Market Matrix – The underlying wisdom of stock market

By krsna Khandelwal – A veteran market analyst

The Sensex ruled at 12736 points in Oct 2006 and it is now hovering around 14500 points at a PE of around 18. Since October 2006 a lot has happened . The corporates did well and the indices went to touch dizzy heights and then retreated equally forcefully during the period under reference. It is said that the course of indices is unpredictable but what you would read below would certainly convince you hat the basics cannot be negated in longer time periods.

I am inclined to give you some inkling in to future possibilities in the markets. At present the PE for the market as a whole is quite OK for the entry to be made. Equally true is the possibility of some bad times faced by the corporates and earnings may dwindle but since there already has been an elapse of considerable period of time since October 2006 and the PE level is lower now than it was in October 2006, the fall in earnings, if any, would not let the share prices go down much. There would be a higher discounting of earnings instead. This should keep the worry about the melting of the markets in view of some dent in earnings at bay. On the contrary, should the environment improve in terms of larger capital inflows and lowering of interest rates along with the lowering of CARR ( this is expected too upon the inflation numbers coming down ), there would be an forceful recovery which may terminate only after it has breached earlier tops. It is on this logic that I recommend staying invested, to an extent of one comfort.

Hari Om

BIRDINFO Stock Rx – A prescription for stock market

P.S. The interested may also see our post on Monday, October 16, 2006

Market Matrix: The Sensex Possibilities – 16 Oct 2006

Sensex milestones from 19000 level

By Sharad Khandelwal – A veteran market analyst

19,000, October 15, 2007- The Sensex crossed the 19k mark for the first time on October 15, 2007. It took just 4 days to reach from 18k to 19k. This is the fastest 1000 points rally ever and also the 640 point rally was the second highest single day rally in absolute terms. This made it a record 3000 point rally in 17 trading sessions overall.

20,000, October 29, 2007- The Sensex crossed the 20k mark for the first time with a massive 734.5 point gain but closed below the 20k mark. It took 11 days to reach from 19k to 20k. The journey of the last 10,000 points was covered in just 869 sessions as against 7,297 sessions taken to touch the 10,000 mark from 1,000 levels. In 2007 alone, there were six 1,000-point rallies for the Sensex.

21,000, January 8, 2008

Hari Om

BIRDINFO Stock Rx – A prescription for stock market

Market Matrix – Nifty may move around 5250

By krsna Khandelwal – A veteran market analyst

There has been a lot of improvement in indices and everybody seems to have shed some part of the fear of impending slowdown. The RBI Governor has not acted in the manner that he was giving idea of , in light of the inflation pressure i.e. of raising the ‘repo’ rate. This may have been due to yet another interest lowering by the US Fed by 25 basis points. He , however, showed concern by 25 bps increase in CRR. I think CRR will not be affecting the economy in general but would affect the banks in some measure.

There have been a spate of results but it is mixed bag. There have been good results and bad results but none has been with some drastic impact. It can therefore be said that market would hover round this level i.e. around 5250 and will be tilting one way or the other after it notices some important trigger down the line.

The best strategy would be to encash profits partly and stay invested with the rest. There is risk in being over optimistic, however, some companies have attractive prices to be invested in right away. Please keep track of such companies through ‘panch-tattva’ guidance.

Hari Om

BIRDINFO Stock Rx – A prescription for stock market

Market Matrix: Indian Stock Market and Stock Indices as on 31 Dec 2007

By Sharad Khandelwal – A veteran market analyst

It is important to note that Sensex and Nifty could not cross previous all time high of 13 Dec 2007 on last day of the year.

Now, there are possibilities that new all time high indices for Indian market may be created in 2008.Users of BIRDINFO Stock Rx are recommended to book profits as much as possible and be in cash for right opportunities to emerge after deep correction of the market.

Wishing all our readers Happy New Year 2008.

Hari Om

BIRDINFO Stock Rx – A prescription for stock market

Market Matrix: Sensex returns vs Gold prices,FDs etc.

