tag:blogger.com,1999:blog-41905416397008402422024-03-05T16:07:45.110+05:30Nifty ParadoxA blog on Nifty, BankNifty on Indian Stock Markets and Forecastsreachnagraj / theknight16http://www.blogger.com/profile/08222136846834969462noreply@blogger.comBlogger372125tag:blogger.com,1999:blog-4190541639700840242.post-46348053337881012452018-03-24T11:49:00.001+05:302018-03-24T11:49:29.663+05:30Are We Heading To a 1929 Situation???<div dir="ltr" style="text-align: left;" trbidi="on">
Over the last few days, I have heard / read a lot of doomsday and apocalypse forecasts that we are about to witness the next 1929 like situation. The basis for this forecast is the current volatility in the market.<br />
<br />
As of now, there are no indications that we are going to enter a 1929 like situation. The odds are one in a million. Then the next question is are we going to witness a 2008 like situation. That is definitely possible though the odds are still one in a thousand.<br />
<br />
First of all, let us understand that the current corrective trend in stocks be it India, Europe or US, was expected. Stocks were highly overbought and a profit booking and corrective trend was but natural. This correction was overdue in November/December but took longer. History suggests that the longer the delay in correction, the harder is the impact. That is exactly what has happened as of now IMHO.<br />
<br />
The technical structure and quantitative analysis experts were keenly anticipating this fall. For Nifty and for DJIA, I expect stability around 9725 and 23200 levels respectively. All this is assuming status quo and no Black Swan events. Black Swan events cannot be priced in!<br />
<br />
Whilst all this is true, some of you may ask why a 2008 like situation is possible yet again. First and foremost, we must understand that the financial markets are largely driven by bonds. The bond market goes into several multiples of all stock markets and commodity markets put together. Be it 1929, 2000 or 2008, the troubles always began with the bond/fixed income markets.<br />
<br />
For the last 8 years, we have had unparalleled easy money policy with near zero interest rates and ample liquidity. This liquidity although was meant to revive the economy, all the large banks largely used this money to prop up the stock market rather than stabilize economies of common people.<br />
Bond prices and bond yields have a negative correlation i.e. when the interest rates are low, the bonds command a higher price and vice versa. This is where a ticking time bomb is running right now with the large banking corporations. The large banks paid higher prices for the near zero rate yield bonds and are now staring at large losses on their portfolio. Every basis point (100 basis points = 1%) increase in interest rate means millions of dollars worth of losses for bond portfolios of large banks.<br />
<br />
This has to be accounted for on a Mark To Market basis and reported to shareholders and competent authorities. The common man perhaps does not get access to this information. Nothing on this front has been reported anywhere as of now. Cumulative quantitative easing history estimates that at least 4 trillion dollars/euros/pounds were released to the banking system. Now imagine the loss that will cascade to the stock markets and common man if 25% of this amount is booked as losses on bond prices. Hence, I am very cautious in the current bull market conditions. Given the fundamental nature of the bonds, these bonds are still valuable. In case of Lehman Brothers and all the financial institutes that followed, the bonds were junk. The bonds were issued on the basis of imaginary future payments and a perpetual 15% increase in housing prices. This time, the case is different. We are looking at bonds issued by central banks; they are real. The bonds may definitely lose some value due to changes in the yield curve but that is fine. Given the rate hike forecast, the US securities (fixed income) will at best see a 30% markdown. This will trickle to the stock and commodity markets as well.<br />
<br />
The manifestation of these drops could be attributed to Trumponomics, Brexit or whatever - the point is that people are alert and aware of such a situation coming up.<br />
<br />
To summarize - there is NO FINANCIAL MELTDOWN in the near future.<br />
Possibility 1: The markets will go through the cyclical correction in the structural bull market. This is the phase we are going through right now. Till the Nifty holds 9725 and till DJIA holds 23000 (given or take a couple of %s) I will still maintain this view.<br />
<br />
My probabilistic estimate: 95%<br />
<br />
Possibility 2: The bond market jitters trickle into stock markets with the 25% to 30% markdowns. Then the stock market will about 40% to 50% corrections from the all time highs.<br />
<br />
My probabilistic estimate: 4%<br />
<br />
Possibility 3: We actually see bad turns out of things like Trumponomics, Brexit, Eurozone instability etc etc etc and a severe recession. 90% correction from all time highs<br />
<br />
<b><u><i>My probabilistic estimate 1% (2018 - 1929 = 89 : A Fibonacci Number!) Hence I am giving this a 1% change instead of a few basis points</i></u></b><br />
<br />
So the view is largely in favor of the bull case. Anything can happen in the market - so for the common man, it is important to build some insurance in the stock portfolio by buying some protective puts. This is extremely easy in developed markets. In India, the options market is highly manipulated and do not perform very efficiently. I will be writing a separate post on how to make best out of the Indian options market to protect your portfolio to some degree (Note that the article will be for genuine long term investors and not the short term punters who buy/sell options)<br />
<br />
Happy Investing and enjoy the Easter festivities coming forthwith.</div>
reachnagraj / theknight16http://www.blogger.com/profile/08222136846834969462noreply@blogger.com0tag:blogger.com,1999:blog-4190541639700840242.post-75017075044279395572018-02-28T04:05:00.000+05:302018-03-04T02:16:01.907+05:30Modinomics V2 and Market Perspectives - Part 1<div dir="ltr" style="text-align: left;" trbidi="on">
Hello friends<br />
The last couple of months have seen sharp moves in either direction. Here are some of my preliminary observations with Nifty vis a vis Modinomics and Nifty vis a vis global markets<br />
<br />
Outlook vis a vis Modinomics<br />
Let us recap to the time in 2013 when Nifty made a high of 6415, corrected downwards to 5120 and bounced back; I presume the same pattern will repeat itself. My humble opinion - buy the dips as far as equity investments are concerned. My preferred bets are<br />
<br />
Nifty Bees, Bank Bees, Junior Bees, PSU Bank Bees<br />
[Disclosure I have holdings in these scrips and have recommended the same to my friends and family]<br />
<br />
You can check my previous post where I have highlighted some stocks that than beat the average market returns. All investments must be made with an SIP mode.<br />
<br />
Expected Path: Peak in the 10700 zone followed by a correction to 9600 with interim peaks, troughs and sideways market conditions.<br />
<br />
As far as <b><u><i>A Group Stocks and Indices</i></u></b> are concerned, I follow the advice of Nadeem Walayat - "Greater the downward deviation from peaks, greater the incentive to buy<br />
<br />
Political factors that will trigger trending moves on Nifty<br />
Based on current outlook, it seems near certain that Modi will be back as PM again with a 300+ majority in the NDA alliance. Some of the states with impending elections will trigger short term spikes or falls in the market. From a Union Budget perspective, though the markets did not cheer the same but that is always expected when a party is going into the election phase. The budgets will be populist as the rural votes create the votebanks. My view is that as far as educated youth are concerned, they have understood the concept of JAM (JanDhan-Aadhar-Mobile) measures.<br />
The negative response to LTCG was not expected. Mr Jaitley has this knack for not clearly speeling out the the plans and getting smooth implementation. Happened with Demonetization and deja vu for GST.<br />
<br />
The steps towards digitizing the economy have shown good progress and the next steps seem encouraging. GST implementation and roll-outs have not been as streamlined but these are initial steps to the larger benefits.c[ So my vote is disclosed heads up!!]<br />
<br />
To summarize, as far as stock investments are concerned, I'm in favor of "Buy The Dips" with NDA 2 as the winner.<br />
<br />
From a global market perspective, Dow was also overbought and is now in a corrective mode. My take is that it is in the last phase of correction. Accoring to my analysis, it will form a base around 24000 levels and resume uptrends. This analysis when juxtaposed with my Modinomics analysis, comes pretty much in line with anticipated price moves.<br />
<br />
Commodity Markets: In dollar terms, prices have come to the USD 65 dollars / barrel mark. If we analyse WTI Crude prices, the pivot point is USD 65 dollars a barrel. Though manias can take prices anywhere between 25 dollars and 100 dollars.<br />
<br />
Gold will confirm its uptrend with 2 consectutive closes above USD 1400 per ounce for targets 1550-1600<br />
<br />
Currency : I expect the rupee to be in the range of 63-66 vs dollar this year.<br />
<br />
To wrap up up part 1 of this series, I sign off. The next part will be more illustrative with analytic graphs and tables to support my forecasts and better outcomes of the forecast. Stay tuned to my updates [Always free with disclosures on personal holdings]<br />
<br />
Adios</div>
reachnagraj / theknight16http://www.blogger.com/profile/08222136846834969462noreply@blogger.com0tag:blogger.com,1999:blog-4190541639700840242.post-39675771915799090572017-08-05T12:12:00.000+05:302017-08-05T12:12:06.021+05:30Outlook For Q3/Q4<div dir="ltr" style="text-align: left;" trbidi="on">
So the Nifty has scaled the 10k mountain; much sooner than I had expected. My original outlook was that Nifty would cross the 10k barrier after the next national elections. So let us analyze the current major factors and the probable course of Nifty.<br />
<br />
First of all, let us consider the banks. No matter how hard the government will make it for the bad loans from large corporates, recovery will be extremely difficult and time consuming. On the PSU banks front, there is only one way out; consolidate into 3 or 4 large banks on the "Too Big To Fail" scale. SBI has already done it and there will be more to follow soon. RBI has kept the rates at a very low level and it seems to have hit the rock bottom now. The threat of inflation is now grave. Liquidity in the market has been unprecedented.<br />
<br />
The much awaited correction will perhaps come sooner than later but that does not warrant shorting the market. Although it may may not be correct fundamentally, the price on the ticker does not lie. Unless 8880 is not breached on the downside, it is a buy on dips market. What is the next peak for Nifty to scale? 11415 is the next peak we are looking at over the next 18 months.<br />
