostly is a component of out books cash payment for house purchase by the buyer making the banks lending automatic at lower percentage of the real value of the house. Lastly, there has been a growing level of inflation over past years and this is also some thing that dilutes the burden of borrower who gets to pay back lower real value that he had received at the time of borrowing. I am telling you all this to convey to you that risk of financial upheaval in India is less, much less. There is, however, a risk of losing buying capacity of your saved rupees on account of inflation as the govt would talk of controlling it but would not do it. Any tighter control is going to hurt the govt most which is the biggest borrower. So, what is the remedy, you may ask. I have to give very simple answer but it won’t be liked by many as we Indians have high emotionality . So, the logic says that the investment precisely at this juncture should only be in equities of large asset base companies under good managements. This will ensure that your investment is being put to efficient productive use, your future gains are going to be tax free and post tax, your share of assets in the company by dint of your being a part owner through equity holding is going to appreciate over time and you will have a marketable asset to get out when the times are euphoric again with multiple returns.

The other possible avenues of investment have become non-desirable. The property market itself is unstable at present and requires capacity to manage and pay outgoings, the bullion has appreciated too much lately, the big cash deposits in banks is not going to be comfortable proposition and returns remains taxable here. Direct loaning on personal level and through NBFCs and company deposits is as risky as it always has been.

The re-assurance by the govts and its representatives to keep the trouble at bay should be taken seriously as they have their own axe to grind in the matter. If the systems fails, the govts will fail too. On top of every thing is the simplicity of solution ie just expand the money supply and the books will show all accounts settled in the terms of currencies of different names and values. I think the next problem spot will be forex trading arena and its derivatives because while remedial measures are underway a big group of speculators will be building up forex positions as insiders (ie with some specific knowledge) and as punters.

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