By krsna Khandelwal – A veteran market analyst

Friends,

Since 1991 , investment in SENSEX has appreciated to roughly about 18 times. It is also very closely correlated with the GDP growth according to Kiran Kabra. The real estate in Mumbai has grown in value by about 4 times and the bank deposits have grown roughly about 5 times since 1991 . Gold prices too has grown by 5 times since than.

In my opinion the SENSEX returns are after one has continuously adjusted portfolio to represent SENSEX which involved effort and attention as the Sensex composition was altered many times. The real estate seems to have appreciated by lesser degree but it has given the benefit of occupation and use or some nominal returns by way rent but not without some costs of maintenance and taxes. The investment in Banks’ FDs and gold has been slightly less bothersome to hold.

Supposing we divide the period since 1991 in to up to 2000 and after , the returns from SENSEX stocks would be far lesser than the other avenues of investment for the earlier period of nine years and would be astronomical for the period after 2000. This very character of the equity investment makes it not entirely advisable. You have to move in and move out at right times to be able have the real advantage of equity investment or else shun it. Further , you should be engaging services of some experienced consultant to guide you as an ordinary citizen can never find out when to get in out.

The ones who keep there investible funds in all the four pockets will not come to grieve ever. Investment through insurance policies will be a good replacement of the need to invest in FDs of Banks and direct equity holding being easier to manage. ULIPs are getting popular for this very purpose besides being giving tax relief and saving costs.

Hari Om

BIRDINFO Stock Rx – A prescription for stock market

Market Matrix: Sensex and DJIA

Friends,

Dow Jones Industrial Average also has thirty scrips like in our Sensex. Its market capitalisation is about six times larger at $4158 b against the market cap for the Sensex at $668 b. During past one year the addition to it has been just $84.48 b while the Sensex has added $219 b . This represents a basic trend that Indian market cap would catch up with the worlds’ other big economies like that of USA and China and others. It is however foolish to think that the existing companies only will be responsible for it. There would have to be a tremendous dose of fresh money injected out of Indian savings and matching foreign inflow. Needless to say that the drama would have to last for next 25 years or more.

India’s market cap at present is at 2.72% of the world market cap of $61937 b and is less than half of China’s.

Hari Om

krsnaKhandelwal

Hari Om

BIRDINFO Stock Rx – A prescription for stock market

Market Matrix: NOT for BULLS II

By krsna Khandelwal – A veteran market analyst

Friends,

I gave an idea earlier as what the macro number convey to us. Since then there has been a further attempt to take the leading indices to higher levels. They (the unknown bull operator or let us say the unknown operator is preparing conditions to play the bear card with ferocious speed and for longer time) have been successful in making Nifty touch 6000 mark while Sensex kept company to scale 20000 mark yet again. While this was done on the strength of cap. goods/power/steel and the Reliance pack and the PSU giant ONGC, it was evident that the smart money was continuously moving out of the rest of sectors.

For the first time I listened on CNBC the results for the quarter (on aggregate basis) for some 1600 companies beside NBFCs and oil sector companies. What was given out has convinced me that we are on a downhill path, which extends far in to future unlike the impression so far that if the downhill journey commences it will be for a short distance and will end soon. The gross sales were up by around +14%, the other income was up by around +40%, the OPM was healthy at around +26%, and the PAT was up by around 24% and the interest outgoes were substantially up. This has clearly given the idea that the slow down is a sure thing. The high OPM level does not leave room for further improvement and the sales are not keeping pace, the interest burden has affected the profitability and is affecting the demand also. The bottom line is healthy due to the jump in other income, which comes out of the sales of some good investments or the surplus real estate of the companies.