<br />
Now there are no fears of a BrExit and the Germans are pretty much in control of the situation in Europe. To the extent Germans have control, the PIIGS crisis also will stay at rest. However, one needs to be very careful about selecting the stocks right now and midcaps and smallcaps are best to avoid. The way IPOs are soaring, one has every reason to be suspicious because unfortunately, a string of successful IPOs on Dalaal Street has always been a harbinger of darker days coming ahead. That being said, the levels Nifty is testing now will make the dark days seem like a little blip over the longer term. The larger trend is headed north and will continue to do so until the next election.<br />
<br />
Now talking about politics, we may not have to wait till May 2019 for the next election outcome. In all likelihood, we may see the elections as early as Diwali 2018. The BJP has almost crossed out all the red flags for the second term in office. Maharashtra, UP, Bihar, MP, Rajasthan are all in the kitty. The youth power is with the PM; the Rajya Sabha numbers are also working out in favor. Unless something really bad like some black swan event takes place, I see no reason why this government will not come into power again.Therefore from institutional funds' perspective, India is pretty much a safe bet compared to other BRICS nations.<br />
<br />
Outlook for commodities; in terms of prices in USD, commodities seem to have hit the bottom and are now starting the next leg up. From a technical and wave perspective, they may just correct once more to retest the bottoms and bounce back. nymex Crude oil may retest the USD 35 - USD 40 levels and then gallop back to USD 65 levels. Gold may just test USD 1150 levels once more, shake out some of the weak hands and then climb back to USD 1550 levels.<br />
<br />
Sectors to avoid in India right now; telecom, base metals and media. It will take at least a year more for markets to fully price in the impact of Jio and there is a lot of room for downside there. If the commodities go for retesting old lows, then base metals will be the first to join the pack down. Media space is extremely volatile right now and far too overvalued. What happened to Airtel, Idea and Vodafone in telecom space will happen sooner or later to the media stocks. Hotstar, Amazon Prime and Jio TV will soon have a similar impact on conventional media. I also expect Jio and Amazon Prime to bring some disruptions to the DTH business. The day is not far when there will be just a small black box in our homes that will power the internet and tv content for us and that too at extremely affordable prices.<br />
<br />
To summarize, every fall in the largecaps and large banks is an opportunity to buy. Commidity stocks, telecom stocks and media stocks are best avoided till the prices rationalize. Shorting can prove dangerous and there is room for a lot of upside. Wishing all of you greetings in advance for the upcoming festivities. Unless there is some major thing to worry about, my next post for Nifty will be around Christmas with outlook for 2018.</div>
reachnagraj / theknight16http://www.blogger.com/profile/08222136846834969462noreply@blogger.com0tag:blogger.com,1999:blog-4190541639700840242.post-61004385747596677092017-07-28T14:06:00.001+05:302017-07-28T14:06:18.659+05:30IPL 2018-2022 "Winner's Curse" SWOT Analysis and Forecast<div dir="ltr" style="text-align: left;" trbidi="on">
Well now that we know that in all likelihood, the next IPL bidding is going to turn into a winner's curse, let us look at the SWOT analysis of some of the key stakeholders bidding for the broadcasting rights<br />
<div>
<br /></div>
<div>
As of now, 18 bidders have been reported for the broadcasting rights</div>
<div>
<br /></div>
<div>
1. STAR India</div>
<div>
2. Amazon</div>
<div>
3. FollowOn Interactive Media</div>
<div>
4. Sony Pictures Network</div>
<div>
5. Times Internet</div>
<div>
6. SuperSport International (Pty) Ltd</div>
<div>
7. Reliance Jio Digital</div>
<div>
8. Gulf DTH FZ LLC</div>
<div>
9. GroupM Media</div>
<div>
10.beIN IP</div>
<div>
11. Econet Media</div>
<div>
12. SKY UK</div>
<div>
13. ESPN Digital Media</div>
<div>
14. BTG Legal Services</div>
<div>
15. BT PLC</div>
<div>
16. Twitter Inc</div>
<div>
17. Facebook Inc</div>
<div>
18. Taj TV India</div>
<div>
<br /></div>
<div>
This article and the next two will discuss the SWOT analysis of these players</div>
<div>
<br /></div>
<div>
1. STAR India</div>
<div>
Well they already have the digital broadcasting rights for a lot of tournaments and the company is currently a market leader when it comes to content for sports on Indian TV. Hotstar is definitely a rockstar right now when it comes to digital content and consumer delight. Let us not forget that STAR was the front-runner in the previous bidding session as well. The company rightly made a conditional bid to BCCI and BCCI decided to shelve this bid as BCCI wanted unconditional bids.</div>
<div>
<br /></div>
<div>
SWOT: The group has already done the IPL in digital format. The team has covered a lot of sports globally and has a lion's share as far as BCCI broadcasting rights are concerned. However, the IPL is different. STAR India / Hotstar CANNOT go solo on this. And this will be true for most players in the bidding.<br />
<br />
Odds of Winning: 25% (solo) / 80% with Jio<br />
<br />
2. Amazon (Probably bidding only for digital)<br />
Amazon, has made the bold statement of its intent with the television series Inside Edge on Amazon Prime. One of the best Roman a Clef genre content on Indian TV ever so far - it was a fantastic signal to all stakeholders "We are serious about getting in and we are aware of the dirt that comes along with it!"<br />
Although late to enter the Indian mobile tv turf, it has swept all incumbent players off charts. Amazon Prime has features like fast forward as well (compared with only rewind for Hotstar) and charges much lower 499 annually compared to 199 monthly with Hotstar. IMDB is its subsidiary. What is good about Amazon's approach is that it has a collaborative outlook with studios, directors, producers etc. There is a lot of data mining required to do when it comes to targeted advertising on digital space and Amazon is second only to Google when it comes to that.<br />
<br />
Odds of Winning: 50% (solo) / 95% with Jio / 100% with a 3 way match Sony-Amazon Prime-Jio<br />
<br />
3. Sony<br />
Let us not forget that this company still has the first right of refusal and the network will try very hard to keep it that way. Unfortunately, it did not win the digital rights earlier and digital as it turns out is not Sony's cup of tea. In fact most of Sony's movies also go through Jio or Amazon Prime. Last but not the least, IPL is the only major cash cow that Sony has.<br />
<br />
Odds of Winning 50% (solo) / 95% with Jio /100% with a 3 way match Sony-Amazon Prime-Jio<br />
<br />
4. Jio<br />
Jio has been doling out good things with each passing day and wants to capture as much of telecom and digital space it can. It has the financial muscle to see this through. To cut the long story short, Jio has the infrastructure and network but perhaps not the capabilities when it comes to broadcasting. Mumbai Indians being one of the teams can also create a conflict of interest<br />
<br />
Facebook, Twitter and all the others will have the same thing. According to me, Amazon Prime and Jio will have a major role to play as far as the next set of IPL broadcasting rights go. For the advertising revenues, you need more and more of reach and Jio can make that possible. Analytics will also play a major role and Amazon can make that happen. When it comes to actual backend for operations and logistics of coverage, both STAR and Sony have the capabilities though STAR has the edge over Sony.<br />
<br />
My forecast: HOTSTAR+Jio 40%<br />
Sony+Amazon Prime+Jio 60%<br />
<br />
Let's watch out how this plays out.</div>
</div>
reachnagraj / theknight16http://www.blogger.com/profile/08222136846834969462noreply@blogger.com0tag:blogger.com,1999:blog-4190541639700840242.post-86048436602340680682017-06-16T13:39:00.000+05:302017-06-16T13:39:01.739+05:30IPL Bidding 2018-2022 "The Winner's Curse"<div dir="ltr" style="text-align: left;" trbidi="on">
Well let us take a break from Nifty and the negativity around jobs. It is the cricket season and an exciting time as we are going to have bidding for the broadcasting rights for IPL 2018 to 2022.<br />
<br />
The last time bidding was done was in 2008 when mysteriously, the lone player in the foray was Sony. Star India's bid got rejected as their bid was conditional and BCCI wanted a non-conditional bid. Well whatever happened, we know that Sony paid USD 900 million for exclusive television rights for a period of 10 years. Without taking into account inflation and exchange rate fluctuations etc, that was a bid of 5000 crores for a period of 10 years. The estimated revenue that Sony got for IPL 2017 is pegged between 1100 crores and 1300 crores. We also know that the previous investment was recovered within 3 years.<br />
<br />
Now that the new tendering process has started, bids have been invited by the BCCI. There are about 16 to 18 players in the foray. Obviously the television channels will all be out there and thanks to the digital era, some of the interesting bidders are companies like Reliance Jio, Facebook, Twitter, Amazon<br />
<br />
In this three part article, I will cover the merits/demerits of the bidding structure, SWOT analysis of bidders and revenue streams for bidders. First things first, I want to discuss the merits and demerits of the current bidding structure itself.<br />
<br />
We all know that the BCCI believes in hegemony as it wields a lot of power in the places that matter. As compared to the last time that the bidding took place, the BCCI has wisely invited bids from multiple parties and hopefully there will be more transparency. What has shocked me is the minimum reserve price that BCCI has pegged for the broadcasting rights for the next five years.<br />
<br />
Considering the scathing review BCCI got from the Lodha panel and considering how little BCCI has given back for development of the game, the current reserve prices are appalling; this is an encore of what happened with the telecom spectrum and telcos. Based on the public information available about the advertisement slots, past collection data, here is my graph of projected earnings for IPL 2018 to 2022<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgwUDIJDtDqZ8Bxx1c1aA2LVyFa3_0AWhyJDL4tdMXqcfKyJaBgY6tQk7-RJhZLNRzGu_6b-g3O0MjiPt37mCN9FmckzZv4IVaCFbOWRck66z4lgInQbrktF09HS6QnGfvAAgo_YYmWSSI/s1600/Presentation1.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="720" data-original-width="1280" height="360" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgwUDIJDtDqZ8Bxx1c1aA2LVyFa3_0AWhyJDL4tdMXqcfKyJaBgY6tQk7-RJhZLNRzGu_6b-g3O0MjiPt37mCN9FmckzZv4IVaCFbOWRck66z4lgInQbrktF09HS6QnGfvAAgo_YYmWSSI/s640/Presentation1.png" width="640" /></a></div>
The workings of this graph are in the excel file <b><u><a href="https://drive.google.com/open?id=0B7zymz3aAd4GaF9tYm5zRnZ0OG8" target="_blank">here</a></u></b><br />
