October and Stock market

True to its character, the month of October proved to be a damp squib for the stock market. The Indices moved nowhere for the whole month, finishing at the same level where it started. And it gave a scare of sorts to lot of Technical Analysts on the last day(29th October) when in broke their so called critical levels of 5950-5960 in Nifty and 19865 in Sensex intraday. But then with the regular index managers, it was propped up back to 6000 and 20000 - to sooth their nerves for weekly/monthly charts. While the indices have fallen just 5% from their recent tops, so many stock have fallen anywhere between 10% and 20%, as is always the case. The Huge volume in the F&O segment along with the recent volatility suggests that's market is likely to take a directional movement soon. IMO, there is more likelihood of being downside than upside. I am waiting for this correction for the last 3-4 months but that's is stock market for you. It will choose its own time to move where it wants to move. Lets be prepared for such move to pick good stocks and build our Portfolio for long term wealth creation. Best of Luck!!!!!

LONG TIME NO SEE!!!!

Hai friends, it has been long time since I wrote in my blog. The Indian stock market is going from strength to strength, atleast Indexwise, much again my expectation of a good correction from 5400-5500(Nifty) levels to 5000 levels. but many of my market friends say that they are not able to make money as most of the shares in their portfolio are not moving up. So it is only the FII money which is propelling the index to newer heights. Most of the problems in the western world are still far from being resolved with TIME being the only healer. But the outlook for India in particular, among emerging markets, is quite positive inspite of all its inherent problems. I am happy that the stocks I have been recommending are doing well, like Spicejet, INOX Leisure, Cairn India and IFCI to name a few. I am still convinced that there will be a sharp correction of 300-400 points in Nifty and 1000-1200 points in Sensex sometime soon but when and from which level is really difficult to predict. Lets wait and see!!!

SHORT TERM EXCITEMENT ON OMCs

Dear Friends,

It has been a long time since I posted an article in my blog. The sudden change in my job and return to India from Saudi Arabia and other committments at home kept me busy.
Like I have written in my last article dated 27th March, the Indices are going nowhere but 5-7% up and down for the past 9 months. Of course individual stock stories are playing out nicely either on corporate/sector developments or on manipulation.

Last week, the UPA Govt mustered all its courage to announce a full decontrol on petrol and a partial decontrol on diesel. Kerosene and LPG prices were hiked but they will continue to be under Govt control.And predictably,the famous media channels and their anchors/analysts gave too much hype about the same. on top of their euphoric voices, they mislead the Investors by saying that any reduction in Global oil prices will be beneficial to them. I fail to understand how???

Let us first analyse the issue clearly:

1. The decontrol is NOT total and Govt has retained the right to intervene anytime whenever it feels that the global oil prices have gone up TOO HIGH(which is highly subjective)

2. While the OMCs(OIL MARKETING COMPANIES) should reduce the selling prices when there is a fall in crude prices, they can not increase them beyond a level due to various factors like Govt intervention, inflation and others.

3. The increase in prices or the partial decontrol only changes the cash flow position of the OMCs and not the profitability. Previously the shortfall in prices were met by the Govt as OIL BONDS which these companies were showing as revenue. Now they are replaced by market prices. At the most, they will have some savings in their interest and administrative costs. Thats all.

So I dont understand, how these companies will be benefitted when there is a fall in global crude prices. Of course, any reform process will have a long term benefit of reducing the Budget deficit and so looked upon as positive by long term investors, be it FIIs or others. For the short term a 10-12% rise in the stock prices,more than reflect the positive sentiments, which has already happened in the last couple of days. So be causious of buying at these levels as the global markets are sinking.

I will post a detailed article on the global market situation during the weekend. Take care. Happy Investing

CONSOLIDATION WITH DOWNWARD BIAS

This current phenomenon in Indian Stock Market is very strange. Contrary to the general saying that " THE SUM OF PARTS IS EQUAL TO THE TOTAL(IN SOME CASES MORE THAN THE TOTAL)", the stock market as a whole appears to be going up but many sectors/
stocks are trading lower. Just a simple example. The Sensex on 30th September 2009 was at 16500 and the NIFTY around 5000.Today after 6 months, the SENSEX is just trading 6% more than that and the NIFTY also at 6% more. But so many sectors like Sugar,Brokerage,Real estate & Infra have fallen more than 10-20% during this 6 months. Only Banking,IT and Auto sectors are showing some upside.

With the global economies still under tremendous pressure on growth and huge deficits to tackle, it would not be anytime soon that the markets will see new heights. So play safe and holdback atlest 40% of your portfolio as cash to deploy in the second half of the year when SENSEX can come down to 15000 and NIFTY to 4500 levels.

Regarding specific stocks, I continue to recommend SPICEJET with a revised target of 90-100 in 12 months. My new recommendations are INOX Leisure and CAIRN India with an upside potential of 30-40% in the next 12-18 months.

GOD SAVE AMERICA! IT IS BERNANKE AGAIN!!!!

It is not a surprise that President Obama supported him for a second term because he does not have an alternative. Atleast for overseeing the mess he has created and the after effects it is going to create, Ben Bernanke should be in office. Otherwise he may easily be let off the hook when the real effects are felt after a couple of years.
The Unemployment rate is steady close to 10%, the commercial real estate still under huge pressure, the bank closures happening at a steady pace(140 for thefull year 2009 from the 115 when I last wrote in October2009)and 10 for January 2010, the end of the tunnel is still far away before lights can be seen.

