Friday, 12 December 2008

Are we De-coupling?

The Days of looking towards the west for market cues in the morning are on the way out. we need to look inwards and evaluate our economic conditions to take investment decisions. the process of decoupling of our economies with the western world has started in right earnest. Once the bail-out of the auto majors happens and takes concrete shape, that will be the last nail in the coffin of the way in which the 20th century business was carried out. 21st century will be different, companies will be required to tighten their belts, give away their private jets and start traveling economy class, eat food not designs and so on and so forth.
This era is the point at which the world will formally move from the industrialised economy to the knowledge economy. Only India is in an unique position where all the three waves of civilization defined by Alvin Toffler co-exist at the same time. That is the order of the day. governments are going to be more involved in business and more businesses are going to be more involved in government along with the others. India needs to learn a few things from this, here government is in serious businesses like
Power - equipment, generation, transmission, distribution, Iron and Steel - mining, smelting and manufacturing, Insurance, Banking, Heavy Equipment, Oil Exploration, Petroleum Refining, Marketing, Petrochemicals, Fertilizers, Food Processing, Heavy Engineering, etc..
The same may happen to the US in the next three decades.
The point I was trying to make is that "Government" has found that it also needs to be in "Business" if it has to Govern! (which has been the case in India for the last five decades).
So we come back to the cycle of Nationalization-Liberalization-Privatization-Globalization cycle which keeps on repeating over the decades.
Now the Government of India needs to stop and take a re-look and not get into the cycle. Just like all the three waves that co-exist in India, The economy also needs to strike a balance between public and private ownership to keep the economy going, without the hiccups a la US of A.

Thursday, 4 December 2008

Back to Business?

After the attacks and the aftermaths of the attacks. The Indian business community seems to be coming back to its usual business along with the regulators. The RBI is expected to cut rates further during the weekend. What are we bargaining for? Are we saying that as debt becomes cheaper growth will pick up? Inflation was reported to be 8.4% for the week ending November 22. with repo rate at 7.5% we have a negative real interest rate of 1.34%. If we continue to have negative real interest rates then the Rupee will keep on depreciating until either inflation comes below the repo rate or the repo rate goes above the inflation rate. Both seem impossible, looking at the thinking in the minds of the "Powers That Be".
A new thing brewing is the scheme of using $10 bn of forex reserves to finance infrastructure projects in India. Extracts of the scheme being thought of is as follows:
"Under the proposal now being finalized, RBI will use up to $10 bn from its reserves to buy bonds issued by foreign subsidiaries of the Indian Infrastructure Finance Corporation Ltd (IIFCL). The subsidiary will then bring this money into India and the parent company will use the rupee resources thus generated to lend to infrastructure projects. The scheme is being seen as serving several purposes apart from giving IIFCL more funds to lend to infrastructure. First, when IIFCL sells the dollars back to RBI, the central bank will end up adding to the supply of rupees in the system, thus easing liquidity. Second, dollars that would otherwise have gone back to the US to buy US treasury bills will remain in India, thereby adding to the supply of the greenback and help in counteracting the depreciation of rupee. It is proposed that IIFCL will use this money to lend to banks at 9%. Banks will on-lend it to companies executing infrastructure projects at around 11%. However, in this case banks want government to ensure viability of such projects since a two percentage point spread would otherwise not make commercial sense for them. Apart from this, RBI will be asked to extend a line of credit of Rs 10,000 cr to the Small Industries Development Board of India (SIDBI) to lend to small scale units at 8%. RBI will lend these funds at about 6% to SIDBI. A similar Rs 10,000 cr line of credit will also be opened by RBI for the National Housing Bank (NHB), which provides refinancing facilities to housing finance companies. NHB will be asked to lend to housing finance companies at rates of around 6-7% so that they can provide home loans to the ultimate consumers at around 9%. This, it is expected, will help revive the demand for housing that has gone down sharply in recent months. The proposal to allow NBFCs to access external commercial borrowings (ECBs) is also likely to come through. The government believes that some NBFCs have credit lines tied up with foreign lenders and could easily bring in money if they are allowed to do so."
This means that another Rs. 75000 cr being poured into the market. This money seems to be directed specifically at the target. This should spur growth specifically in private infrastructure and housing. Only thing we need now is spending on Government Infrastructure. We only hope that the government starts talking about investing on infrastructure.

