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 – 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 – 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 – RBI has acted on an emergency basis to cut CRR

Friends,

This is the first time probably that the RBI has acted on an emergency basis and has declared the lowering of the CRR cut by 150 basis points realising the situation. This will release a sum of Rs 60000 crs in to system. Now it is expected that RBI will not be relenting at a time to do further such acts. The cumulative impact of the monetary and fiscal measures taken by the central banks and particularly by RBI will be great. The only required thing is to instruct or advice the banks to buy stocks to the extent they have the permission. I think they have permission to go up to 5% of the deposits with them. This will be huge help to faltering markets and would be profit generators for the banks. Some body has to say enough is enough.

What I have wondered all this while is that when there is counter party risk in lending, there is no such risk in going for the value representing equities. There is no fear of losing capital and still having scope of getting returns by way of dividends and appreciation. The wonderful thing about the markets falling by a great margin is the fact that the asset values cover the down side risk and the productive assets represent the capacity to generate profits in bulk when the opportunity comes. The opportunity will have to come if the future capacity creation plans are not abandoned. In a growing economy like India’s this is great fortune in the making for the commodity players and others. The Sensex dropped close to 1000 points in early hour of trading and now at 10700 points (Nifty at 3350). These are levels which were visited yesterday too. Grit and patience should pay off. Those who have long term investment horizon have nothing to fear. The Asian markets have covered some ground back. They had very bad losses in the aftermath of DOWs very poor performance last day.

HariOm,
Krsna Khandelwal

BIRDINFO Stock Rx – A prescription for stock market

Market Matrix – RBI has acted rather too harshly on Repo rate

By krsna Khandelwal – A veteran market analyst

Friends,

RBI has thought it fit to raise the Repo-Rate by 50 bps to 9% as also the CRR by 25 bps to 9%. This was in the air alright and RBI has acted rather too harshly particularly when the crude is down to under $121. Since 2007 CRR has been raised up from 6.25% and since 2005 the repo rate has been up from 6.25%. Post announcement the Nifty lost heavily and closed 4189 points (-142.

The RBI action may not immediately affect the profitability of corporates as most of the leading ones are leveraged very mildly unlike during late 1990s and 2000-2002. That was the period when the corporates had borrowed heavily for expansion programs, locally and abroad. Money had just become less scarce due to opening up of economy earlier. The inflation had started to moderate but RBI was late in its response and did not reduce rates in good time.

The case is different today and should be views likewise. The adverse impact will come when RBI, once again, would be failing to see reason for the reversal of dear money policy. I think the banks would not raise long term deposit rates. Market may and should take RBI action in stride for the time being as the corrective movement in indices has already taken place.

The reverse repo rate is maintained at the old level, RBI simply has barred people from placing money with it. The borrowers of high rating will find it easier to borrow and the weaker ones will be shelving plans to expand on borrowed funds due to apathy of the lending institutions in light of recent developments. The efficiency of capital will see improvement through continuous effort of the corporates. PEs will be lower but only from higher profits, profits fall the PEs would go up in the course of time because it is blow alright but not deadly or irreversible.

I would sign off not on pessimistic note.

Hari Om

BIRDINFO Stock Rx – A prescription for stock market

Market Matrix – Market indices may not react to CRR and price control

By krsna Khandelwal – A veteran market analyst

Friends,

I have, over the whole of last month, through a number of posts, in variety of ways , tried to convince you that the smart money was picking stocks and the noise on the channels and in the corridors of power were misguiding. If you had belief and acted accordingly, there would a sense of great relief now as for the first time over the last more than three month a chance has been given by markets to make some money on investments.

The Nifty has closed past 4950 level with conviction. The RBI has in the mean time announced 50 basis point rise in CRR (cash reserve ratio) to be effective in two installments , of which one will be immediately applicable. This would suck out an amount of Rs18500 crs from the system. Ordinarily this would mean a downward push to market but I think it is perched at a such level and at such a juncture that it may well ignore the CRR punishment. The govt. has done it to curb inflation which I think is result of continuous high prices of crude oil and continuous robust demand for metals and machines from the developing countries . There are in fact no easy choices. The inflation rather price rise in respect of core sector items and the oil is in fact conveying an important message for every body that there should be more economical use of these items , their supplies are not abundant enough. Our ministers are unnecessarily falling over each other and vouching to curb the inflation coming out of an economic reason. The steps in direction of helping the poor household through some direct subsidy on items of essential nature are no doubt required and the govt. has announced a few such measures in last few days. There is going to be a burden on exchequer and any attempt at sacrificing revenue through lowering of duties on steel and other such items would be a foolish step.