The expanded capacities have yet to flood the goods in to market but such capacities are almost ready. The whole matter of concern is that capacities have been created as flow of money has been so generous in the hands of management and it came as a good percentage on capital employed. I have earlier also told that the Indian management is very much averse in distributing the windfall to shareholders and rather keeps it in company and uses for whatever it pleases for in India the mighty is the one who has the mullah. In a bid to save on taxes these managements (I am talking in general lest some in the other boat feel offended) have even gone ahead and loaded themselves with debt too, it has been just an effort to maintain debt equity ratio. This money pool gave them ability to expand capacities or even put up green field projects. Those who had still bigger flows have gone out of borders to expand empires like Tatas and AV Birla Group. The smaller ones have also done their bit in this area. Both the types have been imprudent and eventually will pay through their nose and of the shareholders who are attached by the umbilical cord and are fed as much as is deemed proper by the managements. The leftover remains more at risk than the money of the managements as they gift themselves with cheap equity and handsome remuneration. These very managements who one time reward themselves with cheap equity start selling their controlling stakes into market before the public has an inkling of the rough patch ahead. You, the reader, may check how much the promoter stake has come down for the last two quarters and how much more would be sold in the intervening period i.e. from now until Dec 07. You must do this homework.

The smaller fries, which got the ESOPs, have done the same thing. I even overheard the gossip that the top brass of L&T has become rich in their own right and may leave en block to set up a company like the one the one L&T from out of money got through sale of their ESOP stake. They are sure of wooing the right people out of L&T. Though it may just be a rumour but what the design shows has a streak of genius.

There is a danger lurking on the construction, infrastructure and cap. goods sectors. The Chinese are the giants in these fields and they are going to be shortly free from their Olympic related projects. They would come here to compete fiercely with Indian pygmies and the infrastructure space here is nowhere near the Chinese scale of activity in recent past. They have no dearth of capital and expect much lesser return on capital employed. So, who is making fool and who is being fooled can be clearly made out. The organised attempt of the predators has now the support of massive market convenience and the added F&O tool. The bait has been set; the prey will be the one who will fail to understand the design.

Please excuse me if any of you think otherwise. Just have patience to wait for some time and then pass your judgment; I would be more than willing to accept my analysis wrong. Once again, I remind you that logical progression in the business world happens albeit with some time leg so the prudence is only to be in safe waters before the deluge of any kind occurs.

Hari Om

BIRDINFO Stock Rx – A prescription for stock market

Market Matrix: BEWARE OF RISK IN HIGH EXPECTATIONS AT HIGH POINT IN MARKET

By krsna Khandelwal – A veteran market analyst

Friends,

There was some sobering of market on Friday, 5 Oct 07, when the Sensex closed at 17773 (Nifty closed at 5173) almost after a continuous rise for over last thirty sessions. While main index has been moving up so much, the broader indices have not kept pace and all the gains are under influence of large stocks. The Reliance Pack has actually added most of the incremental points. The news through out has not been good and still we have seen this kind of behavior. The reason is not far to seek and it has been the FII money inflow that has done the trick. What is still unknown who these foreign players are and whether the local operators have any truck with them. The FM has gone to the extent of advising the members of public to be cautious in investing which is very rare from such quarters. SEBI, keeping a watchful eye, has reason to believe that what is going on is not normal, and suspects some old groups to be back in market.

More than 100 stocks have PE ratios in excess of 100 today while number of such stocks was 80 when the Sensex was at 14000 level. High PE denotes high expectations. The catch is that the expectations may be belied without any one to blame as the investing class itself has built up the expectations. Even company managements have given some projected figures of performance and an idea about high profitability, the promise is still not there. Even if there is a promise, it may still not come true as there are innumerable factors at play and things may not remain in such equilibrium, as it is necessary. The gullible are being pushed into believing that there are no risks, just as the prices keep moving up. In fact high profitability areas keep attracting higher investments and the present times give way to gloomy times due to unabsorbable capacity additions. Only a monopolistic hold on the production front, raw material front, technology, markets etc and the brands’ unmatched acceptability may deliver ever-increasing results but only at a slower rate, otherwise, any high profit industry is vulnerable to see bad times ahead. My simple words of caution and hope are ‘BEWARE OF RISK IN HIGH EXPECTATIONS AT HIGH POINT IN MARKET AND BE COURAGEOUS ENOUGH TO HARBOUR HIGH EXPECTATIONS AT LOW POINT IN MARKET’.