Saturday, 29 November 2008

Terror Strikes Mumbai

India was a witness to the worst terror strikes. the audacity of the terrorists to attack civilian soft spots and battle for long hours was shocking. All this while terrorists were supposed to strike from behind and run away or die in the process. But, this was exceptional that the terrorists attacked and tried the patience of the forces for a good 60 hours. What lessons do we learn from this? That India can no longer be casual about the threats of terrorists. India is viewed as a soft state as far as terrorists are concerned, as any terrorist is branded a religious one and the Government dithers on taking action against these elements, afraid of the wrath of the religious bodies. Terrorists have no religion, no Nationality and no Humanity, they need not be shown any pity while dealing with them. just branding them as people belonging to some nationality, region, religion or group will not suffice, this will lead to a lackadaisical attitude towards them and give them more strength to strike again. Our country need laws which are stringent enough to deter criminal activities, and a legal system which acts fast to book criminals and dispense with the justice.
After a crime is committed and the suspect is arrested, many time it so happens that it takes six months to an year until the charges are framed, then comes the trial where lawyers take advantage of the loopholes of the detective system or the investigations and are able to save the criminals from sentence. There are umpteen instances where criminals have gone Scot-free because of the delayed (and therefore shoddy) investigations. Justice delayed is justice denied and therefore we have to take steps to speed up the process of justice.
Stock Markets: Markets rallied in spite of the terror strikes in Mumbai. There is a lot bad news happening around the world about more an more banks wanting bail out packages. Worlds largest automakers also want bail outs, The American dream wants a bail out package and industry leaders are asking for virtual nationalization of their industries in US. These are bad times, if you have bought when the markets bottomed in October then SELL NOW only to buy when the markets retrace the bottoms again.

Sunday, 23 November 2008

Policy reassurance

The events in the last week have been extraordinary. Our honourable finance minister called for reducing prices by industrialists. The honourable Prime Minister of India and the Chairman of the UPA addresses the Hindustan Times Leadership summit and used this opportunity to instill confidence in the nation about the economy. The Prime Minister particularly said "Government is aware of the enormous task ahead and will take necessary steps to mitigate the effect of the global financial crisis", If that does not instill confidence in the public mind then what can? Here we have an acknowledged world leader, a leader of people and thoughts and a noted economist saying that his government is seized of the matter and is ready to do whatever it takes to tide over this situation in the country. We should all be proud and glad that we have the necessary resource to battle this situation in the form of mind and motivation to counter this crisis.
Now we move over to the G-20 declaration: All the leaders of G-20 countries pledged to counter this crisis and do whatever it takes to tackle the situation. One thing that comes as a cropper in this deliberation is the mandate to formulate accounting policies to value illiquid securities. How do you value a security as X amount when nobody is ready to pay that X amount to purchase the security. the fundamental basis of value or price is the agreement of two parties to exchange that asset at a price or value. So what is the value or price of the security that is ILLIQUID?

Monday, 17 November 2008

India ahead

Indian's rejoice! the world "leaders" have finally realised that the it is not G-5, oops G-6, oh no! G-7, Oh My God G-8, but the G-20 which will decide the fate of the world's economy. So, finally Indian's can rejoice on being included in the hallowed club of decision makers for the world.

Come 2010, India will be a show case of withering financial crises and the financial storms. Then we will witness the world giving India its due as the thought leader of the world.

It was India which invented the ZERO to teach the world to count beyond 9, It was India which helped the world adapt to the understanding that years should be counted in four digits and not in 2 digits (remember Y2K?). Now It will be India again which will show the world that the middle path or the mixed economy is the correct way of managing ones economy, that is the way to absorb the shocks.

