Greece's NO

The  NO voters of Greece sure are very happy at the the result of the referendum voting held Sunday.. The result showed a clear victory for the present Govt. which has been favouring a NO vote which , on the face of it, authorises Greek Prime Minister Mr Tsipras to continue to take a hard stand on Greek's creditors. This in practical terms means not meeting it's debt obligations.

Is that going to be easy ?  Far from it. People on the other side also have their reasons to be hard.  After all, for how long  can others keep bailing out Greece. There are many other countries also which are likely candidates for debt default sooner or later. Will those countries be bailed out as and when situation comes. From where are the funds going to to come from. Is printing money going to be a panacea for all financial ills. And why should prosperous countries fund lesser ones and promote inefficiency.  What if the IMF or the ECB stop lending any further. Same goes for Germany and France what if the also stop lending.. These are few questions whose answers will be keenly awaited. Its no brainer what the fate of Greece will be. I can't imagine how Greeks are going to survive without any money. Cyprus has shown the world what scenarios play out in such situations.

It will be interesting to see how Greek leadership manages to keep the country afloat.

But there is more to it than just wriggling out financial deals.with creditors. The economic quagmire that Greece is in is just the tip of the iceberg. At he moment there are indications of a repeat of a global financial crisis. Right now world's second largest stock market, Chinese stock market has crashed by more than 20%. resulting in wiping out something like $3 trillion of paper wealth. Can the Worlds largest stock market i.e. US continue to go up.  But what is worrying is that efforts are being made to prop up the stock market. Which means it is not in a position to recover from the fall in the normal way. Crude also has corrected severely, Similar is the situation for commodities.  

On the domestic front, nothing much has changed for the better. Corporate earnings continue to remain  void of any impulse.as had been expected a year earlier. Further any adverse global event is bound to have its share of impact on our markets.

It is time to start cashing out of equities gradually.

More in my next

Happy investing

Basudev

                                             
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10000 point cheer for the good days

Indian market's benchmark index Nifty 50 reached another  milestone today. It reached 9000. Thirty share sensex is also close by trying to scale 30000. Around mid september 2013 the indices took a decisive turn in reposing faith in the markets with  Mr Narendra Modi as the Prime Minister. Prior to that there was a phase of de-growth  lasting about 4 years mainly due to inflation playing havoc and rising  interest rates.

From then the sensex has risen by 10000 points from 19600 around mid september 2013 till date.. In percentage terms that is 51% over a period of around 1 1/2 years. For a market which had been eroding investors wealth such improvement has helped shore up their finances and even allowed them to profit.

Where from here.

 By now and after the recent budget presentation, it is becoming clear that the present government is serious about walking the talk. Things are beginning  to take place on the ground. Govt has embraced digital technology . This will bring in much needed transparencey. It will help  introducing procedures to plug leakages, monitoring  results etc. Various auctions through e-tendering have already been seen and direct transfer of benefits  into bank accounts are already taking place.

Govt has given emphasis on industrial production particularly in defence sector and has invited the world to invest in India. For that it has given a call for improvement in "ease of doing buisiness" i.e. cutting on red tape and procedural delays. This can have a huge impact considering that India is a huge importer of defence equipment and any savings on import will be immensely beneficial to the counrty's finances as also generating employment..

Govt has made enhanced allocation for infra spend. Toilet for all will also see spending hitherto unknown.

On the taxation front reduction in corporate tax by 5% has been promised over a period.  Corpotates profitability will shore up which has been severely hurt during the past few years due to high interest costs. Personal income tax will also follow suit as it is expected that it will not remain higher that corporate tax. This will put extra money in peoples hands which in turn fuels consumption.

So far corporate earnings  have not justified the rise in the market. The rally has been fuelled by foreign inflows on the back of vastly improved sentiment and global liquidity. Corporate earnings  will have to do a catch up.

Getting Indian Companies on the world stage is going to be a tall order, what with high fund costs. No wonder inspite of  having a sound ability to manufacture, we import a great deal from China. Pharma industry is one example. We have good number of pharma companies which have been globally successful but have miserable dependence on China for many essential drugs. We will also have to work a great deal to formulate labour policy acceptable to foreign investors. Such invigorated labour policy will benefit Indian industrialists also.

A begining has been made at least. We will have to wait and see. Till then there is going to be a consolidation at this level untill there is a clearer picture of earnings pick up.

Global events, as usual, will be important. Flight of capital will be equally fast and merciless. Investors should therefore remain careful. Those who are not invested should wait for corrections to enter the markets as equities will be the best asset class in the coming years. They should therefore build a portfolio gradually Those who are invested should not be tempted and should review after another 150-200 poits on the Nifty.

