2007 Vs 2010 – Chasing The Bull

Sensex again set to be hitting all time high of 21000, uproar in the market with a phenomenal 15% upside in the September month alone. Across the world all the markets have seen 10+% high for the same month, as a matter of fact rest of Asia saw an upside of 25%, all in all goods news so far.

But this also comes with a looming threat of history repeating it self as last time. So the big question that lies ahead is: will it be the same fate where the world market would crash unprecedentedly and another down side awaits. It's million dollar question to be answered. Lets try to demystify.....

India was one of the lone economy which was spared in the last recession, the reason for the same was the domestic growth story. In last decade India has shown tremendous growth in it's domestic market, be it production, mergers and acquisitions or infrastructure. The India growth story has been bought positively by the foreign investors (FDI & FII both). The trend of data coming into the India market by foreign investors have also proven it, along with that the relaxation in the policies by the finance minister to allow foreign investors to directly invest in the Indian market would be Cherry on the cake. In all there are more positives to take in account than the negatives to rule out that we are going to see any down side in the Indian market any sooner.

Having said that one really can' rule out the global factors, we shouldn't forget that our market also joined the bear rally in the last down side when we hit 7900 mark. Therefore incase of any dramatic sequence of event could also result in another bear rally in our market. So the big question then is: does there any such drama in the making. And trust me there is one looming threat called as Emerging Market (EM) bubble.

As I mentioned earlier that India was one of the lone survivor to the last recession, the rest of the economies which also survived the litmus test were all emerging markets. As the big economies collapse like pack of cards in front of the sub-prime mortgage crisis, these well regulated EM were safe heavens for the investors to park their money. Recession made the regulators and the government to pour in money to their country's economy which resulted in liquidity and also relaxed the environment to get back in track on the growth (Instead on getting neck deep in the recession). With their generous TARP (Trouble Asset Relief Programme), US economy came back in terms with normalcy. The same story goes well with the various relief packages by European governance bodies to pour in money in system for then toxic European markets. But one mustn't forget the fact the liquidity in the current system in due to the very same reason as mentioned above. Once the government start tightening the screws to pull out it's money the crunch in liquidity is inevitable. In such circumstances for the sake of liquidity in their own country foreign investors would be left with only one option which is pulling out their money from their parking bay. Once these investors starts pulling their money out of the EM, the panic button would trigger a systematic chaos which would result in crash in EM. This would mean that not only the outside money would stop coming but also at these valuations the EM would be so high valued that everyone would have one option left which would be under weighting the markets which would show a sharp down in valuation and thus would lose it's value. For an example: With a script with a buy call today at valuation of 100 Rs with an FII & FDI contribution of 20% would straight drop to 60 Rs or even less when markets are under weight. What this means that we are likely to see a 30-40% downsize in the market should the emerging market bubble burst.

Just to support what has been said above there is one more bubble in the making which is the gold bubble. Most of the investment banks are recommending their clients to have 10-15% of their portfolio comprising of gold. What it means that they are sensing a possible downsize in near future and are moving cautious with plans. Gold has been giving the maximum return in the period of recession and if the world economy revives (Which is unlikely) gold is definitely going to lose it's shine and shed lot of valuation which would mean that lot of hard earned money pumped in gold would lose it's valuation resulting in another 20-30% valuation of money.

The success story is also riding on the fact the results for QoQ (Quarter on Quarter) and YoY (Year on Year) has shown exponential growth and is the silver lining on the sky for being optimistic on the future growth. But should the next few quarters shows below expected results it potentially can trigger panic button and result in downsize.

In which ever way you see there are enough reasons to be cautious for coming year. Lets hope we don't see much of the growth losing it's shine and future should beacon more reasons to cherish and success stories.

The Path Of Recovery?

All the markets in world are seem to be in sync as they are now reflecting the same mood all around. Few days back we saw overwhelmingly sharp decline in markets across the tables, who was driving this drift: China. Does this means that the next bubble going to crash the world economy will be China?

China in last one week has released very depressing housing and credit data. It has been heard that China has spent as much as 1.5 trillion $ in it's credit market in last one year alone fighting the recession which is three times of entire Indian equity market volume. US has lost over 4 trillion $ in last one fiscal year and has been on path of recovery ever since. Until now only US market was considered as the global parameter to gauge the health of world economy but in last one year the tide has shifted to less known economies, China to be precise. Until now China had hold it's economic balance sheet to be unveiled but it does seem quite evident now that the next big thing in the world economy is China.

Once called safe heaven Dollar has taken most of beating by this economic downturn and is one of the most vulnerable underlying assets causing the money flow to get diverted to safe investments which is eastern and south Asian markets, China and India to name a few. This is one of the key reason why US is not on a galloping path of recovery. Quite rightly so since the equilibrium in the world economy was need of the hour. One stand alone economy shouldn't be given the driving seat. In next six months outlook seems to be more inclined towards Asian markets. The mood here would decide the turnarounds in the world economy. If the US economy is able to provide a breather from it's export, retail and housing market then it may be possible that the money flow would be diverted again to dollar but until then we only need to wait for non-financial data from US to bring back the confidence of global investors.