My definition of mixed economy is a little different from that of the popular one!

Here we have an organised industry, American Style with 12000 listed companies on the stock exchanges, investment banks, commercial banks, mutual funds, and all the trappings of the so called developed world.

Then an unorganised industry of big and small businessmen who have never been part of the organised world. people who have bought plots, built homes and managed families oblivious to home loans, income taxes and PAN cards.

Another part of the economy is the co-operative one, we have borrowers co-operatives running finance operations, cane suppliers co-operatives running sugar factories, consumers running consumer co-operatives, farmers running Agriculture produce marketing co-operatives... i.e. generally all those who have no bargaining power ganging up and setting up down stream co-operatives to manage their own interests. This also meant that depositors or capital providers of finance co-operatives are at the mercy of the borrowers who are also the owners of the finance co-operatives, Sugar consumers and sugar factories at the mercy of sugar cane suppliers (raw material suppliers), etc.

Prima facie, doesn't it seem like we have segregated the problem areas and kept them at arms length distance from each other?

So, In India we not only have a mixed economy, but also a segregated economy and thus "bad" credit, "bad" customers, "bad" suppliers and "bad" consumers are segregated in the economy and do not have anything to do with the "organized" sector.

That's the Indian Economy, cheers!

Wednesday, 12 November 2008

Indian Industry comes of Age

The Global Dow ( publishes by Dow Jones is the newest index kid off the block. It is heartening to know that amongst the 150 companies across the world who have found a place on the list, India lists high on the list. There are 4 home grown companies in the list: Tata Steel, Bharti Airtel, Infosys and Reliance Industries. 15 companies have subsidiaries in India which are listed on the Indian Exchanges. 21 companies have joint ventures with Indian Companies, 46 companies have their wholly owned subsidiaries and rest (64) of the companies are not yet represented in India. That makes it 82 companies which have business interests in India. This is a perfect repudiation of India not being completely integrated with the world economy.
This is also an answer to those who talk of India not being on the radar of global companies. This also proves that more than 50% of global companies are eyeing the ever growing markets of India.
Apart from these companies, there are scores of foreign companies which have a presence in India, some of these interests have been built up in the last two decades of liberalization and Globalization. With these business interests and their lobbyists it is hard to break away from the global economy. But this association itself will guarantee the stability of democracy and the continuance of principles of economic management followed in the last two decades.

Monday, 10 November 2008

China Shows the way

Lord Maynard Keynes must be a very happy man today and must be celebrating in his grave. The Chinese Government has toed his line and announced a $586 billion revival package, most of it is the promise to build infrastructure. This was what was expected of Indian Government too. But our policy makers are busy playing in the money markets. They huddle together for days and come up with damp squibs of reduced interest rates, reduced CRR and SLR. The fiscal deficit be damned, this is the time to act and push for higher government spending in infrastructure, housing, irrigation, power, water and so on.
The government should take a cue from the Chinese government and start a resurgent India programme of stimulating investment. We cannot tamely sit back and murmur about slowing growth, we have to do something ourselves and cannot expect FDI to walk in into India. Unless government starts investing private investors will not bring money to the table. This is a blackjack game where the house has to deal first and put money on the table, unless the players are convinced about money available to be won they will not play. That sums up the need for creation of investment climate in the country.

Saturday, 8 November 2008

Information processing speed is the key!