Hari Om

BIRDINFO Stock Rx – A prescription for stock market

Market Matrix: Economic news analysis through the last week

By krsna Khandelwal – A veteran market analyst

Friends,

Lets have the feel of the of the business environment by going through the relevant news over the past week.

Mukesh Ambani may have some stake in Mumbai International Airport (MIAL) along with GVK group.RIL group may help them bid for the new airport in Navi Mumbai. Mukesh is having interest due to his SEZ in Navi Mumbai. Finger in every pie is not a good policy but the lucky Ambani brothers have not had the luck run out to make them learn it.

TRAI may ensure the wiring of broadband networking and wiring at the building stage for the new realty project with the help of municipalities. Not a bad idea and should be immediately followed by builders on their own.

RIL’s gas pricing formula, approved by govt. recently, would apply to all natural gas producers. This means a floor price of $2.5 per unit and linkage to benchmark crude (Brent) will remain the basis of pricing while the biddable component may still very from contract to contract for future projects.

Equity and equity linked offering in Asia have totaled $177 b so far in 2007, up from $131 b last year despite a drop off in Japan. Any new development deepening the sub-prime crisis would dent the new offering the world over.

The super regulators i.e. Y V Reddy, C S Rao and M Damodaran of RBI, IRDA and SEBI respectively would retire/complete the term by 2008.

Life Insurance Companies cannot out source their fund management work as per IRDA guideline and hence there would be consistency in returns and approach. They would adhere to pre-defined norms on risk and generally have a long-term view. The most critical norm for investment manager of the insurance companies is that it is process driven with adequate stress of risk management.

Debt-equity ratio for the Indian companies has come down, part of this comes from servicing ease of borrowing due to low interest rates and growing profits enabling them have surpluses. It has come down from 100% to almost 35% over more than a decade’s period. Since the leveraging is low now then why there is so much expectation in the market of the share prices going through the roof. It is only when the leveraging is high and the fortunes having turned for better that the markets expecting the moon. The run up since 2003 is the reflection of this phenomenon but it is not the case any more.

Outsourcing firms here are pruning staff here also who have the connection with US markets due to the fall out of the sub-prime crisis. Indian outsourcing firms are fanning out to China, Philippines, Vietnam and Kenya in a bid to remain competitive.

Ownership by foreign entities in India Inc is at 22% v/s 12% in March2001. Foreign owned portfolios stand at $193b. The big 500 firms have key owners govt/promoter (54%), FIIs/ADRs/GDRs (22%), MFs (4.3%), Insurance/others institutions (5.5%) and public (10%). Let us see who of the present big stakeholder takes the profits out first, as the rest would suffer due to increased availability of stocks, which keep floating in market and keep it suppressed. I think the FIIs would once again have the benefit of moving out first when the going is no more expected to as rosy as in the recent past. The dollar weakness may prompt them to do so even earlier than expected.

Indian Hotels group may acquire 10% stake in Orient Exp. Hotels at $211m, which has 39 top end hotels around the world and has revenues of $511 m. Indian Hotel is slated to increase the room inventory to 19000rooms from 9000 rooms. trading at 129/- at 16 PE it is a good bet.

World market capitalisation stood at $55623 b on 18 Sep 07 (India’s share 2.06%) Bench mark 10 yr yield has come down to 7.87 % India has become global auto component hub and even supplies fake components to the world’s markets. ONGC board has given indication about the split or bonus shares in near future with a view to enabling small investors investing in companies shares.STC is also considering bonus issue in ratio of 1:1.

Four new express highways between Delhi-Agra, Delhi-Meerut, Kolkata-Dhanbad and Chennai-Bangalore are to be taken up for construction and completed before 2012.Baroda-Ahmedabad express highway may be stretched up to Mumbai by about 400 KM. These are the kind of projects that the govt. should concentrate upon.