Until my next, Happy investing

Basudev  .  

Time for good days

India has just concluded a historic election. It has broken away from the grip of the Nehru - Gandhi family, which has ruled India for nearly six decades after it became a free democratic country in 1947. Narendra Modi  of the Bharatiya Janata Party led the largest democracy in the world to a landslide victory attaining a majority on it's own, and  creating a record..

Though a comfortable win by Mr Modi was getting factored in, the extent of the win got many analysts by surprise. On counting day, as results started pouring in stock markets went into a tizzy. BSE Sensex opened with a gap, reached an intraday high of 25375 - a gain of 6% from previous day's close. Such stratospheric levels saw immediate profit booking and closed the day at 24120 - a lifetime time .    

Both domestic as well as international investors are highly bullish on India now as they view the new dispensation as pro growth and having the ability to deliver. Foreign investors have already pumped in large amount of money and are continuing. Looks like a long long bull market in on..

So what is to be done . As I mentioned in my earlier post, those who are invested should hold on . For those who want to enter can wait for some time . By such time contours of the new government formation will be clear and we will start getting a perspective on the govt's priorities. Technically also stocks are almost at overbought levels. Market may not correct much from here. At best it may be side wise for a while before it starts rising again. Those with a little bit of appetite for risk can start to buy slowly.

Buyers are giving IT and pharma stocks a pass at present as most expect the rupee to appreciate and hence lower the earnings of these sectors. But, like the stock market the currency market also has factored in a Modi govt. and hence any further appreciation will be limited. With a bull market in place  valuations of these sectors are bound to go up. Hence these are good contra buys at this juncture.. It is better to stay with leader like TCS and Infosys.

Disclosure: I intend buying these stocks.

Until my next then

Happy investing

Basudev

A new beginnng

Expectations from Indian economy at present are indeed very  high.  After a spell of  degrowth lasting for several years things are now looking set for a  change. Expectations are the  BJP led NDA will be able to muster enough majority to form a stable government at the centre without the push pull of parties which are not natural allies to the main party. It appears that all the parties within the NDA have got into a pre poll alliance. This is important  and is more workable than say an alliance solely to ensure formation of government by a minority party. Fashionable also are such arrangements  as "support from outside". "issue based support" etc. These serve an important purpose though, in that , it prevents a premature  election , saving a wasteful expenditure of the nation. For some expectations are even higher. They expect BJP alone to muster a simple majority.

Numbers are not the only factor which has built up the tempo. It is the belief  that  the  NDA  led by its prime ministerial candidate will deliver growth. Investment will pick up particularly in infrastrucure. Power sector will receive priority. Rural income will receive a boost which in turn will increase consumption. With agricultural  productivity increasing, the crippling food inflation will fall. This will ease the interest rate situation. India is already turning into an attractive investment destination. A great deal of foreign inflow has already taken place. Rupee will therefore appreciate and considering that India is import intensive, this will be beneficial. Policy action will be fast. Therefore if things pan out as believed  we may be in for a long bull market.

It is therefore time to make a new beginning.  Retail investors have been practically out of the market for several years due to unfavorable market conditions. Most midcap and small cap stocks which are the favorites of retail investors, have miserably underperformed.  Only the well managed. large companies have been  able to keep  their head above water. Broad based buying has not started as yet. Only selected heavyweights have seen large scale buying.  If the results on May 16 turns out to be positive then there may be an initial frenzy. Traders may latch on for short term gains. Investors need to keep their heads cool and wait for some correction to come. All the stocks mentioned in this blog earlier are still investment worthy.and can be bought after some correction..These stocks have already given handsome gains.

But if no party gets a clear majority there will be a vicious correction. One has to be prepared for that. That we will know on May16.

There is a caveat though. Global factors will as usual have an impact on Indian markets. And keep a tab on the weather.  But then stock investing is all about risks and returns. For those with an appetite for risk, it will be worthwhile.

For those who want to start right away, and want some action here is a stocks which have not appreciated much or corrected in the recent past. Downside risk is minimum and has the potential to appreciate.

Lupin : Indian Pharma companies, barring a few with management issues have done remarkably well even in adverse circumstances. Lupin's stock price has been in a secular uptrend for the past several years and in terms of business strength it is well entrenched in the industry. It has immediate support at around  955 level.and can be bought closer to this level. .
Disclosure : I have bought this stock.