One of the major shortcomings of economy management is the speed and method employed in data collection by various agencies of the government. Today, the IIP number for September were announced, which showed a growth of 5.1% in the core sectors in September!. my only objection is that with the turmoil in October and the pace of disintegration of financial markets and financial institutions, do these number carry any weight? don't we have a mechanism to find out ground realities on "Ground Zero" on a real time basis?
For example steel prices declined by 30% in the month of October (This information is from the market and not from a government source and we are on 8th of November) if this information is available to an individual like me in a remote town in India, why is it not available to Government data collectors?
Iron ore prices have crashed starting from September through October and it is common knowledge in mining areas that iron ore miners, transporters and traders are in dire straits, does this information reach the government or it will reach when one of the transporters, traders commits suicide or one big timer goes bankrupt?
Tata Motors and Ashok Leyland have cut production of commercial vehicles as thousands of HCVs are lined up in the second hand market. A result of ore transporters losing business completely. Does this reflect in the statistics of the Government now or will it reflect only in December 2008 or January 2009. Would it be any useful to the policy makers or the public to know this after most of the single truck owners have defaulted on their loan payments and their trucks confiscated?
There is an immediate need to tone up the information gathering process and make it real time. In this era of IT and e-governance this is the least our government can do, more so, when we proclaim to be the World leaders in Information Technology.

Tuesday, 4 November 2008

Wrong Prescription Again

Injecting liquidity is a very short term measure for the markets and the economy. The patient wants vitamins, proteins and carbohydrates so that he can get up and start walking again. I am talking about the Indian Economy. But, our doctor has given him a pain killer and a bottle of glucose. I met a friend here, who said this liquidity injection is like a ritual we have in our homes during January (Sankranti) : we pour sweets, chocolates, puffed rice, sugar cane pieces and coins on the small kids in the house. We call the neighbouring kids who will sit around the kid and collect all the sweets, etc. and then go away. The same thing is going to happen here, injected liquidity will find its way to the stock markets and other markets to buy puffed up stocks which will be downloaded by the FII's.

Expect the markets to come down after the initial euphoria of the liquidity injection and the US Presidential Election. This bearish phase in the Indian stock markets will last till the middle of next year (of course, I am repeating this line again!). So, if you have bought when I wrote BUY you could offload the stocks now and make a neat 10% gain. the Regulators, Government, Politicians and FIIs will give enough opportunities to re-enter the markets at better prices.

Friday, 31 October 2008

Dollar Shortage? and Mergers

A shortage of Dollars in India is a comical thing happening around here. The government in US is busy printing dollar bills and handing them out to all and sundry who have CDOs and other dirty liabilities (oops! Assets). I would advise people wanting the dollars to stand back, wait and watch. you'll find dollars strewn allover your backyard in the next nine months. Another tsunami of credit card defaults is on the way in US, which will require more doles from the US Govt and will help large banks gobble up more smaller banks.

When these large banks gobble up smaller banks they are getting a large customer base, acquiring which would have cost them a bomb. Many times this comes gratis and that's the great thing about crisis and acquisitions during crisis. (Remember Bear Sterns was bought over for a song, lock stock, barrel and clients included!)

The Indian markets will rally another 5 - 10% in the next week and then we should expect another bout of selling from FIIs and a correction.

Look forward to a hard take on the state of Indian markets in the next post.
Till then, have a nice weekend.

Wednesday, 22 October 2008

Where is the Bottom for the markets?

I have been flooded with calls on "where is the bottom for the markets?" frankly I believe the bottom should be anywhere between 2600 to 2800 for the nifty. If that means another 10% fall, so be it. But can you really catch the proverbial knife? It is better to start picking and choosing your investments from now onwards. a cursory look at the indices and a comparison of the prices of the stocks with their 14th June 2006 levels reveals a very interesting story. Only the reliance family, Infrastructure stocks are higher than those levels rest all are beaten down to lower levels. If this is not the opportunity to buy then when is it time to buy?
On Indices I would like to remind about the famous Samuelson "Indices are prepared by a committee which looks for the popular stocks and unpopular ones are eased out of the calculations, making the indices go up when the constituents are going down." So, whats the moral of the story? Start buying ETFs on the nifty (NIFTYBEES) and accumulate slowly. That will mirror the growth in the indices in the next bull run. All of us have a chance to participate in the next bull run as this bearish phase will be painful and long drawn up to the end of June 2009 when the new government takes over in India. Regardless of the colour of the government, the freshness of the incumbent will lead to better and clearer thinking on the policy front and may be, we will find the same policies continued forward as new initiatives. Nevertheless they will be from a new face in the Government and therefore will have a good feel about them.
So, start accumulating stocks for the next nine months and be ready to participate in the next bull run.