Govt. is thinking of helping the sugar units to pay off the cane growers, the ideal situation would be to withdraw from the can price fixation and let the grower and mill decide what to pay etc under an approved contractual agreement between the two with liberty to very the price but not the terms. This would enable the farmers to remain safe from the losses due intricately worded agreements and difficult to implement agreements.

While the markets went on fire after the US Fed reduced the benchmark rates to 4.75% by 50 basis points there is a fact of 47% stocks still languishing. The BSE data shows that of 6.75 crore public shareholders 2.68 crores (39.7%) have not participated in the Sensex recovery. The total market cap for 54 sectors out of 128 is still below May 2006. Sharp shooting is the cause of what is mostly happening in the market. Those who have had the occasion of observing the market when Harshad Mehta was active can clearly see the commonality of the pattern then and now. No local name is in the open but the PN route may be blamed for and an Indian group may be at the core of it.

During current calendar year Rs.15739 crs have been poured in to stock market by the domestic institutions including the insurance companies.

When the US Fed has reduced the interest rates the natural corollary would be that the flow of capital would get away from the direction towards US. India would naturally get some part out of this diverted flow due to better interest rates and stronger currency. The dollar would weaken further against rupee as well as other currencies. Since the sub-prime crisis is a US phenomenon, the other economies may not tinker with interest rates unless other factors prompt them to do so.

It was earlier indicated by the national security adviser Mr. N K Narayanan about some terrorist syndicates investing in the stock market in India while speaking at an international seminar. Now RAW has alerted the Govt and SEBI about a Saudi businessman with links to Al-Qaida being active in Indian in Indian companies through stock market route. The PN route must be enabling it. I do not know if the govt/SEBI would be wiser after the event this time too. There is definitely a method in the madness in past weeks’ market activity but neither the SEBI nor the govt is raising an eyebrow. The watchdog SEBI is neither barking nor biting while there is a clear indication of manipulative stance in the market. While there is hardly any good news to prompt the kind of movements that have been seen on the domestic front. Why should Bernanke’s rate have such reaction as would not be seen after Reddy doing the same thing here?

HDFC would be cutting the floating rate of interest on loans and offer it at below 11% as its cost of funds has come down too.HDFC’s Chairman Parikh is confident of growing business by 20-25% this year.

Gold touched $739/oz, the highest since Jan 1980 and why not when the oil dollar is looking for parking place.

Young Indians are the happiest in the world and keep career as priority according to a survey by Swedish firm ‘Kairos Future’.

The closing this week has seen Sensex/Nifty close at peak at 16564/4837 at PE of over 23/22 on the 21 Sep 07.The size of Indian stock market has grown substantially as many companies have issued large equity using different routes like private placement, preferential allotment, rights issues and IPOs.

World consumes about 86 million barrels of oil in a day. Energy Information Administration estimates spare capacity of 2.17 million barrels per day, to go up to 2.7 million barrels per day by 2008. Since all this capacity is in OPEC countries, the tap may be closed any time. The world oil demand is rising more than non-OPEC rise in production capacity, naturally oil will rule higher. The gas prices are not being impacted by higher oil, however.

As there is low inflation, any big increase in the petroleum prices would affect the economy and personal finance in a way differently as the parity with other items would drastically change.

Hari Om

BIRDINFO Stock Rx – A prescription for stock market

Market Matrix: Analysis of economic news at all time peak of Sensex

By krsna Khandelwal – A veteran market analyst

Friends,

Red letters appear on 6 July 2007 in the Indian stock market history book. The Sensex went past 15000 mark and settled at 14964 points at close. It’s last 1000 points journey took 146 days and happens to be the longest in the last five 1000 point rests past 10000 mark. The FII investment crossed $55 b and total market cap for Indian stocks is well past the $ one trillion level. The opinion about the future course is divided. There is definitely method there if not the madness. The Sensex PE has crossed 21, which by the way is not sustained mostly during the last few years.

Let have some look at the news of relevance over last week.

The first quarter is expected to post the net profit surge in excess of 25% (ex-oil), mainly contributed by telecom, cement and cap goods sector if not by all. This also worries me that these sectors have only smaller bases and have to eventually follow the broader scene.