<b><br /></b>
I will be updating information and the workings behind this graph from time to time.<br />
<br />
As of now, the biggest revenue source is television advertisement slots and it will continue to be for the next five years. Television advertisement inventory is sold as 10 second slots and an average IPL match has about 230 to 250 10 second slots depending on the stage of the game. A lot of hype is going on about the digital space and IPL 2017 showed an average 2 million users on hotstar for each match. Going by Google/Youtube's pay of 1 dollar / 1000 views translates to about 1 rupee per user per match in the digital space. Now that virtual reality devices have come in and soon, we will have the luxury of watching sports in 3D on our smartphones, the revenue per user can notch up much higher with subscriptions but we also need to remember that this is just the beginning. The digital revenues won't be as high as a lot of media pundits are projecting them to be.<br />
<br />
With some basic assumptions, my back of the envelope suggests a revenue of about 6,000 crores for IPL2018 to 2022. Taking some more optimistic projections and title sponsors and technological disruptions, 8,000 crores is the best case scenario. Remember that we have an election coming in between and one structural bear market scenario that will play out. There will be a lot of discretionary spending taps closed for at least two seasons. This means that the winner cannot bet on pure advertising revenues. Right now, BCCI is expecting upwards of 16,000 crores and that is not a price worth paying at all. Any price above 8,000 crores for a 5 year contract is going to end up as a proverbial "Winner's Curse" The money will be made with more activities upstream and downstream<br />
<br />
In the next two parts of this series, I will discuss the SWOT analysis of major players in the bidding ring for the IPL auction</div>
reachnagraj / theknight16http://www.blogger.com/profile/08222136846834969462noreply@blogger.com0tag:blogger.com,1999:blog-4190541639700840242.post-70606354178259327002017-06-02T15:20:00.000+05:302017-06-02T15:20:17.952+05:30AI/Robotics/Automation - ITEmployees Cry Foul - Part2<div dir="ltr" style="text-align: left;" trbidi="on">
This is part2 of the intended 4 part story with regards to job losses in IT/ITeS segments [which is what the media is talking a lot about], the slowly worsening situation in telecom post Jio [not much is being talked about] and the impending consolidation in PSU banks [almost nobody is talking about]<br />
<br />
Today, I came across 2 contrasting opinions. One by the almost revered guru of Indian IT, Narayan Murthy and other by a veteran who got TCS to where it is today, N Chandrashekharan. According to Narayan Murthy, the top managers in IT companies have to take cuts in their paychecks. I agree with this part. He also expects companies to do as much as they can and stem unemployment. This, may I say is a utopian dream. Since the internet dot com bust, so many economists in the developed world have proposed part-time employment options to be taken by employees so that the stress on unemployment allowance is reduced and number of unemployed people goes down.<br />
<br />
The challenge with this is that a person who has a job would like to go the whole mile to the extent s/he can in this VUCA environment - make hay when the sun shines. What Chandrashekharan has said is that we are becoming more and more digital and that means there will be more jobs. This is exactly what a lot of experts in hi-tech industries have been saying. There is a lot of demand for skilled labour. The problem that we are facing all over the world is that there is a gross mismatch in what the industry needs and the skills that the available talent pools have. In India this is a bigger problem.<br />
<br />
As has been rightly said, re-skilling is the order of the day. If we look at the thousands of people in the IT/ITeS sectors today, there are broadly three categories of people. Highly skilled, highly motivated and people on top of their game - these guys are simply not worried. Most of them land the dream jobs they want even before somebody decides to give them a pink slip or they are confident enough to put themselves in the sweet spot sooner than later rather than compromise with the current employer. The sad part is that this is less than 2% of the workforce. The group of people is very special. Based on current economic trends, they are drawing a good salary, have settled into a good lifestyle but their talent levels are not as high as the new rules of the technology game demand. They were aware about it in the past but when the going was good, these short-comings were ignored. That will not be the case now. The biggest challenge with these people is that they have got so used to certain habits, skillsets and attitudes that it is extremely difficult to change unless these people decide to change themselves. Unfortunately, that segment is almost 40% of the workforce. For those who do decide to eventually change will need more time to get the basics right as compared to the youth who are learning these technologies upfront without any pre-conditions. The last segment is the ones who are currently at lower levels of the organization and are simply following SOPs. I fully believe in dignity of labour and I mean no offence to this segment in my previous segment. The work they do still matter a lot and even the new technologies will need these kind of people albeit in lower proportions.<br />
<br />
Just to digress from the topic a bit - let us consider mobile phones - a technology gadget that most people use these days. Once upon a time Motorola was considered to be the best; then came Nokia with its super seller Nokia3310, a handset that was literally a style statement. Almost everybody said that this is the best one can have until BlackBerry came along. Just when almost everyone was convinced that BlackBerry is the ultimate in mobile handsets, Apple came out with the iphone and today the latest model is iphone7 and people are waiting for the 8th version.<br />
<br />
The only constant is change. As I mentioned in my previous post as well, today technology will help automate a lot of tasks and improve productivity. However, the industry needs skilled people who will make this technology possible. There is a fantastic movie featuring George Clooney and Anna Kendrick called "Up In The Air" It is a classic case that portrays how and why human resources still make such a difference. And for the experts who keep harping about the ability of AI being superior, it is worth watching Minority Report. The movie very nicely depicts why we cannot be 100% sure about AI<br />
<br />
To summarize, technology disruptions will keep on taking place. As long as one has the ability to upgrade and re-skill, one should be fine. Don't be pessimistic - be optimistic as there are so many avenues that are going to open up and the fact is that we have a lot of jobs and opportunities that need people. This is going to be my next article in this series - so stay tuned. Just remember the keyword "Transferable Skills"<br />
<br />
<br /></div>
reachnagraj / theknight16http://www.blogger.com/profile/08222136846834969462noreply@blogger.com0tag:blogger.com,1999:blog-4190541639700840242.post-10833637827739038112017-05-27T14:12:00.002+05:302017-05-27T14:12:40.298+05:30AI/Robotics/Automation - ITEmployees Cry Foul - Part1<div dir="ltr" style="text-align: left;" trbidi="on">
Now that I have given my medium term outlook about Nifty, I will be spending the next few posts specifically addressing the sectors that are currently under pressure. There is so much being put out in different forms of media with some common keywords - automation, Artificial Intelligence (AI), Robotics, job losses.<br />
<br />
For the common man, Robotics and Automation imply that tasks that can be performed by a machine with minimal human intervention. It is not as if robotics and automation came just yesterday. Automation started right from the time we had the industrial revolution! Two simple examples; imagine what happens when a Godrej storewell cupboard is being made (this is a common example I use in my lectures) We need sheet metal cut into different sizes according to where they will fit in the structure of the cupboard. Once upon a time, the entire cutting process was done by human beings. The challenge was that the productivity levels varied a lot and the quality levels varied a lot. Today we have a machine that cuts the sheet metal. Human intervention is needed to basically tell the machine - cut the sheet metal of this size. Another human intervention is to make sure that the supply of sheet metal is in place and once the cutting is done, take out the cut pieces. Advantage: What perhaps would take 100 human beings 100 hours to produce is now done by 1 machine in less than 10 hours. The variation in quality is extremely limited. Today there are millions of tasks in manufacturing and services where machines can easily replace human beings and perform a lot of tasks with minimal human intervention. Similarly in a financial services environment, a lot of accounts reconciliation can be automatically done by the system at the click of a button.<br />
<br />
Anybody who says that automation is bad because we need to keep the jobs is akin to saying don't deploy machines to make the road or for that matter don't give the workers shovels. We need to keep the jobs so let them use spoons and ladles to build that road - lifetime employment. Is that what we really want? Yes I agree that there are some sensitive aspects where even if we have the option of an automation process, we perhaps should not allow automation because of security issues. A common example of this is drones for package deliveries. We know that it is in fact a fantastic innovation that looks great on television. My concern is that what do we do if some idiot misuses the technology and ships a bomb?? Air Traffic Controllers all over the world are already stressed with the tasks of managing airplanes and choppers. Imagine the scene when they have dots all over their screens because of these drones. Unless these security concerns are adequately addressed, perhaps we are better off keeping this innovation in the laboratory.<br />
<br />
Artificial Intelligence is exactly what it says - the computer uses some sort of a program to perform analysis. We need to understand a key thing here - the system becomes intelligent only after some human being tells the computer what to look for and how to do the analysis. This is precisely the reason why the IT/ITeS industry in India is negatively impacted and job losses have begun. A lot of work that was earlier done by IT/ITeS employees by people are now being automatically done by the very computers and programs that have been created!<br />
<br />