The global stock markets had a jolt last 10 days to the unsustainable rally of the last 10 months. Very few market participants were prepared for this and naturally they are caught again on the wrong foot. Now they search for reasons for this fall and point fingers to China' curb on bank lending, cooling of commodity prices and selling by hot heeled FIIs. In my humble opinion, the only reason should be valuations. It will be foolish to expect shares to keep going up after a run of this magnitude in 8-9 months.

I feel, the Auto and Oil Marketing companies have completed their upmove and so provide good opportunities on the short side whenever they go up 10-15% from the current levels(close to their recent peaks). I am happy to note that my recommendation of SPICEJET at 37 in October 2009 has done well. Hold on to it and add more whenever it falls to 48-50 levels.

Happy investing.

STOCK MARKETS AND OCTOBER

So it is proved once again that the month of October is not good for Stock markets. Over the past 80 years, starting from 1929, the month of October is always a bad omen for stock markets world over barring few exceptions.Remember how bullish/positive most of the market participants were just 10 days ago and see how things have changed dramatically. While the uptrend or so called strength during the last 2 months was labored and with declining volumes, the fall is sharp and swift to say the least. Like the famous words in U.S nowadays(TOO BIG TO FAIL) we are now hearing lot of voices now which say - IT WAS EXPECTED AND/OR I SAID SO. But as far as I know only very few stayed away for buying at 5000-5100 levels(nifty)even after the INDEX doubled in less than 7 months saying that every correction is a buying opportunity and lot of money is waiting in the sidelines to support the market at lower levels.

On the macro side, the closure of small regional banks in U.S is happening faster than the H1N1 deaths as the number has gone upto 115 as of yesterday(30/10/2009)from less than 100 at the start of the month(as mentioned in my article dated 2/10/2009).


Federal regulators close 9 banks, mostly in West; marks 115 US bank failures this year

And as per the Federal Reserve's own statement another 330 banks are in the watchlist.

The telecom sector was the worst performer last month in India, with the market leader BHARTI AIRTEL losing 1/3rd of its market cap. Amongst many others, one of our knowledgeable market analyst Mr.Ramesh Damani, candidly recommended short in telecom and long in Airways as a contrarian bet sometime ago and he is spot on in his reading.KUDOS to RAMESH DAMANI!!!!!!!(He also mentioned as one of the reason for the industry's tough times is the new emerging concept"GOOGLE VOICE"). By the Way,I am not a technology man by any stretch of imagination.

With U.S market in lot of mess still and the printing notes and giving stimulus is not the solution, the crisis created by 40-50 years of borrowing and spending can not be corrected in 1-2 years. My reading is that it should take atleast 5years if not more and so we are in for long testing years before the new highs are made in any sustainable basis in emerging markets or elsewhere. So learn to be patient and tone down your expectations. Happy investing. BEST OF LUCK.

MY ONLY RECOMMENDATION: SPICEJET(BSE:500285) CMP 37.05 TARGET Rs.60-75 in 12-15months

RALLY IN ITS FINAL LAP

The problems in the U.S economy are not only continuing inspite of the liberal printing of currency notes by the Federal Reserve but are actually worsening day by day. Take a look the recent economic news and numbers:

1.UNEMPLOYMENT

This is threatening to touch double digits soon but President Obama continues to guarantee jobs to everybody everyday.

2.CLOSER OF U.S.BANKS - REGIONAL

Regulators have shut Warren Bank in Warren, Mich., and two small banks in Colorado and Minnesota, boosting the number of failed U.S. banks this year to 98 as loan defaults rise in the worst financial climate in decades, as losses have mounted on commercial real estate and other soured loans in the wake of the financial crisis and the recession that has gripped the economy. The failures have cost the fund that insures bank deposits about $25 billion, the FDIC said Tuesday.

The fund has been so sapped by the wave of collapsing banks that it now has fallen into the red. The FDIC now expects the cost of bank failures to grow to about $100 billion over the next four years -- up from an estimate of $70 billion made in the spring. Most of the $100 billion in costs are expected to come from failures this year and next.

3.SOCIAL SECURITY COSTS

As more elderly people who are losing jobs are not able to get another job, they are opting for the social security and medical benefits which is already putting a strain in that fund.

4.The major buyer of U.S.Bonds/treasury paper today is China which is now open in its view that it wants an alternative currency to U.S.Dollar and that it is looking at investments which are in real assets/value than in paper form.So, if China decides to stop funding the borrowings of U.S then imagine what will be the result. This situation is without taking into a/c the possibility of China selling U.S bonds/treasury papers?

The stock markets world over are in their own self,going up on easy money flow and discounting the positives only like signs of growth(or worst is over). These same theories are talked about even in December 2007 when U.S Fed cut interest rates from 5.25% to 0.50%. The money flow was there and also lot of MONEY WAS WAITING IN THE SIDELINES to buy at every fall. But we all know that the money in the sidelines never came to the market even after SENSEX came down from 21000 to 7700.

I am fairly convinced that this liquidity driven rally is in its final laps now and may soon end gasping for breadth as it has no final target to end the race but will have to end on its own only due to exhaustion.BEST OF LUCK