The age old formula of Congress of punishing traders for the price rise and sending them to prison under essential commodities act is going to be applied again. Its only an eyewash for traders never hoard material and incur interest while there is whole world ready to fill a pocket of high price with stuff at a shortest possible notice. Gone are the days when the lack of information and non-availability of transport used to crate havoc in pockets of scarcity .

If there is fall in indices today, make use of it by buying and catch the missed bus if that was the case with you.

Hari Om

BIRDINFO Stock Rx – A prescription for stock market

Market Matrix – Role of RBI as per Indian Constitution

By krsna Khandelwal – A veteran market analyst

Friends,

I am reproducing (verbatim) the letter of Mr. A Seshan in today’s Business Standard regarding RBI’s role as per the constitution of India. It talks of some things from the basic point of view viz a viz what is superficially discussed in day to day reporting in papers. Please read the letter below:

‘The RBI governor is reported to have made the following statements at a lecture in Mumbai on March 31:”The preamble to RBI act describes the basic objective of the constitution of RBI as ‘to regulate the issue of Bank notes and keeping of reserves with a view to securing monetary stability in India and generally, to operate the currency and credit system of the country to its advantage. Thus there is no explicit mandate for price stability or formal inflation targeting.” Is it correct to say that there is no explicit mandate for price stability?’

‘All along ‘monetary stability’ had been thought to be maintenance of purchasing power of the rupee. Till around 1984 there was no doubt that it referred to price stability. One can look at RBIs Annual Reports and speeches of the Governors for evidence. However , there was a subtle change in interpretation after the Chakravarty Committee’s Report on Working of the Monetary System (1985) twisted the interpretation to mean the ’stability of inflation rate’. The difference between stability of prices and that of inflation is obvious. A further refinement was the concept of ‘acceptable’ or ‘tolerable’ inflation rate of 4 or 5 per cent in the formulation of monetary policy. It is like talking about n acceptable degree of pregnancy! Today the problem is not just a high inflation rate but high level of prices of everything from apartments to bananas due to what is known as ‘tyranny of compounding’ after pursuing the goal of ‘tolerable inflation rate’ over two decades. The RBI plans for accommodating , nay, generating, an inflation rate of 5 per cent by providing for it in its money supply target. I have called it “the baker’s dozen” ( or kosuru in the languages of the south) elsewhere.

‘It is one thing for central bank to aim at price stability and then not achieve success due to factors beyond its control. It is altogether different when it specifically targets for five or six per cent inflation. There is a need for a public-spirited group to take the question of interpretation of ‘monetary stability’ in the RBI Act to the Supreme Court . Suffice is to say that it falls within the domain of the judiciary. It is not an attempt to get the judiciary to issue any policy directive to RBI.’

It is now the question that whether the RBI should control inflation or just manage money supply. I think the governor’s task should be just to see that right amount of money supply is made available to economy so that its wheels remain rightly lubricated for conduct of trade and commerce and not concern with the inflation which is the result of supply inadequacy or demand surge which have innumerable factor not required to be gone in to by the RBI. Should the prices generally rise without change in supply or demand and solely on account of excess money supply , RBI is duty bound to check money supply. It is always disastrous for the economy when the RBI concerns itself with the price situation regardless of the needed volume of money for the purpose of conducting transactions by the public and all. When the economy grows the proportionate increase in the money supply has to be there. The seasonality of money requirement is therefore the guiding factor for the RBI and the price change due to variety of factors.

Hari Om

BIRDINFO Stock Rx – A prescription for stock market

Market Matrix – Lowering of the interest rates while the inflation rules high

By krsna Khandelwal – A veteran market analyst

Friends,

I just was turning the pages of my diary of 2003 and this leaf appearing on 2 May 2003 caught my attention as it referred to the RBIs that time credit policy announcement. Since RBIs new initiative is being awaited by all with eagerness , you will find the reading of the referred page reproduced below of interest on account of the similarity of situation then and now in many ways:

“RBI Governor announced his credit policy initiative by lowering of Bank Rate to 6% and CRR to 4.5%.”

‘The governor must be knowing better. I have reservation about making these bench mark rates lower. The govt. on one hand has endorsed cheap money policy and on the other it has given a sort of legitimacy to inflation ruling around 5% up from 3% some two years ago. The thing suspected has come to the fore. The organised class has once again given blow to the scattered masses who very painstakingly save rupee by rupee and postpone consumption. At these given rates what is in the incentive left for the savers to save. He will however still do it as the provision for beyond the income earning life has to be made.’

‘I am reminded of the Indira Gandhi era when the socialist queen made the gullible public actually loose out value in real terms in respect of the savings due to run away sort of inflationary pressures during seventies. It was only during eighties that some balancing was done by govt. when Rajiv Gandhi ushered the nation in an liberalised environment.’