We need to understand one thing very clearly - India has grown significantly because of IT/ITeS companies but India has not contributed significantly to innovation in this very segment. All that India [and in turn the industry and people] has done is worked on the price advantage. Even for the basic computing tasks, if it costs USD 6000 / month in US [Monthly CTC for 1 employee] it costs USD 2000 / month in India. That is the reason why companies started laying off people in countries where salaries are high and gave those jobs to Indians. How many kinds of software innovations have been created by Indians in India? Google, Facebook, Microsoft etc etc etc were not India's contributions. Once that program was released, what Indians did well was fixing bugs and glitches. Now there are superior technologies that don't need so many people to fix these things.<br />
<br />
We need to realize that automation is going to happen in many areas of manufacturing and services forever. What is important is that to get these automation techniques working, you need to be extremely smart and talented. The basic problem with a vast majority of Indians is that "smartness" and "talent" are rarely found. Yes thanks to an education legacy that the British left behind, we have a lot of English speaking graduates and post graduates but degrees do not imply "smartness"<br />
<br />
So whether we like it or not, automation will continue and an employee is not smart enough to create and manage automation, s/he will eventually lose the job. Another question that then comes up is why do companies don't take initiatives to re-skill people. Human Psychology has shown that the greater the degree to which a person is used to think and do things a particular way, the greater is the challenge to make the person change. The old patterns and attitudes tend to be so deep-rooted that the unlearning process itself is a big challenge. And when you have so many young people joining the workforce - with fertile minds that can be easily trained, companies will take the easier option.<br />
<br />
A lot of people complain that they are getting fired because they are not young enough, that is a wrong judgement. People are not getting fired because they are old but because they are not good enough for the new challenges. The people who stayed ahead of the curve and were talented enough are still being rewarded. And let us not forget that when the IT boom started, these very employees grew at the expense of employees elsewhere.<br />
<br />
To be continued</div>
reachnagraj / theknight16http://www.blogger.com/profile/08222136846834969462noreply@blogger.com0tag:blogger.com,1999:blog-4190541639700840242.post-22597624518190218012017-05-26T13:48:00.002+05:302017-05-26T13:48:20.147+05:30BULL MARKET THAT WILL DOUBLE AGAIN OR RECESSION???<div dir="ltr" style="text-align: left;" trbidi="on">
Over the next few posts, I will be focusing on the gloom and doom part that has been hitting the newspapers, social media to the extent that there is some ITeS Union as well that has come in. I will talk about those aspects later. First, let us have the Nifty perspective in place.<br />
<br />
I have seen a couple of bold comments like Nifty will double again from current levels over the next 5 to 7 years etc. foreign investors are still bullish on India etc etc etc. My take - we have been in a structural bull market since 2013 [some of my more experienced peers say from May 2009 - ok I buy that] Through Twitter, I had mentioned last week that a close below 9450 would be initial signs of weakness. My number is 9480 to be precise and I will be watching out for that this Friday as well. If the close happens to be below the 9450-9480 zone, it will be a confirmation of short-term weakness.<br />
<br />
Another aspect we must not forget is that the dynamics of Nifty have changed significantly over the last 10 years. Earlier, Nifty was largely sensitive to Reliance, L&T, Tata Steel but that has changed. Some intelligent analysts renowned in social media have also been pointing out the same. Let us review the current Nifty 50 snapshot as of this week<br />
<br />
One may review this file that can be opened with <a href="https://drive.google.com/file/d/0B7zymz3aAd4GV0VmdzNweVhWdlE/view?usp=sharing" target="_blank">this link</a><br />
<br />
I have taken the top 15 companies by relative weightage contribution to the index. With the telecom consolidation and volatile environment in IT/ITeS sector, some pain is on the cards. I have qualified the impact of recession on that particular stock. A careful look will tell you that the most severely affected firms are IT companies and banks. We need to understand one key thing; when we take the downward impact of IT/ITeS sector, the re-organization drives at telecom companies post Jio and the impending consolidation in the banks, the net impact in terms of affected persons would be at least 15 million [1.5 crore people!] What we many a time fail to realize is the multiplier effect. Every 100 direct jobs added in the IT or Telecom sector also added about 30 jobs indirectly.<br />
<br />
That being said, I also disagree with the nay sayers who are predicting gloom and doom. There was so much panic and gloom in 2008 when the blood bath started and Nifty rapidly fell from 6357 to 2252 within a span of a year. From that point, Nifty scaled 6338 again, went all the way down to 4500 and hit 9k levels. From there it came all the way down to 6800 odd levels and now we are near record highs yet again. I do foresee a correction to about 6800-7200 levels once.<br />
<br />
One key reason for my alarm bells on an impending correction is the market breadth. There is a divergence in index levels and overall market breadth. A few select stocks are taking the indices higher while a lot of stocks are actually going down. The distance from peak levels for a lot of stocks suggest a distribution pattern. The way mutual funds are advertising the SIP route with emotional appeal, my suspicion levels are inching upwards.And as I always maintain, corrections are good for the market and healthy too. I am particularly negative on the banking sector at the moment. The unsecured credit that is at risk at the market is near record highs. The aspirational young Indian is highly leveraged and by the time the restructuring exercise hits its peak in sensitive sectors, NPAs will be severely on the rise. For the first time perhaps in Indian banking sector, retail segment NPAs will outpace the business segment NPAs.<br />
<br />
That being said, it will not be the end of the world. After dot-com, we had doom predictions; after Lehman Brothers, we had doom predictions. The same will happen again. The so called pundits and media spokespersons have selective amnesia and wrong anchor points. Even if we have a 25% correction from current levels, the markets will be way higher than they were in Jan'08 or Nov'10<br />
<br />
In the next few posts, I will be discussing not markets but industry analysis and future prospects for people affected by organizational restructuring. Stay tuned and enjoy the ride</div>
reachnagraj / theknight16http://www.blogger.com/profile/08222136846834969462noreply@blogger.com0tag:blogger.com,1999:blog-4190541639700840242.post-79274781494429359132017-04-20T05:11:00.001+05:302017-04-20T05:11:03.615+05:30Outlook For FY18<div dir="ltr" style="text-align: left;" trbidi="on">
Dear Readers<br />
It has been more than 15 months since I last posted on this blog. Going in for a recap, the markets shrugged off its fear and moved on to scale new highs.<br />
<br />
I had indicated that base metals and banking stocks would lead the rally and that happened. However, the gigantic leap that the indices have taken was definitely far beyond my expectations.<br />
<br />
As I always keep saying, history has a hidden engine and can reveal patterns. For all practical purposes, the bull party for now is in this last stage for now. Going back to the 2010-2014 pattern, Nifty had peaked at 6338 in Nov '10 and then went on to touch 4550 levels; from here it scaled 6415 to fall to 5200 levels in Aug '13 and then came the big bang rally with BJP taking in power.<br />
<br />
Without taking any externalities into account, a pure pattern extrapolation gives me the following picture<br />
<br />
A top around 9338-9357-9415 levels for now with the technical bottom set at 7800 levels. IMHO, Nifty will retest these levels over the next 18 months before resuming the next major leg up. That leg will coincide with the May '19 election outcome. Assuming status quo, the BJP is set to win the next election as well; should the same happen, the new high on Nifty will be in 5 digits; [10425 is my target on Nifty and 34500 on Sensex]<br />
<br />
Most of the trend experts also agree on the same; the only question is the timing. A large section of analysts believes that the 5 digit mark will be surpassed this year as well. Though not impossible, I have my reservations. [Reasons will be covered later]<br />
<br />
The reforms on the economic side have been largely positive. A lot of revenue leakages in the PDS have been plugged due to use of Aadhar. The exchange rate has strengthened but my contrarian view is that the dollar is headed to an exchange rate of 72 vs rupee and hence its time to go Long Rupee-Short Dollar<br />
<br />
The demonetization drive is a positive for the very long term. A lot of people are harping about the positive effects of GST roll-out but we need to be pragmatic. The positive aspect of the GST is that it will greatly change the supply chain and distribution networks. The number of warehouses and distribution centres will drastically come down and generate economies of scale. Coastal shipping will see a big bang [albeit positive] explosion; the pilot successes that we are seeing right now are a tiny fraction of what the real game will turn out to be<br />
<br />
On the downside, I personally do not view the GST as a big success as the media and government are portraying it. If we look at our Asian peers that implemented GST/VAT [Thailand and Singapore are my role models for the same], they kept the rates at 4% to 7% [except for items tobacco products, liquor etc]. The whole idea of GST/VAT in a country is to keep as low a marginal tax rate as possible and have a tax net as wide as possible.<br />
<br />
For instance, a standard FMCG supply chain would be<br />
Factory -> Distribution Centre -> Super-Stockist -> Stockist -> Point of Sale<br />
In the conventional GST / VAT setup, when goods move from factory to the point of sale, each time ownership of cargo is transferred, GST/VAT is applied to the value of the sale. When the tax rates are kept in low single digits, the incentive to cheat on taxes greatly diminishes. Rather than forge account books, hire a chartered accountant, hide the cash somewhere else etc, the entity in the supply chain decides that it is better off paying the low taxation rate.<br />
<br />
The stated purpose of India's new GST regime is that the tax evasion must be curtailed. Sorry Mr. Arun Jaitley and team, your new GST proposal does nothing to remove the threat of tax evasion. Every time this issue is raised by the media, the government offers a rebuttal saying that demonetization was implemented in parallel; fine that was for the tax evaded earlier. Earlier, the evaded tax was hidden in denominations of 500/1000; now the same will be done with the 2000 rupee notes. If we want to genuinely widen our tax net, the marginal rates of taxation should be extremely low barring a few products.<br />