The big question which can be asked then would be: are we on the path of recovery and is the recession over?

I think we are on the way of recovery, eastern Asia will definitely be better than west like US and UK. Surely there will be a big bounce in next 6 months barring US. The conflicting noises that China situation is going to get worsen would be only confirmed once they provide their next set of exporter and production data . Chinese economy is recovering on a rate of 7.5% , second highest in world. This is still a fragile recovery though and the policy makers are not leaving any stone unturned and now they are tightening the screws this time. The bond and currency market around the world seems to be in better shape indicating that currently there might not be any drastic policy change in the economic dynamics in any global economy which is helping the commodities to sail smoothly.

The turbulence in the equity market every now and then could be a problem due to the liquidity and short covering along with profit booking by the investors, this should not trigger any panic in market though as market has matured tremendously in this 2 year old recession cycle. No index in the market is an exception and all have recuperated well in past six months or so. I see better future in Tech and commodities in next twelve months, betting on old & gas sector could also come fruitful. The global majors like Microsoft, Apple etc are going to grow tremendously and leading the pack would be google should their new operating system is a hit. What market would do people have been saying that correction in inevitable from now on. Hedge funds are bidding big on market crash causing panic every now and then in the investors but I still see things getting leveling up and stabilizing.

To me world seems to be healing but the it will take a while until we can breath fresh air of economy.

A New Day Has Come...!!

On 8th January 2009 when I celebrated my birthday the best gift was given by Ramalingam Raju. Undoubtedly my personal interest was always in Satyam due to my holding in it but more than that I had few of my best friends working for the organization and also in my professional career I had started working in a team where I worked along side people from Satyam and my experience was excellent. To the extent of my earlier analysis of Satyam I would proudly say that Indian government and Indian incorporation as a whole has proven me absolutely wrong when I verdict last time that this is end of road for Satyam.

I am glad to say that the fate Lehman or Enron suffered, Satyam didn't fall to the same. Instead not only it rose from the ashes but now it will become the best fall and rise story to be told for decades in corporate world. The front line worriers put by Indian government not only proved why they were picked for this cause of damage control but out performed anyone by just in less than 100 days they sold the ill fated Satyam to it's best bidder. Restoring the trust for Satyam was the mightiest task they had in front of them. They had to first ensure to all stake holders and whole world that Saytam as a company is still capable of performing with the same strength. Great job done by the elite panel and surely my praises can't raise their effort to any greater level than they already are, supreme performance by all means. This not only clears any doubt on the corporate governance in India but also provides a view of how well regulated the Indian incorporation is and how well Indian government is capable of handling any abrupt event like this. This is going to restore trust of FII and FDI in Indian market which is a good news since prior to this news we have already witnessed a good contribution from FII and FDI and with event like this their market participation will only increase from here.

Here are some insights of my analysis on this acquisition from Tech Mahindra of Saytam.

Financially:

Tech Mahindra has a good brand backing it and most importantly it has only been in news for good reasons, therefore to say that they can be the best suitor for Satyam would not be an incorrect statement but when I say this then it would be a hypothetical statement. In real world Tech Mahindra has firstly over valued it's bid (58 Rs/Share) over the other two bidders which quoted 47 and 22 Rs/Share respectively which is 10 Rs/Share extra on 31% share of Satyam which cost them almost 3000 Crore which is around 51 Crore share from market. Now if they have paid 10 Rs extra each share then they have already made a loss of 500 Crore. The loss doesn't stop here. In order to take a complete ownership they will have to purchase at least 20% share from open market bid which is going to cost them between 58-68 Rs (Thanks to their overvalued bid of 58 Rs/Share). Lets say the price there is 60 Rs/Share then the next set of 20% share will cost them another 2300 Crore. It means 51% shares on 5300 Crore. This means they have already lost around 800 Crore well in advance. Lets talk about the other exclusion "the class suits" filed against Satyam. If you check historical data then easily if all the class suits can cost Tech Mahindra around 600 to 800 million dollars. Converting their earlier loss while purchasing share into dollars would add upto 160 million dollars. If we add both of them this will cost them around 1 billion dollar well in advance. Financially as per my calculation Tech Mahindra didn't do their home work well.

Client wise:

Tech Mahindra can be termed as India's best telecom service provider. With diversified portfolio of Satyam's client base one can say surely this acquisition will add feathers to the Tech Mahindra caps. But one must also understand that now this will be a different ball game together for the Tech Mahindra management. They are not experienced in dealing with the variety of domain clients (such as financial services, health care, banking, retail etc) Satyam's existing contracts are either expired or set to get expired soon. They would now need to renegotiate these contracts with them and while the recession going on and inexperienced management, the clients would surely make it tougher for them to agree on the same price of past. If they agree on lower price then it will add another loss into their balance sheet. (This is more likely to happen)


Friction within:

