Market Matrix – Fall of US market by 36 pc and UK market by 39 pc over the year

Friends,

In the aftermath of the second week of bad performance by all world markets, there is loss of thinking power to some extent for the logic is being defied by the fear psychosis in the thinking space of mind. Let us recount some of the facts of the day.

The UP govt has declared SAP (state advised price) for sugar cane for this season as 140 rupees/qtl (up Rs 15). This should be digestible rate for the mills because the sugar rates this season are pretty high and would remain so because the sugarcane production this year is going to be only 120 m/t against 160 m/t in previous year. The unorganised sector is already offering price of cane purchase nearly at the level of SAP or more. There are 132 sugar mills in UP which were operational last year. There will be fierce fighting amongst some of the leading ones to have greater share of cane-crop although there are some rules specifying the area for each mill. The industry would be back in black, and there is no doubt. You should buy your sugar scrip before its too late (please refer to my earlier posts).

Those involved in the accident seem to be hurt less than the bystanders otherwise how would one justify fall of US market by 36 pc and UK market by 39 pc over the year while Japan losing 48 pc and emerging Asian markets losing close to 55 pc. The reverse is going to happen, today or tomorrow. Asian stock will out perform the other markets. I told you earlier and say it again with supporting numbers.

Asian markets performed poorly (26 pc) over the last week while the UK and US markets went up by 3 pc and 4 pc. Shouldn’t therefore markets in India be better this week after losing more than 50 pc from peak. The RBI will have a formal occasion to bring back cheap money policy because loss of jobs and lower economic activity are worse than some extra dose of inflation. As I have been telling time and again, it is utmost necessary to let unearned incomes go down in value but the earned income can not be given a worse treatment. The pensioners too can only share, in whatever proportion, when there is going to be production. The whole economic tension the world over is on account of this factor. Those who follow this site would recall that this analogy was put forth long back and is finding endorsement all this while.

Asian markets have been mixed this morning, may be India performs with some strong opinion favouring bulls.

The latest week did confirm that value buying is emerging as BSE Bankex went up by 4 pc and FMCG,Healthcare and Realty did not lose any further ground in the week gone by.

HariOm,
Krsna Khandelwal

BIRDINFO Stock Rx – A prescription for stock market

Market Matrix – Angle of value in shares quoting low

Friends,

There is some change in the scene today, at least for India. Nifty is trading at 3430 and Nifty futures command premium of 40 points. I am happy to have put forth the angle of value in shares quoting low. If overseas (European) advices show positive movement and the effect is carried forward to USA, there can, perhaps, be an equal and opposite action in market against what happened last last week. The gloom will further disappear with the results of companies that would be coming out in a flood in about a week.

There were some people making hey while the sun was under the cloud last week, I mean the acts of bear cartel at spreading rumours. ICICI Bank was targeted by some entities related with Motilal Oswal Group. It has been clarified that it was doing of some individuals but many a names are being spoilt in this way. In fact people lending ears to rumours should be blamed more for they put life in to rumour. The ICICI Bank has even gone to the extent of filing a police complaint.

It may be that there is overplaying of the tune of disaster and something is being orchestrated by some groups. It is for this reason that at the end of such big drops the further trading happens to be at higher levels even if the bearish times continue. In present case I perceive no weakness of the sort that is being made out for the Indian corporate sector. I would dread only the nose diving of the profitability continuing in to loss making over a year or two. If there is slight drop in earnings and no other technical threat to a company of the type that its technology is getting obsolete,its products are going out of fashion and use or there is rot in management, there should be not much worry.

This however is true when the prices are at low point already. When the stocks sell for fancy prices and at high PE discounting level I do not consider it wise to stay for a minute. Those who care to read my posts in Oct 07 and later would see it as statement of fact and not just a claim after the event.

HariOm,
Krsna Khandelwal

BIRDINFO Stock Rx – A prescription for stock market

Nifty over the years 2001 – 2008

Friends,

The Nifty opening and closing in the October month since 2001 one is as under:

Oct 01 Oct 31 Feb/Mar Peak

2001 910 971 ———-

2002 955 951 1193 (070302)

2003 1420 1555 1070 (240203)

2004 1775 1786 1920 (170204)

2005 2630 2370 2168 (080305)

2006 3569 3744 3418 (300306)

2007 5068 5900 4224 (070207)

2008 3950 ???? 5483 (050208)

You may have observed that in all the years it has closed higher in the end of October with exception of 2002 and 2005. This is an special year and the Nifty has been beat down due to some developments out side India. This year should to a exceptional year as and the nifty should be closing way up this year from current level which is it self lower by 400 points since the beginning of October.

Then there is a continuous phenomenon in all years since Oct month of 2001 till Feb/Mar 2008 which is that the peak in Feb/Mar of each year has been way up over October opening level of Nifty in the previous year. This is without an exception. This is the result of monetary conditions improving in the period since October till the Feb/Mar 08 period. Actually the inventory nursed by industry till the festive season beginning Oct gets diluted and the pressure in money market keeps reducing. As I told you this year is special and may be showing extra-ordinary jump by Feb/Mar. The down side over today’s level is quite minimal due to great loss in values in the past ten months, it has been unprecedented fall. Hope you will prepare yourself for the ‘grand finale’ in good time.