<br />
One of the most positive developments in the Indian banking space is the merger of all subsidiaries of Statebank into one single unit. However, this is just the beginning. What now needs to be done is a massive restructuring with more automation, rationalization of headcounts and branch offices. It does not make sense to have 8-10 small branch offices, all displaying the new SBI logo. That is just a cosmetic change; unless there is a complete overhaul of the backend, people won't receive the intended benefits. Another major positive of this exercise is that it sets a positive for other PSU banks to carry out a similar exercise. Rather than many small/medium sized banks, India needs a few large scale banks.<br />
<br />
For the securities market as a whole, a major positive has been the rise in SIP collections of mutual funds. The advantage of SIPs is that one can reap benefits of crests and troughs of the indices and still come out on tops [of course the fund selection is critical]<br />
<br />
From time to time, people in my network ask me why I ask them to continue with SIPs if I have a conviction of correction; the answer is simple - nobody can predict the market with certainty. By keeping an SIP with constant fund and variable units, you can take advantage of both peaks and troughs.<br />
<br />
From a stock specific perspective, base metals and commodity stocks have generated 300% returns or more in the last 18 months. Hindalco had its old great wall of support at around 210 levels [pre-2010 levels]. When this broke down with conviction, it went all the way down sub-100 levels also. Hence I see a very good chance that Hindalco is on the verge of topping out. Similarly for Tata Steel, going beyond 625 is challenging.<br />
<br />
IT segment will be subdued till the new laws are fully clear with regards to outsourcing. FMCG will be sluggish due to the onslaught of Patanjali. Whilst the markets are looking at the positives of banking sector, the cleaning of balance sheets and resource rationalization will come with its share of negatives.<br />
<br />
Global Uncertainties<br />
The picture post-Brexit will only be clear after the UK elections in June. It is a positive for UK citizens but we can expect a lot of turbulence from the Euro-zone in 2017. The EU has a succession planning challenge unless the countries decide to go ahead with an extended term for Merkel. The threat of a Euro-zone blowout still looms on the global economy. The situation is "Who will bell the cat"? The entire PIIGS fraternity wants to opt out but no country wants to be seen as the first to do so. UK managed to do that because it has its own currency GBP. That being said, such downsides on the economy will be short-lived. Eventually all countries will bounce back. I have always maintained that currency devaluation eventually brings out a lot of positives. When the Asian Tiger currency crisis took place, a long-term development was that a lot of people started taking vacations to Thailand, Singapore, Malaysia etc. The revised exchange rates favored the same and there have been numerous instances when a Mumbai-Singapore or Delhi-Bangkok flight ticket has been cheaper than a domestic sector. The day is not far when we will be taking vacations in Greece, Italy Ireland at almost the same cost as we do for Singapore!<br />
<br />
The real challenge will be the geopolitical stability over the next couple of years. There is a strong correlation between a Republican president coming into power after 2 consecutive terms of a Democrat president. Almost every time this has happened, a major terrorist attack follows within 12 months and wreaks havoc. What we are seeing now in wake of Trumpism is just the tip of the iceberg. There is a very strong possibility that we will see a repeat of 9/11 soon.<br />
<br />
Nevertheless, we can take it in our stride in India at least. The longer term trend is positive. If the current central government keeps its momentum and follows up on the measures, a 2nd term is almost a given. If that happens, then we can see the dream of Nifty breaking the 5 digit barrier.<br />
<br />
Happy Investing - focus on largecaps now<br />
<br />
<br /></div>
Anonymoushttp://www.blogger.com/profile/07755997257225334558noreply@blogger.com0tag:blogger.com,1999:blog-4190541639700840242.post-69915059571153175852016-01-29T07:07:00.001+05:302016-01-29T07:07:52.621+05:30Outlook For CY 2016<div dir="ltr" style="text-align: left;" trbidi="on">
Belated season's greetings to all. Due to personal reasons, I could not update the December post on time. This post not only aims to give a perspective for Jan '16 but overall for 2016 as well<br />
<br />
The Nifty opened 2015 at 8272 and ended 2015 at about 7950. The high was almost 9100 and the low was 7540. In statistical terms, this effect is called regression to the mean. 2014 was an outstanding year with gains exceeding 40% on both index level and stocks were a different ball game all together and midcaps were roaring. After such a fantabulous 2014, it was fairly logical that the index will take some time to pause [The normal 5 year trend on Nifty is about 15% to 20% CAGR]<br />
<br />
We see this all the time in day to day life as well as specific sectors in the industry. Sometimes core manufacturing is the darling of the market and IT lags behind or sometimes it is the other way around. People are talking about GST kicking in and benefits due to accrue etc but most of all that is already in the price. The commodity crash has been severe though India has not been able to reap too much benefit due to significant rupee depreciation against the dollar. 64.25 was a firewall breach and 60 is the new 40 [in the 2008-2012 cycle, 40 was the base when breached first assaulted 44.25 and then 48.25 finally finding an interim top at 52.25]<br />
<br />
Even before I get to the specifics for Nifty, I must mention that commodities are in their last phase of the downturn. The dollar index has in all likelihood topped out for now and will make a slow retreat towards 85 levels and that will boost prices. Crude almost always works around a weighted average price of 65 dollars a barrel in a 5 year cycle. That was the reason why I was bearish on crude when it was in 3 digits in dollar terms and was anticipating a move towards 65 last year. However, the accelerated fall after that was certainly not anticipated and I can stick my neck out and say that it is not sustainable.<br />
<br />
The cost of production itself in most countries is almost 30 dollars a barrel whilst in regions like North Sea, it is much higher than that. Fundamentalists can talk all sorts of BS about fracking and demand slowdown but it doesn't cut ice. Then there are conspiracy theorists who talk about prices being artificially kept low to tackle Russia, IS etc etc and that also is BS. Prices will find their way up and we should soon be looking at crude hovering around the 65 to 75 dollars a barrel mark.<br />
<br />
For the base metals as well, prices are in the last phase of fall and the only way is a gradual upward move. Note that upward moves take much longer as compared to falls.<br />
<br />
Let us start with Nifty first<br />
Nifty typically has its cycles timed as per general elections. We saw that when it made a top of 6357 in Jan '08 [a bull market uptrend that started with UPA 1]and the technical bottom for that was around 3900. The Lehman brothers crisis took it to almost 2250 levels and prices quickly bounced back towards the technical bottom. May 2009, UPA 2 comes into picture, QE1 comes into picture and Nifty again made a top of 6339 in Nov '10.<br />
The corrective phase continued for a long time, a bottom finally formed at 4550 odd levels and the fresh upmove began. The next major phase of upside came post-May '14 when NDA came into power again. Time and again Nifty has proven to go through the general election schedule with large moves coming when a new powerful government assumes office and then go through a corrective phase in terms of price as well as time.<br />
<br />
I think that is going to be the case again this time and whilst there will be a lot of quarterly swing peaks and troughs, I have my reservations as to whether Nifty can make a fresh high in 2016. Its all about individual stocks for now and based on my commodity evaluations, stocks with core commodity products are the ones that have the highest alpha factor i.e. gains in these stocks will most likely outperform the index by a huge margin over the next couple of years.<br />
<br />
The problem with most people in general is 'wrong anchoring'. Most people have anchored themselves against the 2014 performance and are feeling jittery about the way markets have panned out in 2015. Also, the index level is masking a critical fact that there are a lot of stocks that have corrected upwards of 20% to 30% in 2015 and hence a weekend review of the portfolio shows blood red returns. On the other side, the IPO market is booming with gains upwards of 20% to 40% on the day of listing. Whilst our television anchors are cheering that and business writers are gung ho about the arrival of the retail investor market, I would take this as an alarm bell.<br />
<br />
Although I did not participate in markets till 2011, the signs that I see are ominous. Every possible red flag is being ticked on my fundamental radar<br />
IPO market boom: The 2005-2008 period saw an IPO boom. Stocks were valued like crazy; remember the like of Shri Renuka, Educomp, Suzlon, DLF, HDIL etc etc? Where are they today? It was on the basis of these stocks that trade pundits had signalled the arrival of the new age of retail investors. Most of them vanished by 2010<br />
There is a strong correlation between retail investors entering the market with imaginary clubs and swords to conquer their way to wealth and then see the market correct big time. [Statistically, only correlation can be established not causality]<br />
<br />
Then there is this frenzy about anything and everything digital and online. We saw what happened in 1999-2000 with the dot com bust. Anything and everything with a dot-com was valued in hundreds of millions and billions. Then came the big crash. This time, a lot of people are talking about how it is different and we are looking at an app-based mobile themed users, better awareness etc etc etc. Whilst I totally believe that technology is an enabler and that it can help us do many things with minimal effort, I am not convinced about the crazy valuations being attributed to the firms engaged in this business. We have already seen what happened to Zomato, Tiny Owl, Housing etc.<br />
<br />
For every Flipkart or Snapdeal that is successful, there are at least 90 other failures out there. Last but not the least - all support services and businesses like retail, facilities management, capital markets are fundamentally dependent on core industry performance. Unless brick and mortar businesses do not thrive, there won't be a financial economy for services! Another thing that is bothering a lot of 'fundamental analysis' experts is that why are stocks going down when low commodity prices are not triggering a gain for stocks as margin expansion is so very evident<br />