Saturday, 18 October 2008

The oracle speaks once in a while

The Oracle speaks once in a while he does not have the identity crisis that I have to blog often, nor does he have to call for attention like me. The Oracle from Omaha said yesterday that one should be fearful when others are greedy and greedy when others are fearful in the financial markets. he also said "BUY AMERICAN I AM". what does this show? Dr. Mark Mobius said in the middle of September when the fed started the bail out drive that this is the end of the bearish phase as people have realised that there is a problem and the "doctors" are working on it.
What happens when you go to the doctor when you are ill? he treats you to make you feel better first and then treats you to actually make you better. Our doctors have tried hard to make us feel better but we have not been feeling better at all . they have also started the dose of medicine and have started treating the symptoms. We only hope that they start some homeopathic treatment which will go to the root of the problem and remove the ailment.
Indian markets seem to have gone back three years and there is a consensus building up about further losses. FII's have been pulling out of the markets in a big way. Retail investors are coming in with hordes of cheques for buying, but selective buying has emerged outside the ambit of the Indices. A look at the PE ratios tells us that the prices are compelling and the most industry PEs are around 10. that's the time to buy. Of course you can expect volatility of 15% but can anybody really catch the bottom therefore...
BUY BUY for Now.

Wednesday, 15 October 2008


CRR has been cut to 6.5% bringing in 40000 crores in the market. Banks have been asked to lend the money. Lets see where they could end up lending....
If you were running a bank...
Would you lend to the farmers for buying seeds, tractors, harvesting equipment, hauling equipment, etc. only to be told later that you can forget the loan and it will converted to a 10 year govt bond earning you a measly 7%?
Would you lend to a small scale industrial entrepreneur who does not know what are accounts and who would hide all his misdoings as stock/inventory in his balance sheet. would you finance his junk called inventory and wait till he defaults and then reschedule his loan so that it does not pop up as NPA on your books?
Would you lend to the sophisticated corporate who would indulge in speculation in real estate setting up useless malls in the remotest of places, where people do only window shopping?
Would you lend to Mutual funds who are facing redemption pressures and holding stocks which have come down 80% of their purchase price. Most of them junk as they were bought chasing unrealistic dreams?
Would you lend to salaried class who are already peeved at their finances and are in no need of more loans?
Would you raise credit card limits, lend for two wheelers, personal loans, etc and write away all the money?
What would you do with this liquidity?
Is liquidity the problem? Is Inflation the problem? Is complacency that "India has slowed its growth to 7.5%" a problem?
This Diwali seems to be more of a Diwala than Diwali.
By the way expect some relief from the markets tomorrow on the back of the CRR cut. But global cues will be bad as always and will act as dampeners.

Tuesday, 14 October 2008

Hold your money, its still not time to buy

Markets rallied today but the worst is not yet over. Tomorrow too the markets will rally on the back of good cues from the world markets. This does not in any way mean that the worst is over for the markets and we will see a one way street from tomorrow. This sucker rally will continue for two to three days until the liquid injected banks and financial institutions fritter away the money thrown at them in dabbling the stock markets. This is just patch work. The stronger solution lies in actually cutting out the bad debt and writing them off. the govt of USA will have to take over these bad loans and the so called home assets and then auction them off to the highest bidders. This would ease the crisis easily. Only the govt can do this as only they can create money.
A Student of mine has posed a question: He asks "why is the dollar appreciating when the US govt is busy printing and doling out "helicopter money"?". The answer is simple the supply of dollars is less than the demand for the dollars by those financial institutions who are selling hard in the emerging markets and taking the dollars home in search of great bargains in the ruins of the American Stock Exchanges. But the student has a point. This strengthening of the dollar is a temporary phenomenon. Wait till the chickens come to roost. The unprecedented money supply to create liquidity for worthless paper will boomerang into too much money supply and plunge the dollar to its correct PPP value. (One square meal in India costs $2 in a decent place in the countryside. How much does it cost in the US?)
As far as India is concerned we have a curious 12% inflation meaning a lot of money chasing few goods and the finance minister wanting to ease liquidity situation??? another paradox right? How can there be high inflation and low liquidity? My teachers taught me that high liquidity leads to inflation and to control inflation we either need to control liquidity or increase supply of goods.
So, in conclusion, wait till the wind blows over, This is a speculators world people only want to make a quick buck, nobody is interested in the long term well being of the country. US and India are in the election year the election has to get over, only the new govt will take medium term if not long term measures to stabilise the economy.