L&T Chairmen A M Naik informs that this 70 old company would be setting up seven subsidiaries for different lines of businesses. This may be due to difficulty in fixing remunerations for the skilled workers of different ilks on a common basis and in my opinion is bearish news for the scrip but it has been taken well by the street.

BPO sector in China grew by 18.7% to $7.7 b while India’s grew by 33% to $31.4 b in the year 06-07. India’s domestic market grew by 23% to garner $8.2 b. India’s edge in BPO sector would enable it to sustain the overall growth while China would find it difficult to keep up the overall growth rate basing it solely on commodities and manufacture which have taken a great toll of its environment. The World Bank’s unpublished report says that some 750000 people die early in China due to high pollution levels in big cities. Sixteen of the world twenty most polluted cities are in China.

BEL, a govt enterprise, would give raise to its engineers to stem the attrition rate. This bespeaks of the generally faced problem in all industries. This should be taken as a dampener for the stock market.

Tata Power is increasing the capacity by 2323 MW to 7500 MW at substantial outlay; the Moody’s have down graded the rating to Ba3 from Ba1 on account of this. In fact, this too has to taken a short-term bearish factor for the stock but the market has defied it. We know it that whenever large investments have been made by power companies the returns have taken some extra time to catch up.

In the aviation field, all the 117 airports would be provided the night landing facility, which presently is being enjoyed, by just 37 airports.

Delhi -Mumbai Industrial corridor is being planned with Private Public Partnership for which Japan is taking the initiative. It will involve some Rs 3.60 lac crores of investment. There will be about 10 nodal points all along the route and each industrial cluster would cover between 100 sq km to 200 km.

Public issues have mopped up a record Rs 22503 crs in June 07.

Banks lending to sensitive sectors like the real estate and capita markets has increased by 42% and stands at Rs 3.44 lac crs. It was just Rs 1.42 lac crs in 04-05. Of the total, nearly 93% is shared by the real estate sector. The lending to sensitive sector account for 20% of total against 14% in 04-05. Here the noticeable fact is that private sector banks have more exposure than their public sector counterparts.

K P Singh of DLF has claimed fourth slot amongst the richest Indians post-public issue and listing of its shares.

MFs have pruned their IT exposure by 12% and would be making the stage ready for a jump in prices if the results are normal.

Hero Honda is delaying commissioning of its third plant due to demand slump. I expect the two-wheeler sector to perform poorly in light of the development in mass transportation and the small car availability at low cost unless innovations like covered scooters etc take place.

M&M now owns 64% of Punjab Tractors and this should have bullish impact on M&M share price.

Baja Auto’s Rahul says sales have slowed down for the five straight months. Two wheeler sales dropped 11% y-o-y for the three top producers in Jun 07 to 549941 units.

Mr. Jagdish Khattar of Maruti is on record saying that the growth of 06-07 may not be maintained in 07-08.

Crude oil prices go up to $70 per barrel for the first time in 10 months.

Re closes week at 40.43 to a dollar.

Non-Food credit by banks go down to Rs 1817955 crs (-30532 crs) during April June 07. It is for the first time over 24 quarters that a shrink is seen. In contrast, the growth of deposits is over Rs one lac crs during Apr-Jun 07.

We can clearly see that the news is not particularly helpful for maintaining the bullish stance. Needless to say that reverse happens when some bearish positions are taken up rather too early which enables the bulls to exploit the market in the short run but eventually greater dent is seen in the market when the reality of economic situation catches up. The inflation numbers have given some stability to interest rates, which have started to come down, and this is responsible for the emboldened attitude of the bulls. We should keep the fingers crossed and not bet too heavily on either side. The hedge funds in the worlds markets may precipitate some unwarranted outcomes for which not only the big institutions and govts. be careful about, the individuals also should have greater recourse to contingency funds in hour of need.

Hari Om

BIRDINFO Stock Rx – A prescription for stock market