‘There is of course the need to keep the levels of interest lowered from the angle of industry but what is most painful is the fact that the borrowers have still no free access to cheap funds and the banks have been getting undue rewards in the shape of wider spreads. Besides the bigger chunks of money from NRIs and foreign institutions have to be availed at a premium to domestic rates offered to savers.’

‘Although the concerns above shown are there to address yet the lesser incentive to save makes it beneficial for the overall economy and employment. The larger spending in individual hands will make India far bigger market than it is today. This results in economies of scale and intrinsic competitiveness. When economic wheels start moving faster the future income potential of society grows and the would make up for the deficiency in household savings at present.’

‘I am , at times , surprised at good fortune of India as whatever happens by design or chance turns for the good of the country. What more proof of God’s providence is required. Let’s bow to Him for whatever He provides.’

‘Since after the credit policy announcement by RBI, the markets have slightly improved , the Nifty closed at 938.’

You know now that the Nifty have improved from 938 in May 2003 and is waiting at 4774 point level presently for the similar initiative by the RBI governor i.e. of lowering of the interest rates while the inflation rules high. When the bold step was taken by RBI in times of NDA govt. , it showed that the inflation too was taken care by the cheap money policy and country saw an unprecedented GDP growth over the years over the next five years. The reluctance of RBI chief of taking advantage of lower interest rates prevailing else where is keeping the country’s potential of economic advancement under wrap. In fact the potential is so much that the progress on economic front will remain high come what may. After all the ancient India has become young in many respects.

Hari Om

BIRDINFO Stock Rx – A prescription for stock market

Market Matrix – Nifty closing on 13 Mar 2008 has already set the clock back by six month

By krsna Khandelwal – A veteran market analyst

Friends,

The Nifty closing on 13 Mar 2008 has already set the clock back by six month, at 4620 it shows lowest closing since Sept 07 since then two quarters of good earning performance have gone by. Should we buy or wait depends mostly on ones’ own risk taking capacity and the faith in Indian strength. Indian economy is still a sort of an island , still not connected by a ‘Ramsetu’ to the world. The full convertibility is still not in place but the world markets have been taken to be fully integrated . This is a paradox . The FM and RBI chief are duty bound to give a concrete road map.

In the end I would say that those who would act rationally without fear but with common sense will gain. My past posts have throughout told you in no uncertain terms that a fall from height will hurt badly and a fall from lower hight will not incapacitate you.

Please excuse me if somebody has suffered due to my last days encouragement.

Hari Om

BIRDINFO Stock Rx – A prescription for stock market

Market Matrix as on 11 Feb 2008

By krsna Khandelwal – A veteran market

Friends,

SEBI is considering reduction in disclosure requirements for the listed companies at the time of debt issuance so that the debt issues are done with ease and without too much time leg. Since banks are not reducing spreads why should not the most efficient platforms of stock exchanges be made use of for bringing the lenders and borrowers together and give the nation’s economy a boost, while not letting the portion of capital pie fall out of hands of savers and users of capital.

Indian MFs have maintained the quantum of AUM(Assets Under Management) in Jan ‘08 even though the Nifty suffered 16% fall. Of the 32 fund houses , 14 posted an increase in AUM in Jan ‘08 . Despite fall in January MFs bought Rs 7 K crs worth of equity, MFs had bought only Rs 3 K crs worth of equities in Dec ‘07. This speaks of the high savings rate in India and that too in hands of younger people largely who have no aversion to equity investment. The following is the table giving AUM of 5 top MFs:

Reliance Rs 77200 crs

ICICIPRU Rs 64100 crs

UTI Rs 52700 crs

HDFC Rs 43800 crs

Birla Sunlife Rs 36000 crs

IPOs are being called off due to slack response. Its is a pity that the IPOs are not being offered at prices attractive enough. The promoter greed is at its worse. There was a time when CCI (Controller of Capital Issues) used to fix premiums in a fashion where intrinsic value used to be much more but it used to be OK with CCI to give OK for the par issues and some tricky issuers used to cheat public of their money by being successful in raising money for dubious purposes. There has be a balanced approach and the merchant banker have a duty to discharge here.

Sixth Pay Commission may hike basic salaries of the Govt. Servants by over 150%. Basic pay for the Section Officer would rise to Rs 20000/month from Rs 8000/month. I think that the new salaries including allowances, will make govt. staffers more honest. They would have no room to complain about not making two ends meet comfortably. India therefore is about to enter an era where the corruption is less rampant.

