Monday 23 September , 2013

After the dramatic postponement of the tapering by US Fed Reserve  on Thursday 19th  and the increase in the rate by 25 basis points by RBI - the sensex went thru a 1000 point dance.

RBI was quite right the postponement of the tapering is just that - postponement. Can US indefinitely go thru the $ 85 billion QE each month ? The federal reserve already has over $ 3.5 trillion balance sheet and even the tapering by 50% to around $ 45 billion will mean that the US feds are are going to end up with the balance sheet of over $ 4.1 trillion by end of next year , Dec 2014.

Is this really sustainable ? Is it even going to help much longer ?
I think sooner or later the tapering has to happen. The earlier it happens - the better for the everybody around.

RBI was very right is in increasing the rates - inflation and CAD are a major issue that needs to be tackled on a immediate basis . Now is the best time to take all the tough and painful measures  . As any amount of rate reduction is not going to translate into growth or additional investment - till the elections to the Parliament is over some time middle of next year. And consumer INFLATION can not be allowed to rise any further.

All credit to RBI for its determination to address the CAD and Inflation issues.

As for the markets ? - any tough measure to ensure reduction in CAD and Inflation should be seen as a positive sign. And buying on declines or panic selling would be best way to invest in the current equity market. 

Bank stocks in the past 2 weeks have lost anywhere between 25 % (yes bank) to 7 % (SBI) .
Private banks like ICICI (down 15%) and HDFC bank (down 9%) .
The bank Nifty has  lost substantially  in July - down from 11500 to 10500.- (around 10%).
The bank Nifty also went down last month in June  by around 7% (12400 to 10500).

Most of the Banks are trading around 15 % to 35 % below their peak prices recorded in the last 2 months.

Yes there is going to be a lot of pain - and all the Banks are likely to loose further from these levels.

But the level to which a Bank stock would depend on son many factors including the FII holding , apart from its own performance.

Banks would necessarily have to face the prospect of higher NPA , higher interest cost for deposits and general liquidity squeeze.

In these circumstances - I personally think that one is better off buying the Bank Nifty (equivalent to the value of divested amount) and selling the existing Bank stocks from the portfolio. By this the surplus cash of around 75% ( 11% margin + say another 9% for MoM losses) may be placed in deposit Account or debt fund to earn some definite income .
If the Banking stocks recover then selective buying can be made in individual banking stock (by selling the bank nifty slowly) after actual results for the 3rd quarter is published by the banks .

Yeah , sounds too much of work Right ??   -
I just might as well hold the existing bank stocks in the portfolio and keep wondering as to how come SBI and BOB have lost less than 5% in the last 15 days and the Private banks stocks have depreciated anywhere from 11% to 25%.

I might as well rationalise and keep saying to myself that my core portfolio is for long term and so not really worried about short-term continuous fall in stock prices.
Who am I kidding ??
  

Sensex tanked 460 points (Nifty down 140) to 19760 and 5985 respectively.

All due to (if you believe the TV experts) the rupee falling to its lowest level in the past one year to around 56.80 - 57.  and the RBI talking about a very high CAD.

One really thought that RBI has always been talking about the dangers of high CAD and inflation levels.
And there definitely was no big surprise in the GDP for the last quarter at 5%.

It was pretty interesting to hear these experts talking only the previous day of buying in this market - totally changing the tune to  sell sell.

I really admire these experts - they sure can talk and sell their views.

As for me - I am going back to listening to the endless and repetitive discussions on TV about IPL and BCCI and the IMD forecast of rain next week,  Phew - it sure is hot.

May 30 Expiry

The market closed at 20147 (nifty 6105) on Wednesday. A very lacklustre trading day with the Nifty range bound 6085 - 6110.
Apparently the c/f of open position seems to be around 40% - the market view is the Long positions are being carried forward - hoping for a better than expected GDP numbers for the 4th qtr (Jan- March).
Expected to be around 5% (the lowest in a decade).

So what is the expectation ? The market experts talk about bottoming out etc etc
But the obvious reason for the market to be so bullish seems to be the continuous flow of foreign funds.

So who bothers about weak GDP numbers or the raising NPA with banks or the empty real estate at the new malls or the increasing inventory of unsold apartments or the reduced and cautious  projections  by most corporates  .

the answer to the above is Nobody.

Every one is waiting for: a)  the monsoon to arrive next week ; b) RBI to reduce the interest rates  ; c) the government to accelerate the pace of reform in the last few months before the elections ; and d) expecting US and Japan to continue with the QE.

While waiting , everybody seems to be enjoying  the IPL and BCCI discussions on TV.
Right now I find these discussions on BCCI and IPL more interesting than the market talks .

Reluctant retail investors

The market reversed the 450 points fall on May 2013 and ended higher for the week at 20286 (nifty 6187) .
This is a new 30 months high.

Most retail investors are yet to participate in this rally .
And the FII have invested over $ 16 bn into India so far this year.
Inflation is at the lowest .
S&P  has maintained the rating BBB- long term sovereign rating - the lowest investment grade.
The commodity prices are still making new lows this year.

with the next general election less than 12 months away and the Government is more likely to follow electoral friendly message than taking any tough stance -so what are the chances of the market rally sustaining.

My view is the market will continue to rally till the reluctant retail investors are back in the market and make their investments at the top. 

may 13, 2013

The market tanked nearly 2 % today Sensex @ 19670 (down 450) and Nifty 5980 (down 126) .

Most global markets also lost around 1% . Apparent trigger for the fall was the talk by the FEDs  of not buying further bonds from the market - some kind of method to unwind QE without spooking the market.

The remarks by Ben Bernake last week that there are signs of excessive risk taking - affecting the asset prices and their relationship with fundamentals - is being seen by the market as an indication that the Feds are keen are exit from the stimulus (the $ 80 + billion a month on bond buying).

This is definitely a bad news for Indian market - the massive FII inflow has helped the government to fund the record CAD. So any sudden stop to such inflows would mean a bit of anxious moments in tackling the CAD situation.

The markets seem to recognise this problem
Or is it just the profit booking after a continuous run up to 20K from 18k.

May 2013 - sensex at 20 K

Nifty closed yesterday at 6069 (Intra-day high 6083) and Sensex  at 19990 (high 20037).
After Jan 31. this was the first time Sensex has crossed 20 k. This year the sensex has crossed 20 k 3 times. Twice in January and now on May 8.

So is this the turnaround time ?

Facts :

a) Since July 2012 -till March 2013 - FII investments was on an average around $ 2.5 bn. In April for the first time the investments were less than $ 1 bn. And in May again the flow of funds has been high (so far).
b) The Met Dept has predicted normal monsoon , this year also.
c) Commodity prices (crude , gold ) are down considerably . And looks like this trend will continue.
d) Inflation is down to around 6%
e) Interest rates reduced by RBI 25 basis points recently. So RBI reference rate at 7.25% is the lowest for the last 2 years.
f) Scepticism is still high regarding equity prices.

BUT (yeah there is always a but)

a) The Current Account Deficit (CAD) is still high at over 6%
b) The Political turmoil is still around..
c) corruption allegations are still fast and furious
d) Corporates are still not investing in a big way on Capex,
e) Retail investors are yet to participate in the equity market
f) No meaningful IPO in the horizon,

Traditionally May has been a bad month for investments (except in 2009 and 2004 where the returns were in excess of 15% - election months).

So is it time to invest ?