Tech Mahindra and Satyam are similar in terms the way they operate. Both have hasty bench strength which means now the utilization ratio for Tech Mahindra + Stayam would fall even further. This means there will be now Darwin's principle "Survival for the fittest" imposed for the entire work force (Especially the one which are on bench). With my personal understanding Satyam has one of the best set of SAP professionals, DBAs. They can be unarguably termed as the best back office management company in India. With best in class professional Satyam surely has upper hand when it comes to performance. This means when it will come to axe people it's more likely that it's a Tech Mahindra associate who is on the line of fire. This fact may be visible to some of Tech Mahindra associate now but soon it will be visible to everyone around and that's when you will start seeing the friction within these two companies. This acquisition is done to make profit not as a good will gesture so while making the decision of acquiring Satyam, Tech Mahindra must have evaluated such aftermath (I hope they have done this). I am not too sure on how the compensation part will be worked out (Although it would not make much difference since both companies have almost similar pay structure) but surely if either of them see them at a losing end on it (Specially Tech Mahindra) they would definitely raise their voice against it. From here I can see a good number of people getting axed in coming few months, surely lot of anxious moments & sleepless nights for people.

Although they may stand 4th in the total market capitalization in IT sector but persisting on that place would be a daunting task for them, surely next few months will be testing period for them. I would have liked some tier-I company like TCS/Infy/IBM/Accenture to take over Satyam but understandably with their own neck under sword of recession they preferred staying away from tainted Satyam. I wonder what would have been fate of Satyam's acquisition by any of these frontline companies. TCS would have been best suitor but since they are badly struck by recession they opted out of the race for Satyam, they are known for their aggressive approach in such scenario in past though.


Anyway today it's celebration time for Satyam and it's well wishers (including myself), lets forget all above analysis and enjoy this victory of hard work over greedy conscious. A new day has begun for Satyam and it's stake holders, I hope this CNTRL+ALT+DELETE restart will reboot them in safe mode!

Happy Days Are Here Again??

It’s been long since I have analyzed the market and come up with a strategy to formulate the investment plans. Until now I was quite bullish on the stock market and although with the global cues still gloomy I am not going to degrade my decision to a selling mode. I am quite certain that it will be the first quarter of 2010 which would start bringing prosperity and when I say prosperity then it will be in the same lines of what we had in last five years. I am quite certain that the world market has actually discounted most of the bad news in advance and their outlook is quite clear from the next fiscal year which is bullish.

Year 2009 will going to be remembered as a year of M&A (Mergers & Acquisition). We will see some expected and some very unexpected deals going through in almost all the sectors which are going to symbolize the organic growth starting by that time. Right now the balance sheet for each company has been well drafted and their profits and losses have been calculated and what ever decision they are going to make would be based on their margin for next 2-3 years. They will only go for an acquisition or they would only agree for a merger if they are certain that they can’t weather the coming storms in future alone. The most important point to remember is in this free fall of last one and half year the companies who would withstand the storm are only going to be the future, it doesn’t matter if their balance sheets are in red now but if they can sustain for next one year they only have good times ahead. Worth mentioning sectors are IT, metal and banking. FMCG was, is and will always going to be the only sector that can weather any storm and it has proven it’s metal anytime put against the odd.

The biggest curiosity is in the job market where the bad news isn’t stopping and according to my understanding things are only going to worsen going forward from here. Problem lies in the way recruitment has been done in last five years. Most of the non deserving candidate have candid their charms then and were enjoying their upward incline but one must understand that in long run only those who are specialists in the sector can sustain. This is going to be most true for the IT sector, with no offence to the professionals who are working in this sector, I see that there is a leap of difference between the one who have been brought from other backgrounds to this environment to the veterans in the technology. I may be completely wrong but there can’t be any choice when a company is axing people. The HRs would take no time in drawing line between people based on their background, be sure to start seeing this by mid this year. The brightest future ahead lies in the banking and financial services sector, banking being the most prosperous. Please note that what we are currenly seeing in world market "the relief rally" is not something which is going to last for long. I am expecting markets to make fresh lows in next few weeks (read that as the closing of financial year). The problem lies in the market to market (MTM) losses, with dollar value not being steady and every company downgrading it's guidelines it's not possible to sustain for small comapnies (Especially Indian IT companies) in this slowdown, outlook for the Indian IT companies is down. With their struggle to hold on to the exisiting clients with the massive human resouces they posses, they need to cut their workforce in order to survive in this environment. They operate on the minimal expenses and the only way to cut the cost is clearing the excess headcount.

Talking about the share market, well we can’t see it more than 11K by the end of this year. People are sitting with a portfolio down 80-90% and due to the same reason when ever there is a relief rally they would like to book their losses and exit the market by doing so they will unwillingly pull the market down and the same cycle will repeat for next few quaters. I expect that the general election in next few months will decide the move of market. Although I don’t favor any political parties personally but I wish to see the same UPA government to come in power since it would ensure that the reforms and financial moves to counter the crisis around would not change a drastic shape. This time I urge voters to vote for the growth for next few years not for any long term plans. Under any circumstances I don’t think I can predict any market move post elections so I would not make any comment on market in next few months. Let’s hope that the Indian public will understand the power of their votes and vote for countries organic growth in these difficult times as virtually no growth can be seen in next 2-3 years for the countries outlook. By then I can only think of investing in MFs, metals (Gold, silver).