SBI Rights issue is to open on 18th Feb ‘08. Govt. holds about 60% of SBI equity capital and would invest about Rs 10 K crs in acquiring right shares. My advice to SBI shareholders is to sell the share on ex-right basis without thinking twice.

It is once again that the Steel and Mines Minister has asked the steel companies to keep the steel prices low. It is pity that the same minister hasn’t done a thing to see the new capacity being brought at a better speed. I don’t understand when the ministers would understand their duties in right way.

UK’s growth rates has dwindled to 0.5% , a two year low.

Economists estimate US economy to grow just at 0.5% during Jan-Mar ‘08 quarter. Some say US economy is on the cusp of recession.

Warren Buffet sees ‘poetic justice’ for bankers who designed and sold complex investment instruments that have gone sore and have made the banks themselves suffer a lot.

Inflation has inched up to 4.11% , a high for 6 months.

Govt. unreserved 79 item from the list of Small Scale Sector exclusive domain and only 35 items remain there. This is step in right direction. There are areas where small scale survives better and in other areas it is not cost efficient. The natural market forces act and keep overall industrial competitiveness of India alive , if only the RBI Chief looks at the economy’s needs from the angle of an entrepreneur and reduces interest rates. It is a pity that the people in the business and industry have no say in the making of monetary policy as a bureaucrat may never understand the imperatives of finance policy. There concern gets over with control of inflation which the govt. itself usually is not serious about.

Auto component industry has lowered the export target for 07-08 to Rs 14460 crs against earlier estimate of Rs 15172 crs due to strong rupee and lower custom duties. I am sure the auto component industry would do better in coming years due mainly to the low cost manufacturing base in India, only the govt. has to make the capital available at the international interest rates and bring the long overdue labour reforms.

‘NANO’ may have to be priced higher by Tats eventually but it has put a cap on other category car prices for years to come. Nobody would dare keep the price gap higher and risk loosing market.

Automobile Industry declined to 829569 units in Jan ‘08 from 89844 units in Jan ‘07. It was passenger car segment that kept the tempo up and it grew to 113899 unit in Jan ‘08 (104501 units in Jan ‘07).

Scooters account for 20% of total two-wheeler sales in India.

Nifty closed the week on 8th Jan ‘08 at 5120 points.

India now officially claims to be member of $ one trillion economy club of the world, it is fact no small achievement for India.

Southern chain of stores ‘Subhiksha’ is to raise Rs 500 crs through IPO shortly.

George Soros has acquired 3% of Reliance Entertainment, a wholly owned company of Anil Ambani. He spent $100 million for this much stake in the company.

America’s $20 bn generic market is awaiting entry by Indian players . Some of the largest selling drugs in US are going off patent shortly.

Interest rate differential has been responsible for giving a philip to Indian markets when it kept coming down during 2002 tp 2007 from a peak difference of 5% in 2002 to a low of under 1% at a point in 2007. Now it has gone back to 4% in a sudden move and has unnerved the markets. This co relationship may easily be seen. People think that the capital will flow to India but since the cheaper interest would open doors of more investment in US why would the capital move in to India and be at risk of exchange parity changing for disadvantage. Secondly , if the cheap capital flows in to India the established companies may have face competition from newly created capacities at lesser capital costs. For the time being the interest differential has opened doors for the sharp shooting business houses to have free lunches which is being ensured by the RBI by keeping the rupee value under leash. The 90 day rate here is 7.2% while in US it is under 2%. Would not the schemers take advantage , it is hardly understandable why the RBI Chief is keeping this artificial pocket of making money thriving. Is there sinister connection somewhere, only time will tell.

Mumbai’s Nariman Point has 2 million sq ft of office space while Bandra-Kurla has 12 million sq ft of office space. On top of it there is going to be additional office spaces coming up in Mumbai’ suburbs. This additional office space would be no less than 10 million sq ft and would come up in an year’s time. I have a feeling that the rentals for office space in Mumbai would be far lower than prevailing rates.

Tata Chemicals has acquired US based soda ash company for $ one billion. Tata Chem would become second largest manufacturer in its line of business behind only the FMC Chemicals of US. As told to you many times earlier Tatas theme remains to housed more out of India than in side India. Seems Tatas have fear of Indian politicians who have since independence given sleepless nights to the Tatas. Indira once had threatened the senior Tata with her sword of nationalisation on some pretext or the other and the brave men still did not bow to her wishes. Naturally when the govt. today has made the exiting of capital possible for the business house why would they not secure their future. If need be they may bring back the capital as foreign owned which would at least be treated in a better way.

GDP growth at 9.6% in 06-07 has been the highest in 18 years . This translates in to Rs 1700/- additional per capita income which now stands at 22552/-.

Hari Om

BIRDINFO Stock Rx – A prescription for stock market