Wednesday, 8 October 2008

MELTDOWN? What does that mean?

The Indian markets are being beaten black and blue in the last two weeks and the government is constantly at its wits end, coming up with knee-jerk reactions.
Some fresh thinking needs to be done. We need to fix the supply side of the economics and bring in some sanity in thinking about the economy.
Indian economy will not experience the shocks to the extent that other economies are vulnerable as we are an inward looking economy and India is where the growth is for the moment.
The Nifty should bounce back from the 3350 levels and if something unfortunate happens then it will bounce back from 2800 levels (i.e. 9500 levels on the sensex).
The markets this time will bounce back because of retail buying emerging at these levels. The best bets will be again Infrastructure (we still need to build a whole lot of infrastructure), Cement, metals and energy.

Tuesday, 7 October 2008

Some prescriptions

A reduction in CRR and lifting of ODIs on participatory notes in by SEBI show the bankruptcy of ideas in the present government and its policy making bodies.

Dear Sirs, please consider these suggestions, may be you need these simple ideas.
1. Anounce an ambitious program of Government Investment at least while leaving office. After haveing squandered nearly 1 lakh 50 thousand crores on farm loan waiver, sixth pay commission, raising individual tax slabs, etc. You owe it to the country to do something constructive too.
2. Speed up the process of approving SEZs and pester promoters to hurry up on setting up these SEZs.
3. Please take interest to allot land for the NANO project. Here interest means applying mind and not extending HAND.
4. Speed up the process of UMPPs and allot them to sincere corporates who want to implement projects.
5. NHAI has been forgotten. Let them do their work of six laning the the golden quadrilateral and let them take a few more projects.
Reduce CRR further and persuade banks give loans to people who want to pay back and not to those who want a waiver.

Do this and I will come upwith some more prescriptions.

Thursday, 2 October 2008


This week saw the first spate of nationalization of the century. Loss making investment banks were "bailed out" by congressional votes. Do we now assume that this paves way for calibrated risk taking or unbridled risk taking? A glance at the history of financial business in particular shows that the cycle of nationalization, liberalization, privatization and globalization continues unabated. As Institutions take high risks and fail! nationalization raises its head. low level of risk taking and ultra conservatism leads to lower profits (but PROFITS) and prepares for liberalization and as the risk taking propensity of Institutions increases, this liberalization leads to privatization and globalization until the institutions fail after taking unbridled risks which paves way for nationalization again!! That in short is the cycle of economics.
This also props up a pertinent question. Does the state need to bail out private business and absorb losses? Does the state need to disinvest while making profits? The answers are obvious: The state cannot take risks but can underwrite all risks and the STATE is the INSURER OF LAST RESORT.

Monday, 29 September 2008

European banks are falling like nine pins

Our passion to securitize every asset has brought this doomsday on us. This rush of securitization made speculators out of home owners and they thought that apart from staying in their houses they could also play the real estate game and speculate on their own homes, see what all this has gotten us into!
what next? the central banks will bank roll these banks in trouble and take the assets on its own books. So, now if you foreclose then you will turn over your house to the government. The govt of US is going to own a lot of homes in the next six months apart from owning the stocks of your homes. I read a few comments on this phenomenon and I think, the people who have been talking about very bad days or dooms day are simply frightening / scaring investors away. That's like telling your kid brother not to eat the chocolate saying that is tastes bad and slyly eating one yourself.
If you believe in your country's progress and the progress of your fellowmen. If you think that business can be conducted and profits can be made then go ahead and buy stocks. Buy stocks of companies that have been around for 25 years or more and don't worry about their immediate problems. This too shall pass!