Talking about US, I don’t think I can see any recovery there in next 2-3 years so expecting happy news from their side is too much for asking. We need to find alternatives source for a spike or surge in world market. I am certain that in next one year apart from US and Europe all the markets will be off the recovery mode and would start galloping in next 2 years. No market is good for long term until there is a source for liquidity and that is not seen at this time but markets would definitely find it, understandably and quite vigilantly we can see that metal is the next big thing. Gold specially and surely it will contribute in the next fall cycle for the world economy, according to my analysis of what's going to be the outlook for next few years, it is most certain that this eye opening recession has thaught US a great deal and with Obama really pressing hard to add value to US as a country we will surely see outsourcing getting shrunk to a ligitimate level which would definetely impact the emerging markets like India, Brazil and China to mention a few. What is not very clear though at this moment is how will US curb all the losses incurred while the reform of it's sick economy. One of the biggest asset that US has is it's arsenal. Although the F series of fighter planes are not in for selling but I won't be much surprized if they put them on sell and one of the biggest exported would be India for sure. US economy require the same medicine which India got in the early 90's thanks to P.V. Narsimha Rao and Man Mohan Singh, more than anything US require a better regulation and sanity system. I was a great believer in the credit score system there but after this great fall my faith on credit score has been crashed, relying on credit score only would not help them facing the challages they currently have. They need a better regulator which may require them to restructure the financial system. It's must for them reason being the rest of world will move fast and they will not be able to catch them later. I don't think I would like to change my outlook for US for next year, it's been downgraded and should remain the same. Expect some more down fall there but surprizingly I see a spark in the IT sector there; biggies like IBM, Microsoft, Dell and Oracle are on their way for M&A and they will enjoy position over those comanies who have drown neck deep due to the economic slowdown an they will surely going to butcher them given a single opportunity. I am waiting for more and more M&A news in next few months. I strongly believe that within next 6 months i.e. by September we should see world along with US getting in a small recovery mode, I hope and wish that it will not be a false relief rally then.

Outlook For Next Year Market

Exactly a year back on the same day I was calculating my profit from my portfolio, it was hugh...very hugh. Things can turn around quicky, I knew but the plunge I took this year has opened my eyes, mind and squeezed my pocket as well.

The turnmoil which whiped out eventually every big dream this year is going to be termed as "The first recession" for the 21st century. Everyday came with a new surpise which was bizarre and unprecedented than it's previous one. No prediction, no furmula not even any strategy can be formulated to overpower this catastrophe. While US wind up it's year at all time low, there is lot more blood to be shaded which is eventually going to comeout next year first quater onwards. There is lot of pain left and it will grow as cancer next year capturing eventually everyone and the hostality surrounding would be so engrossing that even the bravest soilders would be afraid to face the music. Not long while ago, Ex-CEO Citi group Price quoted "Everyone Dances to the music". While making this comment he forgot to add "On dirty tune". Rise and fall debacle of investment banking is the best example of how greed can corrupt you to the core where you are even ready to endanger yourself for making money. My personal feeling and understanding is the crisis world is currently facing is largely due to investment banks and the real estate bubble blast in US market. Investment banks traded the most toxic assets as a lucrative instrument for making quick money to a layman that eventually intoxicated entire economy. Although the era of investment banks is finally over and big bulls like Bear Strean and Lehman Brothers have lost their existance but what is left there behind are numerous unanswered question from the investors who lost their money, faith and everything.

Everytime when government comes to rescue, 'intelligent people' quote..."It's too late and too little", the question here to be asked to this elite class is: what were they doing when the curtains on the happy days were falling, didn't they see it coming? Wasn't that the right time to come and raise voice against the things which were ethically wrong. These smart people who are given the freedom to speak are nothing but small time jugglers who dances to the flow of wind. Criticism is the easiest way to pass-on blame on someone else but taking up a step and withstand the opposite force takes high moral values and ethics which unfortunately no one posses. These unfortunate times in which we are living is due to the power is given in hands of people who are morally and ethically corrupted. A corrupted mind can only dig grave for others but they always forget that at the end of the day they are living on the edge of same grave which would surely going to become their eternity, their last resort for hideout. Unfortunate but a naked truth!

Finally the question arises amidst all this what's the outlook for next year, is it going to get to the great recession of 1929 or even worst? The answer lies in the retrospect of the wrong steps and action taken in past. If the lesson learnt from this one are not imparted in the measure taking process for future then we are going deeper and deeper into trouble. The time has come when everyone needs to start being ethical and have some moral values, the onlyway to fight against this beast. one thing is for sure that next year we are going to see many surpises which surely are going to jitter a common man. It's crystal clear that there is going to be a big shift of power and it is going to shake everyone who is directly or indirectly related to US. Be ready to face the music and dance on the dirty tune.

Crisis Hitting Real Hard!!