HariOm,
Krsna Khandelwal

BIRDINFO Stock Rx – A prescription for stock market

Market Matrix – Effort at cutting interest rates across globe

Friends,

There is a concerted effort at cutting interest rates across globe. China’s central bank has cut rate by 277 bpa and also has reduced the reserves requirement by 50 bps. US Fed cut rates by 50 bps to just 1.5 pc. BoE and ECB have also cut rates by 50 bps. FED has also cut discount rate by 50 bps to 1.75 pc. This concerted action is being seen after 2001. Since commodity prices have come down the inflation upside has got limited to that extent. FTSE and CAC have come in to green after the rate cut announcement. These are aimed at spurring economic activity which is feared to be slowing down. The RBI has not joined in and should have. Why not be with the world as the same thing is required here to albeit in lesser degree. FED’s rate cut was unanimous. Indian rupee appreciated by 75 paisa to 48/dollar, while the 10 year bond yield has slipped under 8 pc.

Indian market opened way low, went lower as much as Nifty saw more than 200 points loss at sub 3400 level but closed above 3500 points. The measures here and abroad are enough to see transfer of greater amount to Indian banks in the interest of safety by NRIs at least. The fund managers would start looking at India again in new light. I think as and when the RBI cuts SLR and CRR and repo rates, the foundation will have been laid for mother of all bull markets, of this I am sure. Today a cup of tea plus a ‘paan’ costs more than a share of some solid companies. Some other companies with larger bases and with sound businesses have share selling for less than cost of Lunch or Dinner for one or cost of commuting to office/club. Who would mind putting as paltry a sum as this for buying a part of company which has delivered all its life. There are people and people, some come forward at buy at peak of 6200 of Nifty and some shy away buying at 3400 Nifty. Who would say the majority does not consists of fools?

There is an announcement just now that PM has called meeting of cabinet to discuss stressful economic scenario. Let’s see what helpful measure he will announce at end of meeting. India on back of Indian resources and on back of its teaming millions is on march to gaining rightful place, turmoil in developed world is calling for a quick march ahead by India. We require an imaginative leadership and not just the narrow minded politicians like ‘M’ of WB but visionary like ‘M’ of Gujarat.

HariOm,
Krsna Khandelwal

BIRDINFO Stock Rx – A prescription for stock market

Market Matrix – Nifty closed nearly at 3600 level

Friends,

Last week has been one of the most action packed and still has passed without any historic single day fall in any of the markets around the world with an exception of DOW which lost maximum in a day for the past eight year period, if not all time.

Today markets in India have lost further ground, so much so that Nifty closed nearly at 3600 level. This level gives Nifty a PE discounting of just 15.43 and P/BV ratio just 3. These are best ever ratio in the past five years. The analysts used to be talking in term of not the current discounting but discounting at expected earnings for the year next when there was bullish time. I am basing my optimism solely on the asset values (revalued) which are now way up above what is represented by the present share prices in case of most companies barring the Pharma and FMCG. Pharma and FMCG have some intangible assets in terms of brands and patents. If these intangible assets are given values too, there would be the similar case in respect of these sector scrips too. So things are pretty much in favour even after the future being termed as not so rosy from the earnings angle. Besides, the additional capacities would be coming to production in case of commodity players and for the service sector the markets are expanding on a continuous basis.

There is a welcome and timely development that the RBI has announced reduction in CRR by 50 basis points and banks would be reaping rich rewards for the money released in their hands will be without cost and they would be able to lend all these funds at very favourable rates to industry starved of funds. The rupee has weakened further and is going to act as shield for the domestic industry on one hand and would get more rupees in hands of IT companies for the billing in dollars. Exporters will be advantaged too.

The quantum of money is not any lesser in the world of today but the crunch is being felt due to slowing speed of money. This situation has come about due to the mutual distrust of banks. When the money does not revolve fast, the transactions are settled quickly and remain pending. This unnerves those who are out in market for exchange of their assets for money. The situation get gloomier when the need to sell is for meeting some commitment. This is what is plaguing the western world and have rever berations here. This is, however, not an affliction without cure. The US govt has acted very rightly in thoughtfully deciding to exchange money with presently non marketable assets. The central banks are busy increasing liquidity and once the balance turns in favour, which it has to, the reverse will be happening in all markets.In our country however the beaurocrats are reluctant to be bold enough for the fear of getting flak for deviating from the laid down practices. You would remember that I had warned about the hawkish stance of Reddy when the RBI was tightening money supply. The problem today is invited one. The inflation had nucleus some where else not in money supply. I was due to demand for oil and commodities from the growing economies of India and hence was due to a natural readjustment in relative pricing of all things trade able.

The SEBI has now thrown open the doors for the PN route entry for FIIs. The developments which will see markets stabilise are taking shape but the intervening period is frightening due to some rumour mongering and due design of some as always happens. If you take trouble to see the posts in Oct 2007 and Oct 2006, you will appreciate that how early in the day I gave warning signals,explaining things over and over again. I am doing it now also.

For India, exclusively, the cheaper oil would be a great help. The oil bonds released will be imparting liquidity in system.

So, there are a host of welcome developments, only thing is they have to have effect which usually happens with some time leg.

The puts have been offered in market at lower premiums and the calls command higher premium, on interpretation it would seem down the line the there is some hope. The results will further give direction.

HariOm,
Krsna Khandelwal

BIRDINFO Stock Rx – A prescription for stock market