<br />
There are 2 parts to answer this question<br />
1] Markets discount the future well in advance; most of the perceived gains by low input costs were factored in stock prices well in advance<br />
<br />
2] Velocity of Money: Remember that at the end of the day, all major commodity settlements [Gold and Crude Oil being the highest] are done in USD. The low oil prices and relative dollar strength have depressed significantly due to the commodity price crash. The lesser the dollars flowing through the economy, the lower the liquidity in the system.<br />
<br />
Although it sounds counter-trend but money flow is very critical to prop up markets. A lot of positive returns on stock and bond markets have been already deployed into real estate globally. The lower commodity prices have taken liquidity flow out of the global economy like a sponge that absorbs water. Remember that both governments and banking systems are heavily dependent on commodity prices. The oil revenues maintain flow of dollars and are an easy source of tax revenues for governments. Oil exploration being a capital intensive project means that debt levels of upstream oil companies are significantly high. A large chunk of recent loans were raised with expectations of oil not breaching $75 dollars on the downside. With the current oil prices, firms are not able to breakeven on their variable costs; forget taxation and debt servicing.<br />
<br />
So for fundamentalists who expect lower oil prices to fuel the economy, its not going to happen. And time and again I would like to remind readers that we have been through this commodity price crash. 2001 was the lowest point for commodities and so was 2008-2009. Neither the bonanza of upside can continue uninterrupted nor the gloom at the lower end. Last but not the least, certain minimum prices of commodities are vital to keep liquidity in the government, banking systems and also for jobs<br />
<br />
Now let us come to Nifty and BankNifty<br />
<br />
Nifty has very strong support in the 7200-7400 as rightly pointed out by a lot of experts. Now some of the top notch experts have been calling for 6900, 6600, 6300 etc. Whilst I cannot say with certainty that it will not happen, that would be a Black Swan Event. There are a couple of experts who have rightly likened the correction to that in the 2010-2012 period<br />
<br />
Recap: Nifty made a top of 6339 in Nov'10 and went into a corrective mode. The large moves unfurled as follows<br />
6339-5690-6181-5177-5944-5196-5740-4728-5400-4531 over a period of 13 months from Nov '10 to Dec '11<br />
[13 months of correction]<br />
Also note that barring a few large swing sessions in either direction, bulk of this correction period was actually spent in a range of 5400-5600<br />
<br />
Nifty and BankNifty Charts [AND A SENSEX WEEKLY CHART FOR AFFIRMATION]<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjyrPoI4XH3goHGu7MKbSstRDmtmGkUqv62aUBV_Ecx0FjiPWcO8DdN1zJL4Ktx5zvgre3sGVyfxVUNLRTAQVhdRwYNAPznqA-ZhaYCv06P23hdoyPqCyJJSp8MW_p7aczA7D_ujC3Pfnqv/s1600/NIFTY-EOD.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="225" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjyrPoI4XH3goHGu7MKbSstRDmtmGkUqv62aUBV_Ecx0FjiPWcO8DdN1zJL4Ktx5zvgre3sGVyfxVUNLRTAQVhdRwYNAPznqA-ZhaYCv06P23hdoyPqCyJJSp8MW_p7aczA7D_ujC3Pfnqv/s400/NIFTY-EOD.png" width="400" /></a></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgyBd-KRCnLKMa_O30wE_MtUCwKp_jM7B7BnVcW3z4Qby9-FR6OIXkpU5syC0Ztn26PsERWCbnUfwbaHyK8Ca_qU2my4PLp4qfmqXzEU1RXsg271NzSZix3EEQy5mSinB35xEN4AyUylS_7/s1600/NIFTY-EOW.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="225" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgyBd-KRCnLKMa_O30wE_MtUCwKp_jM7B7BnVcW3z4Qby9-FR6OIXkpU5syC0Ztn26PsERWCbnUfwbaHyK8Ca_qU2my4PLp4qfmqXzEU1RXsg271NzSZix3EEQy5mSinB35xEN4AyUylS_7/s400/NIFTY-EOW.png" width="400" /></a></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjHAMPGvR8tYsot0_q9HAuZsXUX20xQn6au-QPa5adTDwQucpleRUwgZRdvQ8gh9R84O0iE7kjKt-9p0etnMGBtxax5HtndGghpg-hMOLQrMGzZkCNhhXIj6ZCE0JvHtWCW8JRCYOf0vJMH/s1600/BANKNIFTY-EOD.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="225" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjHAMPGvR8tYsot0_q9HAuZsXUX20xQn6au-QPa5adTDwQucpleRUwgZRdvQ8gh9R84O0iE7kjKt-9p0etnMGBtxax5HtndGghpg-hMOLQrMGzZkCNhhXIj6ZCE0JvHtWCW8JRCYOf0vJMH/s400/BANKNIFTY-EOD.png" width="400" /></a></div>
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg6Nze_anEZwD7VouoPzmfy0jxZacqACelatYT-aya5V6inftmACr-_k84wQhrWb1c0gs29fEhbaWsxGWpuK4jyT83oFmmO-jzD3tqpEdCKvHMU9EZbJp8-dDKCihFdP4iN27VhqTireh2B/s1600/BANKNIFTY-EOW.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="225" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg6Nze_anEZwD7VouoPzmfy0jxZacqACelatYT-aya5V6inftmACr-_k84wQhrWb1c0gs29fEhbaWsxGWpuK4jyT83oFmmO-jzD3tqpEdCKvHMU9EZbJp8-dDKCihFdP4iN27VhqTireh2B/s400/BANKNIFTY-EOW.png" width="400" /></a></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj7ducR9IaTxwM7ZQgaWc5nJqnjzQNBfe8uFwdJpSlvdDvz5pBVqU75J5Y0ixCeFIzXsWnFywqTgPcxNVDpBBSZcVlpjiu_r4OIzW1z7mG5nhr2sFdSI2GsPH1-hPTwaiRwNnIlahXQcdRx/s1600/SENSEX+WEEKLY.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="225" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj7ducR9IaTxwM7ZQgaWc5nJqnjzQNBfe8uFwdJpSlvdDvz5pBVqU75J5Y0ixCeFIzXsWnFywqTgPcxNVDpBBSZcVlpjiu_r4OIzW1z7mG5nhr2sFdSI2GsPH1-hPTwaiRwNnIlahXQcdRx/s400/SENSEX+WEEKLY.png" width="400" /></a></div>
<br />
In the current scenario, Nifty topped around 9100 levels in Mar '15 and has been making lower lows and lower highs. Based on similarity of patterns, I am inclined to believe that 7200-7400 [give or take a few points] is the most likely technical bottom for now and corrective bounces are likely from here.<br />
<br />
In terms of time, 13 months from all time highs will be in mid-April<br />
Now recoveries may take time as moving up is always difficult compared to moving down. I also do not believe the contrarian view that we can see a fantastic year for equities and old highs will be taken out etc.<br />
<br />
For those who are crying bearish; the last time we saw USD-INR in the 68 price range was in Aug-Sep '2013. Nifty was at 5100-5200 levels at that time. Today it is at 7200-7400 range<br />
It all depends on where one is anchored<br />
The bond markets and banking liquidity is largely a factor of confidence. At the same pitiable USD-INR exchange rates, current index levels are much higher and that speaks for itself. The problem with the bears is that they are anchoring themselves in the 8600-9100 [and perhaps a lot of retail investors too as they tend to buy at tops]<br />
<br />
On the other hand, there are some leading stocks that are back to price levels when Nifty was correcting earlier in the 2011-2012 period<br />
SBIN - From highs of 3200 in 2010 came all the way down to 1500 levels but spent most of its time in the 1800-2200 range<br />
<br />
Taking into account the 1-10 stock split, it is exactly doing that now<br />
<br />
Tata Steel: It did not break 195-200 range on a weekly basis in the previous correction. Right now also it has shown no signs of breaking down below 200<br />
<br />
So what do we really expect for 2016 here on now that Jan is almost over<br />
<br />
The Bear Camp: Shankar Sharma, the Big Bear of India [who rightly called the crashes earlier as well] has said that we must not rule out Nifty retesting the old top of 6338-6357<br />
<br />
The Bull Camp: Mahendra Sharma, a perma-bull has called for a Nifty top of 9500 in 2016<br />
<br />
My humble 2 cents<br />
Barring Black Swan events, I neither see any significant downsides from current levels nor do I see any new highs being made. My unequivocal stance is that things are not as bad as they are pointing out to be nor things are as hunky dory<br />
<br />
In terms of price we may have bottomed out for now or maybe - just maybe have one more flick down before starting a counter-trend rally to the larger correction of 9100-7200<br />
A minimum 61.8% upside will mean that we should be able to visit 8200 levels over the next 6 months. Barring some large swing sessions, we are likely to trade in the 7400-7800 range [lowered from my earlier range of 7800-8200 based on current price action]<br />
<br />
The large upside trigger in the short term for India is the Union Budget and GST<br />
Another major trigger will be the USD-INR exchange rate<br />
Time and again I have mentioned in my tweets that 64.25 was a firewall breach.<br />
Now, the faster we move back to 66.25 and ideally 64.25, the faster will be the recovery in indices<br />
<br />
FMCG will not be that big a game changer now as it was earlier<br />
Patanjali has made great inroads into rural markets where it has a dominant price and perception advantage. Also the entry of Patanjali has sparked off volume, price and margin contractions on the urban front. So yes FMCG is still going to be a safer haven but the rate of growth will be much lower and slower<br />
<br />
Likewise for pharmaceuticals, they will be safe havens but with price controls coming in, the best return days are history<br />
<br />
Another thing that one must be cautious about is the stupid commentary that is doled out on tv. Every now and then, there will be an expert talking about 'delivery based buying' and 'delivery based selling'. I have covered this point earlier as well and will repeat it; delivery based can be a large transaction only. If a large delivery based buying has taken place, it means that somebody has offloaded a large chunk of holdings. Unless there is stock available in the market, how can one complete a delivery based transaction?? Similarly, if delivery based selling has happened, somebody has offloaded a large chunk and the transaction is through, there have been buyers. Delivery based volume always is 2-sided i.e. there is a buyer and there is a seller.<br />
<br />
Yes delivery based values are critical as it gives an indication whether the security is really changing hands for good or one is just using the leveraged system to trade. At approaching bottoms, usually delivery based transactions gain steam. At major tops, it is rare to see large volume transactions as the big fish like to slowly distribute and palm off their holdings.<br />
<br />
'Never ever let yourself be misled by commentary about delivery based buying or delivery based selling has taken place. It is just a high volume delivery based transaction with willing buyers and sellers' [Who is smarter of the two, that only time can tell ;)]<br />
<br />
For traders, this is a good time and to gauge medium term trend, one good indicator is the Stock PCR based on FnO BhavCopy released by NSE at EoD. The index PCR is largely a lot of noise as there are crazy option contracts for far strike options on both call and put sides. Stock Options being relatively illiquid in India with only select stocks having large volume transactions on both calls and puts<br />
<br />
The piece below is what I use for getting some clue on swings based on Stock PCR<br />