The scariest day in market I had seen till date has to be Monday 27th October 2008. My heart bits almost stopped for a spike moment when I saw sensex below 8000. I had done very nice analysis in last four months on how long the down side is left with market and last time I did mention that there is still blood left in the market which will come out. But this is the very first time I have no answer to any question that may ask about the bottom for the market on when they are going to open tomorrow. I guess this phenomenon is way beyond any analysis or explanation, an unprecedented fall which doesn’t have any technical support. How could it be possible that only if FII pulled out money that too just over 16 billion dollars from the market would let it break so deeply?

I as any investor in market am under definite clinical depression on the loss of money and faith on the stock market. I can not go back and blame to the FII for making this happen as I know they are also going through the same turmoil in their own country and can’t be adjudge guilty completely, I now strongly feel that it’s Indian finance ministry and RBI to be blamed for this catastrophe. When you look back to entire crisis happened world wide they were mostly supported by a bubble blast; a bubble of sub-prime mortgage when we talk of the US market. The same real estate bubble was the reason of Asian stock market crash decade ago. All in all when ever there was smoke, it’s definitely fire somewhere around. But what could be the reason of the rise and fall of India’s most attractive investment institute “Stock exchange”. With my understanding I am listing few of the points which according to me are the driving force for this issue.

1. Dollar value: History has witnessed that when ever the dollar value is under pressure, emerging markets like India and others had got the most of the breathing space in the world economy. This was the case between 2003 till 2007, when Dollar value against the currency of world emerging market was at decline hence the trading margin were quite high, yielding the high end profits as well as lowering the operational cost. But now when we stand at 50 Rs per dollar the operating and trading margin for any company would be at a toss seeking a poor performance in all their profit books. This is not only true for India but all other emerging markets like Brazil, Russia etc.

2. Commodity price: While in July we reached the benchmark one barrel price of crude oil as 150$, now we stand at merely 62 $/Barrel. This shows the pressure on the commodities market of the impact market crash has induced in the world economy. Same is the case with the metal stack where all the metals including gold and silver are under their year low costs. Be it the steel, zinc or copper, all are under their historic low values for the year. Although this low cost in not only hurting their respective industries but there are no buyers out there in the market and the reason for that is the most important reason of all which I am going to explain the next point.

3. Finance Ministry and RBI role: How many times our finance minister has come and assured that the Indian company has strong fundamentals and there is enough liquidity in the system to withstand this crisis time. Very well said Mr. FM but the point which he doesn’t understand is: for how long economy would be able to sustain the pressure like this? There is no stopping of bad news and from last 10 months we are only living under the threat of yet another big fall every next day. At such times if the government doesn’t take proactive steps assuring safeguard of Indian industries then we are not far from the down fall we had seen in US this year. It’s very heartening to say that we are right on the path of yet another Greenspan (Formal federal governor in US) in making for India if the FM and RBI don’t take steps to assure buying and propagation of liquidity. I am sure the time is not far away if the same conservative wait and watch strategy is going to be followed by the Indian top brains when RBI and FM would come up with bailout packages to revive the defaulted companies and industries. One of the examples is the aviation industry where government of India is aggressively looking to have their share at some percent to ensure they don’t shutdown their operations and push us back 10 years in development. This is the first leaf we have seen falling off from the big tree, trust me there are many more to follow if the awakening is going to take substantial time from the RBI and FM side.


It’s always easy to blames others and wash off your hands from the problems. Don’t blame US entirely for the crisis back home, yes they are one of the substantial reasons and no one is denying that but then we need to deal with the crisis on our own, we can’t expect US to come out and help us to get over this prolonging hangover when they their self are looking for some helping hands. What I could see as a good strategy from the RBI side is to form an institute that will be a domestic buyer in the market. One would argue that SBI and LIC are doing the same on behalf of government, true but they aren’t aggressive enough and most importantly they need to see their balance sheets. They would not like to come in red in their quarterly results thus would do defensive buying in the times of market turmoil. All the stocks, be it the front liners, mid cap or small caps are available to be picked at very cheap price. Most of them have formed there fresh lows or available at their 52 weeks low, if government injects buying of around 10-15 billion in the market, their profit in next one year would be no less than 30-40%. If government can let FII to make such big margin profits from our market then why not them taking the lead in the recovery of Indian stock market. This is going to help them in two ways, one they would be able to make profits out of this and also when they are the biggest buyer they would be in position to turn the market regulations as they want them to. This will surely safeguard us from the massive sell off we have seen from the FII and hence would minimize any such crashes in near future. This would be a much better proactive action than coming later with bailout packages to revive the market and industries.

