Tuesday, June 12, 2012

EOD Analysis For 12th June 2012 and Outlook For 13th June 2012

OI in Nifty futures still hovering around that 17-18 million mark;

Critical levels and Outlook remain unchanged for both Nifty and BankNifty

Adding the EOD images as on yesterday for both Nifty and BankNifty with comments below the chart

The SnP Joke on Bond Ratings [Purely for Academic Interest - Read at Leisure :D]

Well the SnP statement just again showed that either the rating agencies are too far behind the curve or think that people are downright stupid. For starters, one major premise [not stated in the media] is the Coupon Rate which is hovering between 6% and 8.5% in India depending on maturity dates. If one makes an apple to pear comparison with the treasuries of fiat currencies and the fact that higher yields implies higher risks etc etc [which is the genuine case with Europe today], then its downright bizarre.

One needs to see what resides under those bonds and as far as the banking system in India is concerned, the  RBI also charges interest on money lent on its coffers, albeit a bit lower as is the case always with central banks and hence what is really critical is the SPREAD. The spread i.e. the difference between the coupon paid by RBI and the interest it earns on money lent is what matters; the global standard is 25 bps to 100 bps again depending on various factors and hence we are at par technically with the western world. For a simple reason that they pay literally zero interest rates for deposits and charge much smaller interest rates for loans made [any surprise as to why home loans and car loans go sub-4% and sub 5% rates there whilst they go north of 9% and 12% in India???]

Moreover, if one sees what is lying underneath those so called treasuries in fiat currency countries, one will be shocked to see the amount of junk and garbage that resides there; the only reason why they are able to maintain their hegemony is the fact that their GDPs per capita are way higher [upto 25 times higher than emerging economies including India] and the fact that there are some fiat currencies that enjoy being safe havens, most prominent being the USD

That being said, are things hunky dory in India? No not at all and some of the points mentioned by SnP are very valid. The lack of political will to get things done in terms of policies, the current account deficits, dwindling forex reserves etc etc; all said and done, India is on a far more sound footing than the western world today. Whilst the GDP per capita is much lower, the cycle of production and consumption is going on extremely well and at competitive prices [barring Real Estate which is still over-heated and oil products due to high import taxes] The threats in policy lacuna and growth concerns are very real and it is true when one expert economist [can't remember his name now] mentioned 'Growth in India is happening not because of conducive government policies but INSPITE of INEFFICIENT Government policies'

Emerging markets are not really building castles in thin air to see valuations evaporate overnight; our banking systems are not excessively leveraged and banking regulations are tight enough [sometimes too tough but that's the order of the day considering such a large population and lack of awareness that exists, at large] As far as hot money is concerned, they have to honor a lot of margin calls [and one must remember that the status quo is heaven as far as Bond Markets are concerned; take interest-free capital from US/UK/JP/ECB treasuries and park them in risk-free 6% to 8% coupons in emerging markets; there are forces that want to reduce this and get bond markets to buy troubled assets in Europe - THIS IMHO is the big game.

It is high time we ignore the ratings agencies as their models are both outdated and flawed to a large extent - as far as investments are concerned, keep investing when good stocks are being sold [dividends and PE multiples must be taken into account] As far as trading is concerned, as we always keep saying, trade as per your comfort with trendlines, momentum, waves, SAR signals whatever.......................

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