<0.48 -> Bearish. Smart money is betting big on the short side of the market and are transacting heavily on the call side to protect themselves. Note that even the large market players can't predict which way things will go due to numerous uncontrollable events. With the power of big money, they can build short future positions, buy in the money calls and short out of money calls<br />
<br />
Between 0.48-0.54: Rangebound and sideways. In this range of Stock PCR, on a daily basis, one may see a large upside day or a large downside day. However, extrapolate on the weekly basis and one can see that actually the market is not going anywhere big time.<br />
<br />
Between 0.55 and 0.62: Bullish - this usually happens when markets are at extreme lows on multiple time frames. Smart money is bottom fishing and buying big time. They are buying in the money puts in abundance to protect the portfolio. Like the bearish case scenario, the risk-reward starts favoring the long side<br />
<br />
>0.62: Bearish At such large levels of stock options, it is extremely bearish. Even smart money is in panic mode and is desperate to protect the portfolio and minimize losses<br />
<br />
Note that these are some guidelines I use basis some inputs from a very good friend. It is not a bible and not cast in stone. If one observes the falls that started in early Dec '15, large downswings started from the day Stock PCR hit 0.68. Just when things were beginning to look good with retracements of falls, Stock PCR nudged towards 0.45 triggering the next major fall.<br />
<br />
This is just one cursory indicator - the main paramters will always be Price, Volume, Time and technical indicators like MACD, RSI. However, Stock PCR does help to keep a nimble approach. And the fact of the matter is that almost 50% of trading days are in range-bound sideways trades!<br />
<br />
Now one of the critical questions is what to buy???<br />
This is a time to be stock specific and some stocks are in sweet spots for accumulation<br />
<br />
SBIN - 140-180 is accumulation zone for targets 300+<br />
ICICI Bank - 150-225 is accumulation zone for targets 400+<br />
Axis Bank - 250-350 for targets 600+<br />
Tata Steel - 150-250 for targets 350+<br />
Hindalco - 50-80 for targets 150+<br />
Cairn - 80-150 for targets 250+<br />
ITC: 270-320 for targets 425+<br />
<br />
Note that these are on a longer term basis with a 3-5 year horizon. There are many more that I will keep posting through Twitter. Also note that I have personal holdings in some of the counters mentioned and have advised people in my network to consider accumulation in the given counters<br />
<br />
<br />
So enjoy the roller coaster ride of 2016<br />
There will be some more updates on the basis of Statistical correlations that I will post in the first week of March post-budget<br />
<br /></div>
Anonymoushttp://www.blogger.com/profile/07755997257225334558noreply@blogger.com0tag:blogger.com,1999:blog-4190541639700840242.post-14186024062009279312015-11-04T08:55:00.000+05:302015-11-04T08:55:04.524+05:30Outlook For November 2015 / Diwali Updates<div dir="ltr" style="text-align: left;" trbidi="on">
Well October was quite lackluster in many ways. The much awaited relief rally did come through and stocks spent most of the time in narrow ranges. That is precisely how markets behave. August was sharply down and extended that to some extend in September with some smart recovery towards the end.<br />
<br />
Going by the law of averages, November-December period should be pretty exciting as far as traders are concerned.<br />
<br />
On the downside, 7925-7980 levels will be critical prior to Diwali. As long as these levels hold, we should have a build up for Mahurat trading that I am personally optimistic at 8625 odd levels [or 8400 levels towards 200 DMA at least technically] Wherever the relief rally ends there would be a correction after that. The correction can be deep or shallow and that depends on multiple factors.<br />
A simple correction would imply a retest of the 7500-7600 levels from where the next leg up should take place. There is a minor possibility of a sharp correction towards 7200 levels and that can be easily determined by the Rupee-Dollar exchange rate. In the August-September period, I had updated via Twitter that breach of 64.25 in USD-INR implied a firewall breach and that is exactly how things panned out. To the extent USD-INR stays above 64.25, rallies on Nifty will get sold into. The more time USD-INR spends closer to 66.25 levels, the greater is the danger of correction not stopping at 7500-7600 levels and going below.<br />
<br />
However, we should take things one at a time. Until Diwali AND to the extent 7925 holds, the risk-reward is in favor of buying. The Diwali rally should be used to liquidate some of the portfolio holdings as well. Post Diwali, if the negative indicators listed above start popping up on the screen, some shorts can be initiated.<br />
<br />
Critical Levels at different timeframes as of now [All values at end of respective time-frames]<br />
<br />
Daily - Bearish till below 8080 [Apprx]<br />
Weekly - Bearish till below 8180 [Apprx]<br />
Monthly - Bearish till below 8280 [Apprx]<br />
<br />
However, a short term Diwali pataakha is on the cards IMHO<br />
<br />
Fundamentally, we should also note that a lot of FIIs have book closing scheduled for December [Most developed nations follow the calendar year as fiscal year unlike India that follows an April to March period]. So there will be profit booking across emerging markets to plough money back to the parent firm, pay out Christmas bonuses, repatriate profits etc. This very much falls in line with the technical outlook as well. With the current USD-INR rates, we also need to remember that it is far less rewarding to repatriate money from India and this augurs well for a moderate correction. After that will come the Santa Rally into New Year.<br />
<br />
Taking fundamentals and technicals both into account, we have the range pretty well defined<br />
<br />
Optimistic: 8025-8625-7600-8200 for Nov-Dec combined<br />
Pessimistic: 7925-8425-7200-8000 for the same period<br />
[Day to day fluctuations will keep varying but the broad script will go on these lines IMHO]<br />
<br />
From a fundamental perspective, what are the positive triggers for the markets???<br />
The GST implementation will be a major positive trigger even if it say starts with 5 or 6 states on a pilot basis. It will provide steroids to the market<br />
<br />
The USD-INR exchange rate - if things work in favor of rupee dollar and it manages to reclaim 64.25 or lower levels [i.e. gets stronger], markets will go in favor of bulls<br />
<br />
Major negative triggers<br />
Most of the standard negative triggers have also been factored into the price<br />
Rupee Dollar, Euro-zone stability, oil prices etc<br />
<br />
The other negative triggers will be in the form of Black Swan events that nobody can predict and have to be taken as and when they come<br />
<br />
Statistical Correlations<br />
There has almost always been a statistical correlation between 2nd consecutive term of a US president into his 3rd year and a sharp correction. We are into that phase at the moment<br />
<br />
The technology stock mania. Whenever asset bubbles have emerged to alarming proportions in the technology space, markets have tumbled. It happened in 2000 with the dot-com bust. Now we can see crazy valuations creeping back again in the hi-tech space. Don't get me wrong - I am all for technology and productivity improvements, Whether it is booking tickets over an app, reviewing restaurant reviews, buying books / gifts online, hiring a taxi, the e-commerce wave has significantly improved time and resource management. These technologies are here to stay and become part and parcel of daily life. What is alarming is the crazy valuations and a mania surrounding the same. Survival of the fittest will come through and initial partners exiting businesses will come through and at some point of time, the sweet music of funding will stop<br />
<br />
Food tech apps are already feeling the heat. Zomato with a billion dollar valuation had to lay off 300 employees???<br />
<br />
Let us be very clear on fundamentals - whether it is speculators / investors in the stock market, banks or technology enabled businesses - they thrive on real businesses i.e. the brick and mortar businesses. Whether domestic or international, there has to be on the ground action for manufacturing, capital goods, infrastructure. Only when these businesses move on a sound footing will other support functions thrive. The masses in general need to have disposable income to allocate higher spends on cars, movies, shopping etc. With rising education, food and housing costs, disposable income is actually on a downtrend. The weak commodity prices are a boon for some companies but bane for most manufacturing units.<br />
<br />
Without a robust economy in place for brick and mortar business, things will never be on track. 2015 has been a painful year for the entertainment industry with significantly lower footfalls / collections. That just goes to show how sceptical mass psychology is. Social mood is not so optimistic given the fact that low commodity prices have hardly affected disposable income positively. Crude prices crashed over 50% but the transmission to consumers has been less than 20%. The commodities where demand is inelastic [pulses, cereals, grains etc] are seeing prices go through the roof.<br />
<br />
So coming back to the investment themes, as I have been repeatedly saying Gold and Silver are actually fantastic themes to get into. When we look at the longer term trends and adjust for inflation and exchange rates, precious metals tend to have a 13-3 cycle. 13 years of a bull run followed by 3 years of correction. We are approaching the end of the 3rd year and gold in dollar terms will start appreciating by 10% PA pretty soon<br />
<br />
Crude is a wonderful investment vehicle. The challenge is that one has to go through MCX. I would strictly advise against leverage although brokerages encourage that. One can take longer term contracts on the basis of liquidity and keep going for the mini lots. In dollar terms, a bottom is almost in place and in 12-18 months, we will be staring at WTI Crude above 65 levels if not more IMHO<br />
<br />
This is a good time to book profits in Stocks / Mutual Funds that have delivered good returns and convert to these themes. Real Estate, a sector that has been languishing due to abnormal pricing and excess inventory is now looking attractive. Prices have started showing reasonable correction and builders are doling out offers. From city to city the dynamics change and one would have to consult local experts for the same.<br />
<br />
So enjoy the festivities and remember that the blue chip names that are lagging behind are the ones that will end up giving the 'alpha returns'. Stay tuned to the Twitter feeds for regular updates </div>
Anonymoushttp://www.blogger.com/profile/07755997257225334558noreply@blogger.com0tag:blogger.com,1999:blog-4190541639700840242.post-66777287727290529092015-10-07T16:01:00.000+05:302015-10-07T16:01:00.059+05:30Outlook For October 2015<div dir="ltr" style="text-align: left;" trbidi="on">