I must say the new governor for RBI has come with a mindset of central bank functioning which is very defensive and conducive, he is not aggressive in his strategies. We have seen cuts from the RBI in both CRR and repo rates lately but how much is enough no one knows. The simple reason for raising these entities was to ensure that inflation should be under control. I am not saying that stock market is the health of any economy but yes they mirror the conditions within and if the market is bleeding so severely that too from so long then there should be some healing medication required from the RBI side. RBI thinks that inflation is the only factor which hits the common man and they want to help them by letting the inflation rate come down. In doing so they raised the CRR and repo rates, this resulted squeezing the liquidity. Landing and borrowing money from RBI and inter banks became difficult on such higher interest rates. This made the entire bank sector to land money to the individuals and institutes more difficult. The pressure of world crisis aggregated with this step from RBI and started hitting by liquidity crunch in the market. There were no buyers available in the markets and FII were already in exit mode, hence we saw the historic sell off in the market. RBI and finance ministry must understand that they are in place to protect investment of a common man. But delay in taking the appropriate steps to revive the conditions at home could potentially put us in the road of recession where we would start seeing job cuts and depression. When Indian farmers started committing suicides then our government woke up from the sleep and came with a relief package of 60,000 Crore, I just wish not to see same pattern repeated in the share and job markets. And for doing so Indian government has to put breaks on the liquidity crunch by investing in the market for good of common man. The gentlemen sitting in RBI and finance ministry are much wiser and experienced enough but as a common man I have my own apprehensions when I see such turmoil around. Let’s hope that we have seen the worst time and the future from here is bright.  

Which way now tide is going to turn?

With lot many speculations finally everyone has agreed that the world economy has gone into recession. The symptoms were detected right at the time Bear Stern filed its bankruptcy, this was the time when market makers started manipulating the market and exited with their profits. Almost all of world’s biggest stock exchanges have lost 50% of their valuation; the steam has really taken off. Now the million dollar question is: “Is this it?” or still we have to see down side. Which side the tide is going to turn? Well so many speculations and yet no one can say it concretely that what is going to be outlook for the market going forward.

Once again with best of my abilities I am going to provide some inside on the market behavior.

1. Stock market: As we have seen that Indian stock market bled a lot and finally broke the 10K barrier last week. Question still remains unanswered that have we reached the bottom or still we have some blood left? I would say yes surely we have lot of blood to be seen in next few weeks. My immediate low levels for the Indian stock market would be around 9300-9400 which means down 600 points more. Reason is the condition of Indian financial sector: with all the turmoil around we haven’t yet seen any Indian firm filling for bailout. RBI and finance ministry is very smartly windowing the actual crisis by time to time advising on the status of Indian institutes on which I have my own doubts. I am sure that very soon we are going to see leaves falling off the tree, Indian institutes asking for a bailout from RBI. I am skeptical on the outlook of private Indian banks specially ICICI and HDFC since they have good numbers invested from FDI (Foreign Direct Investment) and FII (Foreign Institutional Investment). Also their exposure to the global market is well known. One must not forget that the US crisis started with the investment banks falling off and if you see Indian banks falling alike, we can only say that this is just the start of bottoming in Indian stock market. If that happens we should be ready to see levels at 6000 as well.


2. Where NOT to Invest: with all the blue chips biting the dust, Indian stock market still remains very attractive for investment but this should be very systematic investment. I was very bullish on the reliance pack earlier but after seeing the market conditions I would recommend investors to stay away from it. Money should be put in the stocks which are out of the circuit values. Stocks like power sector, PSU, some public banks are the attractive valuation. This is a golden opportunity to invest in midcap stocks. For a safe and steady investment in stock market best pack is FMCG. SBI, Tata pack, Reliance pack, L&T, metal pack, IT stocks and most importantly from the Realty pack are a complete no.


3. Stocks to invest: NMDC, BHEL, Axis Bank, NTPC, ONGC, RNRL (For short term of 6months), Balrampur Chini, Hero Honda, Maruti Udyog, Punj Lloyd, Marico. These stocks are going to be winner for this bearish market.

One need to understand that the fall we have witnessed in last 10 month is there to stay. With false rally which we have seen time to time and also started from today, only the market makers will make profits and the normal investor is still going to loose on daily basis. One good step SEBI has taken is by asking the FII to disclose their trading. Previously this wasn’t the case and they were manipulating the market. Best example of that is HDIL whose 25 lakh shares were sold by FII and now the stock is biting the dust trading just over 120. This is just an example there are lot many others. But now when the FII is restricted, transparency has been restored and traders will know the actual correction and valuation in any share.

I still think that the faith on the stock market of even big institute is not restored even after bottoming up to this level. It would take its own time and as per my understating for next 7-8 quarters we are going to see the range bound trading. World market is going under recession and this is a rare event. No B-School teaches how to deal with recession so even to the best of brains it would take quite a while for coming out with a win-win strategy. At such conditions a normal investor need not to get greedy while buying even a low valued blue chip as nothing is going to fly and give 200-300% returns. One needs to decide how much return realistically they want from the market. Even if the sentiment of the market gets positive you should exit once you realized your profit. All the smart investment firms are playing the same cards hence we are seeing the same range bound trading scenario every now and then. I still have my faith on the stock market as this still remains the most lucrative investment option but we must be cautious and exit once the targets are realized. This is going to give you better returns on each investment you make.

Happy trading!

End of an Era?