Until my next then

Happy investing

Basudev
 



   

From hype to hope to reality

Indian Markets Friday rose by about  3% to close at an all time high. of 22994.for sensex and 6859 for the nifty. While markets have been inching up for the past 7/8  months on the expectation of a strong government at the centre, Fridays move indicates that its time to factor in a decisive government at the centre  post announcement of election results on May 16. For the past 3 years or so markets were depressed due to a host of factors,  which I had explained in my previous posts. Mainly, lingering inflation inspite  of  central bank's  rate tightening measures,  absence of growth push, a rapidly falling currency, vanishing investor confidence, government finance deficits etc. India's  consumption story continues and corporate India has performed well . And so it seems we may be at the bottom of the cycle and may be on the path to recovery.

If the NDA gets clear majority and forms  government at the centre  India could indeed be on the highway to growth. This is what the market perceives and will find reflection in stock prices which will then rise. However the results are on May 16 and exit poll outcomes will be out immediately after the final phase of the poll concludes on May 12. The intervening period might see high volatility.

Markets have already gone up substantially. Friday's rise can be attributed to short covering as bears start to square off their positions in anticipation of a bull run, which may well happen. But it will not be wise to enter the markets now. Those who are invested are already in profit and may hold on. For others it is advisable to wait for the election results and look out for opportunities to invest. Priorities of the new government will have to be seen. What will the new budget have in store etc. As usual I'll come up with stock ideas from time to time.

But of course there is a worry on the weather front . Though the monsoon forecast at 95% should not cause panic, there is a greater concern on the "El Nino " front.. Any untoward development anywhere globally will have an impact at most  places. Thing could get quite nasty in terms of losses to agriculture, disruptions etc. These are risks which come with investing for higher returns.

Until my next

Happy investing

Basudev

 

Dismal results of BHEL - pointer to bleak outlook for the economy

BHEL's results for Q1 14 turned out to be most disappointing . It reported substantially lower topline and bottomline numbers.Margins have also shrunk. Net sales/income from operations down 24% compared to same period previous year. Net Profit down 49% for the same periods. Corresponding to the preceding quarter the figures are more troublesome - 66% down on sales and a staggering 86% down on NP. But assuming that the first quarter numbers are normally not good and  fourth quarter last year was exceptionally good, that still doesn't give any hope.. BHEL's  full year EPS (earning per share) for the previous year was 27%. If  1st quarter  EPS of 1.9 in this year is anualised it gives a figure of roughly 8. Even if subsequent quarter earnings are on the higher side it is very unlikely that FY 12-13 earnings will be matched this year, leave aside registering a growth. If performance continues to remain subdued throughout the year i.e 13-14, FY 14-15 would appear to be clouded. Reflecting the sentiment share,  price of the company has taken a nose dive. Govt. has consequently shelved off the plans for stake sell in the company.

Most capital goods manufacturing companies have been experiencing a downturn for sometime. Performance of this sector is a good pointer to the economy and therefore an underperforming capital goods sector is no good news for the economy.  As it is, infrasector companies are already in doldrums. So is the  auto sector. Together these constitute the major drivers of growth. Brokerages and other reports are already mentioning a downsizing of growth forecasts. Many are of the opinion that Re weakness is here to stay for sometime.  It appears decelaration  seems to be picking up. And in such a scenario we may be staring into a 3.5-4% growth, which is close to our pet growth levels. Stock markets are therefore in a downward spiral.

Disclosure : Sold off entire holding in BHEL  Stock price is expected to reach 2 digits level. Will review buying for long term  when it does.

Till my next

Happy investing

Basudev    

Stimulus stays for the time being

Bernanke said last night that the US Central Bank will continue to pursue an accommodative monetary policy. Translated, it simply means bond purchases will continue so as to continue injecting  liquidity into the economy. As a consequence our markets opened with a gap and posted hefty gains for the day. Bernanke further made it clear that he is not impressd with the present unemployment rate of 7.6% and that he would much rather like to see it at 6.5% for any interest rate action. He said he is somewhat optimistic  But given his position, that's what he has to be. In my previous posts I wrote about the continuation of the stimulus and I stand comlpetely vindicated.on this.

At home our Governor said he is not sure when the Re - USD will  stabilise. Translated, it means the slide is expected to continue. Is the worst  nightrmare ahead of us ?. Further, he is concerned with the Current Account Deficit. Another dampener is our Finance Minister going to US to promote  FDI by US in India.. He has all the reason to do so because India's foreign exchange reserve is fast depleting.

In this situation I think nothing much should be read into today's  gains.. The breadth hasn't been particularly encouraging. At any rate, we are back in result season and as always focus has to be on performance.

Disclosure: I have sold part of my holding in Glenmark Pharma..

Until my next then

Happy investing

Basudev