Saturday, 27 September 2008

Should Indian markets follow American markets?

That is the question we ask ourselves today. Has business become so interrelated that a meltdown in one country leads to the same in another country? Is the Indian economy so entangled in the American Economy that the Sensex and Nifty should react to whatever happens to the Financial institutions in US?
Aren't Indian Financial Institutions better off than the Americans as of now? India does not have a sub-prime problem! It does not talk of falling consumer spending. We have higher inflation - meaning more money chasing less goods. banks are wary of providing loans as usual and in the last five years the Indian banking system has been cleaning up its act by reducing non-performing assets and shoring up capital adequacy ratio. This should lead us to a stronger financial system and not a weaker one. Indian Sup-prime market is full of "Prime" cooperative sector. these loans are not scrutinised and therefore not tradeable. These loans will always be held till maturity or default, whichever occurs first. The cooperative sector has nothing to do with the corporate sector or the organised banking sector. So, there is no threat of the same thing happening in India.The range for nifty remains to be between 3800 and 4300. expect some positive news on the nuke deal and thus expect a decent opening on Monday.

Tuesday, 23 September 2008

The N-Deal will bring a whiff of fresh buying

The signing of the N-Deal will bring a fresh whiff of buying interest on the bourses in India. this may happen after the expiry of this months contracts. The markets are expected to trade in the range of 3900 and 4300 on the NIFTY for the time being. The N-Deal will break the range to take it up to 5000 levels. But euphoria will be shortlived and the markets will again catch the contagion of the western markets. Untill then buy GOLD and sell dollars.

Sunday, 21 September 2008

An Hi-FIVer tomorrow and an opportunity to exit stocks

If you were looking for an exit opportunity from the stocks that you bought last fortnight, tomorrow is the day. This euphoria will be short lived and the rally will end with a whimper. Remember Isac Newton? he said "October is the worst month for stocks. The other months are December, April, March, January, May, June, July, August, February, November and September." All bail out drama will last for a while and then once short selling is allowed we will be back to the old meandering ways of the market for a while, at least till the middle of the next calendar year. We can expect the performing markets/ companies to be separated from the "also ran with doles" my the middle of 2009. I foresee a long and treacherous bear phase for the markets.

AIG being taken over by the federal government means a lot to the industry. I have been getting calls about the future of AIG and my stock answer is that there is no bigger person on this planet than the President of US of A to own a business. In India we have a peculiar scene, TATA group the most trusted group has a joint venture with AIG (now the property of the federal government). IRDA in India has water tight investment rules and thus, there is no cause for concern for the insurance policy holders.

So, where do we invest in India now? of course the Infrastructure sector because that's where all the money is going. if you want to buy a stock and forget then buy reliance infrastructure limited keep it in your demat accounts and forget about it for a decade. It will finance all your dreams at the end of the decade.

Thursday, 18 September 2008


The plunge protection team of all the central bankers is on an overdrive trying to rummage through the debris created by the sub-prime and the derivatives market and salvage whatever can be salvaged. The choice of the salvage is in question. do we need to salvage stock prices of companies whose PE ratios are 50 and above in such a market? That's the moot question.
Central bankers want to provide liquidity to what CDOs? My question is why should these bonds have a market at all and who in their sane minds will buy them? Real estate prices have been jacked up by speculators and these prices have been considered as "values" and then securitized. Do we need to bail out such operations?
Another difficult thing to understand is the commodity ETF. Lets take an example GOLD ETF, what kind of people are buying these things? Aren't they speculators in gold? Are we going to encourage speculation in gold now that our help in speculation in real estate has come to a nought?
Again, if there is some lucky sane mind reading this blog, please sell dollars, dollar is a goner as of now. US stocks will be available for their fair prices and Indian stocks too. Remember the golden rule is to buy only those stocks whose PE is less than 10 don't touch high fliers they will not survive. Money is always made in unglamorous ways by working hard and soiling ones hands and not by speculating and putting values on others toils. Go back to basics, follow the oracle of Omaha and buy value, buy businesses that you understand and diligently add money to your wallet.
Expect a knee jerk reaction from the European zone over the weekend. All these central bankers are throwing good money (supposedly) after the bad.