Last two weeks have been one of the most volatile periods for the entire global economy for this century. The global leaders in economy fell as pack of cards while everyone was acting as a spectator watching them falling helplessly. The turmoil which burned and took all the heat off from Wall Street could be termed as end of an era, an era of Investment banking: The most lucrative place to be in last half of century.

One couldn’t have thought in their wildest dream that the investment banking giants like Bear Sterns, Lehman Brothers would be vanished like this. More difficult is to see Merrill Lynch surrendering in front of Bank of America and now Goldman Sachs and Morgan Stanley doing the same to US Federal Government. The fate of AIG is merely saved but surely not for too long. I am sure now many of you would also like to get answers of below questions as I do.

1. With so fruitful and impressive past for these investment banks, what is the reason of them to be in this spot?
2. Is this something which is going to expand its wrath grabbing the entire world economy?
3. Are we India also under the cloud of uncertainty that we may be next in line of this collapse?
4. How safe are our investments?

With my understanding I would be answering these questions:

1. Great power comes with great responsibilities, when the global economy was commanded by the investment banking, they literally had all the power to work with the assets they possessed of public and other organizations. While quarter to quarter and year to year these companies were making record breaking profits no one noticed that in fact they were putting the hard earned public assets on risk. The greater the risk the better the returns, so these companies didn’t even bother for the future forecast of their investments. They although had a unit called RAM (Risk Analysis Management) in place for risk mitigation on which I had worked previously while I was working with one of the best in business investment banking but I am now sure that this system was only to divert federal government’s attention, not for taking advice. As the sub-prime mortgage crisis spread and balance sheets of these companies started showing red marks due to their most of investments were in the toxic assets (mortgage and real estate), they started loosing the numbers the same way they earned them, record breaking losses quarter to quarter were posted but this time it didn’t take year to year since these companies lost their identity & existence in a matter of two years. While I was reading articles on the risk exposures for these companies I found Lehman was open to risk exposure 4 -5 times on each asset than its near rivals. Merrill Lynch has this counter as 2 times which was good enough to get a bankruptcy in near future. The only two leaves left on the investment banking tree fell this Sunday in front of federal government. Investment banking runs on trust and the day they lost trust of common man by sinking their hard earn money; they started their descent. They didn’t play a fair game and not only lost the game for themselves but also left millions of people helpless and in uncertainty of what future has for them. This is not something which took place as a catastrophe but was a chronological decay in the investment banking tree which at the end made it bow and touch the ground. Surely this puts an end to era of investment banking.


2. Impact and aftermath of this event surely going to hit many global economies and will also expose them under great risk of similar catastrophes; especially to the economies which rely heavily on the investment done by US in them. We are also one of such economy as we have a considerable amount of money coming from FII (Foreign Institutional Investor) largely from US market. Still the risk exposure in all the countries are far less than what US investment banking had put US economy under. For short to long run, every economy will run under pressure and margins will be very thin but with their government’s intervening into the matter they should be able to get away with hard lessons learnt from this.


3. India and Asian markets are the least likely to be hit by this global turnaround, India especially thanks to the strict RBI and government policies for which one must thank Dr. Manmohan Singh and Late Prime minister Narasimha Rao who redefined India and opened gates for the world for investing, these are the "Fathers of Indian Economic Reforms" best remembered for launching India's free market reforms that rescued almost bankrupt nation from economic collapse, The real “Chanakya” of modern India. The legacy has been carried forward by the forthcoming reserve bank governors namely Vimal Jalan, Y.V. Readdy. When this ultimate power was given to these gentlemen they not only made it count but also were responsible enough to safeguard public investment. In India no foreign company is allowed to do business on their own, they need to collaborate with one of Indian firm and do their operations. The loss/profit sharing guidelines are clearly mentioned to ensure that any down side in their global operations should impact least to the interest of Indian investment. High risk exposure is only at stock market where the gates were opened little too far for FII hence we see volatility in our stock market at each global turmoil, barring this the fundamental of other financial institutes in India are very strong. The underlying assets are very less exposed to risk and also the liquidity is very high for all the financial institutes thanks to RBI and their commitment to make India a safer economy. But if I say that India is not going to see the impact then it will be an understatement. Highly impacted area would be service sectors. The biggest gaining sector from foreign is IT and outsourcing which is going to feel the heat starting from now till about a year or so. The worst hit area is realty since they rely heavily on these investment banks to avail funding for their projects. This means more delay in their project, also this slowdown can cause them to close some projects in order to save them getting the same fate investment banking had. For sometime India would feel the heat but surely not for too long.


4. Invested in stock market then I need not to tell that investment is on toss until you are ready to hold for a year or so when we can expect things to settle down globally. I don’t see any other sector is exposed so much to the global cues that could cause meltdown in them. Right now best investment should be in FMP (Fixed Mutual Fund), FD (Fixed Deposit) and any government bonds. One might also think of buying a property as the rates surely going to come down in this sector. Those who can mitigate risks can surely look to invest in stock market; one can expected 20-40% returns in one year from the equity market but again this investment is subjected to market risks which need to be calculated properly before investing in equities.

