Archive for the 'Nifty' Category

Market Matrix – Right level for Nifty is somewhere between 4100 and 4500

October 28, 2008

Friends,

Wish you all a very very happy Diwali and growth of what you invest in today’s ‘Moorat Hours’ at bourses.

The world’s indices are trying to regain a new respective real parity in terms of strengths they have with foreseeable future in sight, all in the aftermath of, US created and largely confined to US, financial crisis (partnered by those smaller economies of the west which sought expansion in overly internationalised economy of US). The rest of the world is also facing problems but more account of the loss of benefit that they were drawing form US markets and less on account of financial break-down. They are having to sigh more just in sympathy as they do not want to be seen drawing comfort out of the US and western losses. While their comfort is related to that only and is an ugly fact. The crude is an essential item to ensure continued growth of emerging market economies particularly India and China. These countries have all other advantages but less of oil. The most important advantage is large local market (more perfectly developed in India than in China). The requirement of a big unified market brought the European nations together who in fact don’t see eye to eye, in the most matters.

If deeply analyse, it turns out that in the near future times the China which integrated its economy with US in a large measure, will face some grave crisis. It may be that nothing comes out in terms of doctored statistics but the Shanghai Index is telling it all. The DOW is confused and goes up and down in an directionless manner as if there are some things known to few but unknown to the most. Those who are in the know may have to correct their view and those who would come to know may have to take fresh view of things. Did it not happen that the facts have taken a whole 12 months and more to come out and get assessed. What would have been discounted much earlier is still bothering and that is the reason I think the whole bundle of facts is yet to unfold. Either way, the US will have to face times of lesser advantage and will have to put up with lesser share of consumption of worlds riches. The high value of dollar is making China richer due to high dollar reserves with it but its edge will be lost, the US will import less and try and develop its real economy with lesser stress on financial industry which is pass-time of rich only. India on the other hand is seeing the turmoil in market because it is more integrated there but none of the severe ill effect any where is felt. The crude price drop is a real shot in arm. The recession will be taken care of by increased govt spending. Our PM confirmed it on Chinese soil saying that what we have done by way of govt spending without revenue is OK by Keynesian remedy in such times. Very much so but his team should make the markets go way up otherwise how else the seed (risk capital) will be raised for the fresh projects.

I have recounted only recently the strengths India carries viz a viz other economies of the world, I would skip it here.

There is a spate of good news, if only good news would start having positive effect. I recounted the possibilities about Nifty and related matters. The SEBI has, in fact in a surprise move, allowed the promoters to keep acquiring in open market up to five percent equity in one year till it reaches the 75 pc ceiling. This will not even trigger a public offer requirement. A reasonable announcement in good time. SEBI is initiating a probe into markets’ odd behaviour on 24th and 27th Oct. Power Minister said that global slump would not affect capacity creation of around 90000 MW by end of eleventh plan. A lay out of Rs 10 lac crs will be required and debt /equity ratio will be 70:30.

Porsche has bought nearly all free-stocks of VW and the stock vaulted up by 98 pc. Honda has upped production of fuel efficient cars. Electrolux AB has beaten estimated profit figures. FED chief may push overnight rate to zero (when borrowers have trouble and the lenders have danger of loosing capital, what better alternative can be found than making interest zero). US house prices are lower by twenty pc from peak and foreclosures are growing. This is not a very bad thing to happen unless accompanied by some other oblique arrangements between the involved entities. In any case the end to trouble shouldn’t be far. There are signs of thawing out in banking sphere. The rates paid by banks for borrowing are only half of what the most intense moments of panic saw them offer. The rescue package has been put to practice, banks have had money flowing it to US.

Those who follow this site would recall me having said in Oct 07 that the then Nifty level was wrong at 5500 and should have been at 4100, earlier when it was 1000 in 2002 I had estimated its value at 1700. In the same way I have reason to say that the right level for Nifty is somewhere between 4100 and 4500.

I commit myself rather too early but how can you not speak what you see or perceive. Also if you are not from the first ones to give a glimpse in to future, what are you of worth!

The learned should excuse me but my readers are of all ages and of all backgrounds. I have to some times repeat the points, say it in a different manner. Yet more is thrown into my writings because I want to give a piece of old history and record new history.

HariOm,
Krsna Khandelwal

BIRDINFO Stock Rx – A prescription for stock market

Market Theory – Interesting facts about Nifty

October 26, 2008

Friends,

Please note the following interesting facts about Nifty (since Jan 1999) without yourself going in to turning huge data yourself:

-Nifty PE was lowest at 10.86 on 09/05/03 and at the same time it had P/BV ratio of 2.02 and the Dividend Yield of 3.18%.

