Thursday, February 2, 2012

EOD Analysis For 2nd February 2012 and Outlook For 3rd February 2012

Good start for the day and barring a couple of straightline cuts [on the intra-day line graph], Nifty was positive for most of the day. Metals continuing their winning streak and bell weather stocks still making hay. Volumes were pretty much unchanged from yesterday with OI in Nifty futures hovering around the 26 million mark. VIX moved up to 24 levels today which should put bulls on alert now as IMHO, this is an indication of some broader market selling pressure and this rally is getting a bit tired now.

Unless we see a strong correction in Banknifty and more so in bell weather stocks [they have rallied far more than Nifty or Banknifty by a factor of almost 2 to 3 times from the recent lows] no major fall can take place. Falls and corrections will be healthy now. All major indicators showing the system is overbought but still no sign of cooling off - not a good sign for the medium/longer term

Critical levels and outlook remain unchanged from yesterday. Today was the 3rd consecutive close above the 5177-5196 band.

Unless we see a close below 4880, the hopes of plugging the gap-ups won't be revived
Unless we see a close below 4690, there will be NO PANIC in the system

Other Updates [For Academic Interest Only]:

The Great Fall on Baltic Dry Freight Index

I had a couple of queries yesterday as to what does the steep fall in the Baltic Dry Freight Index [fell to a 25 year low yesterday] mean for basic commodities now? How much of a correlation do we have for capital markets?

My 2 cents on that is simple - the commodity prices will continue to depend on Comex futures [artificial values via speculation] values and one should not read too much into the BDFI fall; the steep cuts are a result of excess capacity in the system with lesser cargo demand/supply [physical cargo movement]. Freight rates will continue to be depressed unless there is a good demand supply balance.

For traders / corporations that have shipping freight rates as a cost factor, this is a positive development as their freight costs will greatly decrease [already down over 15% and another 15% -20% reduction anticipated for next 12-18 months].

For small and medium sized corporations that need containerized shipping, the breakeven point to switch from LCL [Less Than Container Load] to FCL [Full Container Load] has shifted downwards from 9 CBM -11 CBM [Cubic Metres] to about 6-8 CBM now [just a rounded back of the envelope estimate for Asia-Europe and Asia-North America sectors]

Containerized shipping corporations should ideally look into this aspect and create business relationships to tap this large customer segment dominated by middlemen rather than try to play with the speed of the ships, delay transit times etc. The greater the utilization of fleet, the better for all in the industry. Keeping ships idle or slowing ships down is no solution to the grave problem at hand. No major turnaround can be expected for the next 18 months or so as far as the shipping industry is concerned.

FDI in Retail

Politicians undoubtedly are misleading the people. Given the demographics of Indian populace and real estate costs, FDI in retail is certainly not going to replace the millions of kiraana stores - if anything, the development of retail segment will augur marginally higher benefits for farmers, improve operational efficiencies in the value chain and reduce wastage of agricultural produce of India [currently estimated at about 30%] Test runs of alternate channeling have already been done by ITC [via e-Choupal - most successful for soya in Madhya Pradesh] and even FMCG segment via Project Shakti Amma in Tamil Nadu.

E-Choupal did agonize the middlemen involved in the trade but enhanced earnings of soya farmers by almost 20% and yet gave a reduction in input costs for ITC! [and it goes without saying that the additional revenue in the farmers' wallets opens up markets further for ITC - a complete Win-Win proposition]

[Both the case studies for e-Choupal of ITC and Project Shakti Amma can be easily found and downloaded on the ECCH website - I am just relaying information as usual that I came across]

As early as 2001-2002, Spencers Retail forayed with Giant Hypermarket in Hyderabad and a couple of years ago, Metro Cash and Carry was successful in Bangalore - one interesting outcome was that a lot of kirana store owners preferred to make their purchases from these hypermarkets as their costs would be lower than the cost of ordering from the Carrying Agent.

So the political opposition is mere nonsense as usual but majority of people do not see the big picture [unfortunately]

1 comment:

reachnagraj / theknight16 said...

Lo and behold - just saw through Raghuji's blog that EWI has also published a report on correlations [non-existent] between BDFI and Capital Markets!!!

The Article is Titled 'The Most Bearish Chart - Is It?'