Wednesday, 17 September 2008

Uncle Sam owns CDOs, and doles housing finance for a song

AIG gets a breather (sorry a lifeline), the government has taken over AIG and demonstrated that it will help all the CEOs who indulge in riskier financing that UNCLE SAM is there to look after you after all and take all the bad debts you generate in pursuit of your greed. By this week Uncle Sam owns fannie, freddie and AIG. Poor lehman got left out and had to fend for himself.

In India the Govt owns most of the banking machinery but has not gone to these levels of profligacy. It has been outsourced to the co-operative sector. In the co-operative sector it is "Hush-a Bush-a, we all fall down" going on for a long time and RBI has been tightening the noose rightly. I am proud and happy that i was born in India in these times and have an opportunity to look at the misgivings of the US govt from a safe distance. Anybody interested in a free tip? go short all your dollars it will pummel to the depths in the coming 12 months.

Another prediction, beware of ICICI bank it has all the makings of an Indian Lehman. They are already hiding a lot. They have stopped all their personal and home loan operations for the last four months now.
Look for good old PSU banks who are conservative and good in their book keeping. there are plenty of them and they will shine in the next two years. Beware of flashy private sector banks (barring AXIS which has its head on its shoulders as of now.)

so long

Monday, 15 September 2008

Lehman goes dow under

We witnessed a blood bath on the indian bourses today, dragging the sensex and the nifty by around 4% each. Lehman Brothers folded up and filed for bankruptcy, AIG is in deep trouble and Merrill Lynch was gobbled up by BoA. Commodities have also shown large movements, gold is up, crude is down and generally all commodities are looking down. This calls for some rethink on our strategies. I think we should hold our horses and not jump the gun. The NSE and BSE are very close to major support levels.
I remember reading somewhere about technical analysts and investment gurus talking about why they went wrong when they predicted doom. All of them blamed the plunge protection team, you can see the plunge protection team in full action right now trying to salvage the situation in the markets. so untill our friend ben brings the moolah in, happy investing

Thursday, 4 September 2008

IPOs of the week

This week saw two new listings resurgere and austral coke. Both are glaring examples of manipulation in the listing price and operating the stocks. I think SEBI should wake up and take note of this phenomenon and probe the going on's in these two listings.

JK laxmi cement seems to be a good buy for the long term it is trading lower than its book value and has been adding a lot of brand value. Remember OM Puri talking about "chain ki neend ki guarantee".

bye for now

Thursday, 28 August 2008

Inflation woes

The RBI came out with the inflation number based on the WPI index today and after a long time the inflation is lower than the expectations of market experts. This should ideally lead to RBI doing a rethink on its liquidity strangulation strategy, let's hope now that Dr. Reddy will prescribe a milder medicine and make money a little cheaper for lesser mortals to borrow and go about their business without worrying about working hard to pay the banker. A solution to the stand-off would be to stop tinkering with the liquidity and let the Government (through the Cabinet) manage the issue. Only public spending is the panacea for all the woes of the economy. If the Government does not get up from its slumber and pump prime the economy by spending money on economy and stop doles (lot of them, loan waivers, 6th Pay Commission, raising of tax slabs, etc.), then the economy is going to stumble further. We are not facing inflation because of excess liquidity but because of limited supply. I appeal to the powers that be, to be kind enough to unshackle the producers and instill confidence in them. If supply is taken care of (here I mean supply of goods not money) the economy will surely improve. That's it for now, more in the next post...