-Nifty had the highest PE of 28.29 on 08/01/08 while P/BV then stood at 6.55 (this is highest since Jan 1999) and D/Yld at 0.82 (this is lowest since Jan ‘99)

-Nifty had the lowest P/BV of 1.92 on 21/09/01 while its PE was 12.30 and D/Yld at 1.75 %.

-Nifty has 10.99 PE , 2.17 P/BV, and 2.18% D/Yld on 24/10/08 when it stood at 2582 points.

Now what may be observed in these figures, if the Nifty stays at present level:

-if the earnigs progress the PE will breach its lowest point and this is making new history.

-if the earnings remain the same, the P/BV ratio will keep improving making it move towards breaching the historical low of 1.92 P/BV, again adding new chapter to history.

-if the dividend pay-outs improve due to stoppage of expansion plans of companies in view of lower demand (ie recession), the D/Yld will improve to breach the historical high of 3.18%.

-if the companies post lower earnings the PE will go up but it has room for going up as the historical high has been 28.29 but the P/BV will still improve making it breach its lowest point 0f 1.92 which is again creating new historical point.

-if we consider the D/Yld in light of real rate of returns, it is positive while real rate of return on 10 year Govt paper would be negative (interest @ 7.5% minus rate of inflation of 11.04% ie minus 2.54%). This will be the post tax return against taxable interest returns.

-if the interest rates are reduced further, as is a possibility too, the difference in return shown above will be still more.

-if inflation remains the assets (other than cash and receivables minus debt) will keep improving besides the already existing revaluation surplus which does not reflect in figures of balance sheets.

-if the companies raise further capital at current prices, the P/BV ratio will still improve and the additional cash will either lower interest out go or will improve capacities. In both cases the PE will go further down.

-if the companies decide to use the cash generated for the buy back of shares the floating stock will diminish and will put upward pressure on prices.

-if these conditions continue the promoters can only increase their holding by open market purchase as the preferential allotment will not be liked due to high average price for last six months. This will also make the absorption of floating stock.

-if the low stock prices continue there may be attempts of hostile take over of weaker companies, even otherwise the weaker players may be bought out and their outstanding stocks extinguished.

-if the profitability gets diminished the cash-flows of the companies will have lower impact because the tax payment would first bear the impact.

-if the markets do not improve there would be lesser number of IPOs and demand pressure on investible rupee will be lower which will find way in to secondary market.

-the ratio of holding by the retail investor is at a low point compared to last year, those who booked profits in the bull run will come back to acquire shares.

-those who missed bus in the last many years bull run will try their hand out this time.

-all asset prices are going down so there will be less aversion to equity investing at a safe point.

-no capital gain tax on long term holding will invite new investors who would not like to book profits mid way ie before one year holding period.

There are many more ponderables but above are enough for today’s food for thought.

It is not surprising therefore that the analysts are being asked for the list of stocks worth buying. The lay investors do not understand much but at least understand that when 80% of value has already gone, the rest twenty percent may not go entirely. This is sort of thumb rule for them.

HariOm,
Krsna Khandelwal

BIRDINFO Stock Rx – A prescription for stock market

Market Matrix – Nifty gained 112 points yesterday, the DOW lost good 230 points

October 22, 2008

Friends,

While Nifty gained 112 points yesterday, the DOW lost good 230 points. This morning is showing that all the Asian markets are weak. The point that has been in mind all the time while judging the markets here is whether the disconnect between the USA and Indian markets is finally there. I hope so. The July-Sept quarter results have been a mixed bag. This is due to the slow down had occurred much earlier and some industries were affected first than the rest. There is going to be coming out of slow down mode for some now and therefore in India’s case there would be balancing act in place, in no small measure on account of govt’s alertness and timely action. According to above logic and earlier strong points mentioned, there is no place but to becoming a share-holder yourself in India’s well managed companies,less profitable at the moment or not. Profitability is of little importance, the management quality is more important because if the management is not fair to minority share-holder why be a partner there. Haven’t you seen the more than expected melt down in case of companies under managements with poor image. The extra-ordinary movements may be due to their own ill designs also.

As I told you that the forces behind the attack on market to take it down below the reasonable level had to have some scheming at its back. The matter is out in the open. There has been lending of physical stocks by FIIs to some out side Indian space of regulation and which was pressed as sales in market. This activity is going to boomerang on the operators.

Let’s now enjoy the markets dance.

HariOm,
Krsna Khandelwal

BIRDINFO Stock Rx – A prescription for stock market

Market Matrix – There is some change in the scene today

October 13, 2008

Friends,

There is some change in the scene today, at least for India. The 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 years 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 the overplaying of the tune of disaster tune 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 continue 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.
This however is true when the prices are at low point already. When the stocks sell for fancy prices and 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

October 9, 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