Disclosure: Neither do I work for any financial institute nor I hold any degree on global market assessment, I am just a watchdog for the global market & trends.
It’s my interest to keep track of such events and learn more and deeper about them. What ever I have mentioned above is constituted mostly from my own understanding.

The Myth of Stock Market

When was the last time you had put your money in the stock market this year?

If it was starting of this year in January then you must be cursing yourself for it, no prizes to guess Stock Market must be the prime accuse in ruining your portfolio. Indeed the slide we have witnessed in last six month is rare occurrence and when this slide is going to stop one can’t really tell. This makes life more uncomfortable living on the edge and in the clouds of uncertainty.

In last three year the stock market has witnessed phenomenal growth in both directions. Currently when the political dilemma in country is inducing fire to the uncertainty of it’s outcome, the oil price is reaching all time high touching 150 $/Barrel adding more insult to the injury. In given scenario is it fair to blame the stock market alone for losing money? Don’t the politicians who are fighting over their own interest on the N-deal should be blamed more?

Stock market is a dummy entity, it can’t think on its own, so accusing stock market ruining your hard earned money is absolutely insane!
Stock market is driven by entities like global market, production, weather, political influences in country and globally, capital goods etc. If any of these are going under pressure the result will be clearly seen on the stock market. We can see that in current situation all of the driving entities are under pressure therefore the stock market as well.

Correction is a term that can define the behavior of stock market in better aspects. When ever the market reaches a record high or record low, corrections are bound to happen. One must understand that stock market works in equilibrium. Which means the input and output should always remains the same. Don’t forget when ever your stocks are making profit there are other stocks losing out, so one’s profit is always other’s losing. There is never a win-win condition in the stock market for all the investors, so the question is when the market touched 22K; no one complained on making profit but now when we are 10K below that level everyone is crying over the stock market which is unfair.


One must also understand that investing in stock market is a full time job. You can’t take it for granted that a share would appreciate for 200% or similar just by it’s initial moves. Constant watch over the stocks and global market is required. For an example, if the dollar value is depreciating then IT index (It stocks) is bound to come down since the IT companies gets most of their revenue from US and such depreciation is going to make their margin of profit to go down and hence the performance of the company as well in the outlook.

The myth about stock market is that money put in the equities gives better returns and keep the liquidity in your portfolio but at the same time one must understand not only that investing your money is always important but also seeking help from experts to see your portfolio grow is even important. Let’s face it that just by watching stock reports and reading news articles doesn’t make you a stock market bull. Stock market is not a bank where your money is put as a fixed deposit and that would give you constant returns periodically. It’s a volatile environment which turns towards the wind, if the wind (Driving entities) is going up it will rise otherwise it will fall. Investing in stock market is similar to giving exams everyday, everyday new changes in wind impacts the stock market thus you need to revise on your outlook and get the correct investment strategy to gain profits. For this you need help from those who do this specific job of taking care of your investment. Just like you rely totally on bank personnel to take care of all your money and belongings, you need to show the same assurance on the traders and the stock market.

An uncertain mind can only create chaos in panic situations and that is what happens when ever market shakes, as a saying tells when the ship sinks the first to leave the ship are the mice. Don’t be a mouse; if you want to invest in stock market be bullish.



My Personal Opinion on where markets will go from here

Every time when market crashes like this, it looks for a bottom; this is called the technical bottom in terms of the figures on sensex. This time I feel that the technical bottom is 12,350- 12,380. If market cracks below this then the level could reach as below as 9000, given the uncertainty in the global market hold on oil and political scenario. Those who want to invest should hold for a long term (At least for a year or so) to see profits. The fact is: In the year 2008 India is the worst hit emerging market of the world, every single factor globally is impacting Indian market and in such situation those who think that they need liquidity and profit for their money on short term should stay away from stock market for better. The long term outlook for any blue chip stock is fine (Especially IT sector and Banking sector along with Communication), I see slowdown for the reality and capital goods sector in future. Indian economy is slowing for sure but the rate of growth would not decline drastically and we shall see a better tomorrow in terms of growth in the entire sectors. One can’t underestimate that Indian economy is the most lucrative economy for the globe at this point of time. The stock market turbulence is basically due to FII (Foreign Institutional Investors) pulling off their share from the market due to oil prices along with the US economy slow down.

It has been a trend in the US while the presidential election, there is always a slow down in the economy which should come to speed once the democrats take charge of the country. If one checks the figures of such slowdowns then you could make out that global slowdown were 1988, 1998 and now 2008 which are the presidential election in US.

As a disclaimer I would say that may be my analysis is partially or completely incorrect but the fact is India has become one of the most important market and economy for world and any slowdown in Indian economy would lead the other world to slowdown as well.

This reminds me one of my favorite books “Atlus Shrugged” authored by Ayn Rand.

“It stats that the world cycle is run through handful leaders, if these leaders go on strike the world cycle will be stopped (Symbolically called as “Atlus Shrugged”). The world cycle here is the world economy and India is now one of the leaders in world economy, if we go out on strike the world cycle will stop!