Well September again was full of volatility where in we saw a retest of lows made in August and a subsequent pullback. There was one major gap between 8225 and 8025 that has almost been filled.<br />
<br />
Initially, prices may be pushed back from 8225 levels towards at least 8025 and maybe just maybe towards 7800. We will have to observe how prices pan out. Lets analyse the time-frames, current status and trend changing levels as on 6th October '15<br />
<br />
Daily: Bullish [Trend Changer = 8025 apprx]<br />
Weekly: Bearsh [Trend Changer = 8025 apprx]<br />
Monthly: Bearish [Trend Changer = 8325 apprx]<br />
<br />
October is a month with a lot of holidays in between and a 5 week long expiry series. Historical analysis points to the fact that 5 month series on Nifty tend to have a larger range [almost 800 points] and the same can be expected to play out this series as well [just as was the case in August]<br />
Direction is immaterial for now; the broad range is 7800-8225 and some consolidation is on the cards. A break of either of these 2 levels for 2 consecutive sessions will yield another 150-200 points in same direction.<br />
<br />
For Diwali 2015 [around 11th Nov '15], we are looking at a target of 8625 [barring Black Swan Events] So in case we see steep falls in October series, they can be used to buy on delivery basis for a short-term momentum trade.<br />
<br />
For the longer term, the commodities related stocks continue to remain best bets for the longer term. Crude has been consolidating around the 45 dollars a band and the worst case scenario can get the prices to 35 but it will barely stay there for 2-3 sessions and revert back to 45 levels. Prices of Steel, Aluminium, Zinc, Nickel etc are at multi-year lows and there is not much to lose in terms of value.<br />
In 3-5 years time, the base metals pack will again be staring at the highs made in the 2010-2014 period [though not lifetime highs that are near impossible to gain]<br />
<br />
The best bets in the base metals space continue to be Hindalco, Tata Steel, Vedanta, Cairn<br />
IMHO, longer term targets are as follows<br />
Hindalco = 150+<br />
Tata Steel = 450+<br />
Cairn and Vedanta will at least double from current levels<br />
<br />
Why is the commodity space looking so attractive when all are looking at an abyss<br />
1] When mass psychology is looking downwards, chances of the move in the opposite direction is far more likely!<br />
<br />
2] From an Indian perspective, the commodity prices in dollars and rupee-dollar exchange rate determine final prices. Dollar index spiked from 75 to 98 from 2010 till date. Even a 50% retracement will ensure that Dollar Index moves towards 85-86 levels [closer to US Presidential elections] When the dollar index corrects downwards, dollar based pricing of commodities go up. Rupee Dollar has made its base at 60 levels now. So these factors put together will ensure that the recovery of commodity prices in rupee terms will be much faster over the next couple of years.<br />
<br />
All said and done, India is an active consumption based economy keeping demand higher and hence inflating prices.<br />
<br />
3] Like all securities, when steep rallies or falls take place, over a period of time, 50% retracement does take place technically<br />
<br />
4] Based on practical experiences in the 2000-2003 period and 2008-2010 period, a lot of producers of commodities have already stopped production and the more prices fall, more and more producers will drop production. So market forces will levitate prices upwards<br />
<br />
Another space that is slowly getting attractive is the FMCG space, especially names like ITC, HUL. They have had meteoric rallies and are now correcting both in terms of price and time. Over the next couple of years, we can see solid base building and perhaps doubling of stock prices from current levels over the next 5 years.<br />
<br />
Have a profitable trading / investing month ahead. As and when some individual opportunities crop up, I will update the same.<br />
<br /></div>
Anonymoushttp://www.blogger.com/profile/07755997257225334558noreply@blogger.com0tag:blogger.com,1999:blog-4190541639700840242.post-61115087628661519262015-09-03T03:04:00.000+05:302015-09-03T03:04:32.065+05:30Outlook For September Series<div dir="ltr" style="text-align: left;" trbidi="on">
Well in the middle of the series the bears took an absolutely invincible lead over bulls. The larger trend for the month of August was UP with the stellar opening at 8450+ levels with an 800 points fall from there. There are multiple factors that are being touted China, crash etc etc etc.<br />
<br />
Corrections are healthy for the market and the longer term uptrend is intact. Whilst a close above 8400 levels for the month of August would have been more helpful, I personally would read this as a false breakdown. Things should turn for the better at the end of September towards Diwali 2015.<br />
<br />
The only point I would mention is that the breach of 7700 twice with conviction implies that a deeper correction is likely in the next 6 weeks. However, as long as the 7200-7440 band is intact, bulls have nothing to worry. The minimum upside target for Diwali 2015 is about 8600 or perhaps even higher.<br />
<br />
NIFTY DAILY<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhre_WGuChyNGXdhQy-xXhO6P18c8yailR7Rgn3vU8gGHlQ_SVn5uQQCE8L8kddFO4NXm-G3UDKKCesU93HeN5rxplyFXAb0SWSwRNJ9ldY_GQqwzs_19Fl968hvUcCd-gZ6QZTZtDQvR80/s1600/NIFTY+EOD.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="225" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhre_WGuChyNGXdhQy-xXhO6P18c8yailR7Rgn3vU8gGHlQ_SVn5uQQCE8L8kddFO4NXm-G3UDKKCesU93HeN5rxplyFXAb0SWSwRNJ9ldY_GQqwzs_19Fl968hvUcCd-gZ6QZTZtDQvR80/s400/NIFTY+EOD.png" width="400" /></a></div>
NIFTY WEEKLY<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEheQYTNUPXl-YBeevGHodF5cfVhdCH23C96jxM7XRqq5BD9EWQ1M38ZtYoSCVtaHflA9Q1Jnk5wfcjY8d7UAiLa8TCmyNi31ZQQM7R4PL8EHfaaztaFnR0bBc1U5eCz6KZzKGSmfZ0i2FRq/s1600/NIFTY+EOW.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="225" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEheQYTNUPXl-YBeevGHodF5cfVhdCH23C96jxM7XRqq5BD9EWQ1M38ZtYoSCVtaHflA9Q1Jnk5wfcjY8d7UAiLa8TCmyNi31ZQQM7R4PL8EHfaaztaFnR0bBc1U5eCz6KZzKGSmfZ0i2FRq/s400/NIFTY+EOW.png" width="400" /></a></div>
BANKNIFTY DAILY<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiM1YZK76PiGpMADvgjsiG7a9KH6NWwm_mAJXZUw0IacudV-nHK4Dd99yR5b_S6SkGHx2GQr5NpzRi37t9VIIh-Hj7e8gNNIO6ZrIv0lTKWFyFR9Kv9kxOF58B4FoyIR5sEqRbUB7iG3nL9/s1600/BANKNIFTY+EOD.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="225" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiM1YZK76PiGpMADvgjsiG7a9KH6NWwm_mAJXZUw0IacudV-nHK4Dd99yR5b_S6SkGHx2GQr5NpzRi37t9VIIh-Hj7e8gNNIO6ZrIv0lTKWFyFR9Kv9kxOF58B4FoyIR5sEqRbUB7iG3nL9/s400/BANKNIFTY+EOD.png" width="400" /></a></div>
<div class="separator" style="clear: both; text-align: justify;">
BANKNIFTY WEEKLY</div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhCR66eoHkzpzPE4WGX43NNuYV1YzRBvwRgZEKV2WrTHqe99sdHxWXv5C0oze7DRinkG9x62Qgxm14DBEOv26AZiLh8k2f-6kOScI_Powb972-x4EDqD7JlH8YGFShPy7bpSY7ePk9KojmM/s1600/BANKNIFTY+WEEKLY.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="225" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhCR66eoHkzpzPE4WGX43NNuYV1YzRBvwRgZEKV2WrTHqe99sdHxWXv5C0oze7DRinkG9x62Qgxm14DBEOv26AZiLh8k2f-6kOScI_Powb972-x4EDqD7JlH8YGFShPy7bpSY7ePk9KojmM/s400/BANKNIFTY+WEEKLY.png" width="400" /></a></div>
<div class="separator" style="clear: both; text-align: justify;">
<br /></div>
As we can see in the Nifty Weekly charts, even in the severest correction, the long-term trendline has not been breached [currently between the 7200-7400 zone] and likewise for BankNifty [15500-16000] band. So we are almost there in terms of corrective phase. However, corrections have price, volume and time factors. This instance the price and volume factors have been high, whilst time has been short.<br />
<br />
Falls in the current situation are great for buying on delivery basis, especially commodity linked stock prices. No matter how much the media pundits talk about the China factor, it has completed its boom and bust cycle within a 9 months. As far as base metals are concerned, there is enough inventory for about 12-15 months [the norm is 18-24 months inventory] and the dollar index is on the verge of peaking. It had a rally from 75 to 99 and a logical technical retracement would be about 85-87 levels.<br />
<br />
The way commodity prices are shrinking, one has to wonder how much more will they have to fall? As it is prices have gone below costs for a lot of plants. The industry has been through multiple peaks and troughs. A lot of plants will be in cold-idle stage until there is a reasonable recovery in commodity prices. The US rate hike will be perhaps deferred for some more time till there is clarity on liquidity situations.<br />
<br />
On the global front, I had mentioned earlier that there is a very strong correlation between the 3rd year-2nd consecutive term of a US president and global liquidity conditions [on the downside], as of now, the basic tenets have been entrenched. A relief rally towards Christmas is more likely as the risk reward ratio has tilted favorable for bulls over the last 4 weeks. A larger crisis is waiting to explode but that should happen about a year down the line closer to October 2016.<br />
<br />
The longer term charts clearly show that the bull market conditions are in place. The longer term [3 to 5 years] targets are 9600 followed by 10200. However, such large scale movements take place closer to election years as outlined in the interim post. A close examination of Nifty post-2001 shows that markets open with significant gap-ups in the month of May of an election year followed by double zig-zag corrections.<br />
<br />
How can we be sure that we are in a corrective phase??<br />
Social mood - is a leading barometer with some more statistics as well<br />
Movies, for one are showing not much signs of revival with low footfalls and more flops with even big budgets and mega-stars<br />
<br />
A normally decisive government is faltering on key reforms and giving up on the very factors they were particular that there would be laws with teeth. [Land reforms, OROP, MAT for FIIs etc]<br />
<br />
Housing inventories are piling up despite reducing interest rates and clear indications of higher rate cuts. There is an elevated level of advertisements in media for mutual funds and ULIPs that usually come towards market tops [albeit interim]. The only heartening fact is that this time, there are multiple prudent people advising SIPs and that is good. SIP is always a good route regardless of bull or bear phase.<br />
<br />
Banking stocks have taken a strong beating in the last 5 sessions but there is only 1 last leg of fall pending, barring Black Swan events. From an EW perspective, there are always at least 2 views valid at a particular phase [Medium Term in this case]<br />
<br />
Bullish Phase: Correction is done with the lows of 7667 and the markets are headed higher. This means a minimum retracement to 8325 levels or more. [Gets invalid below 7667]<br />
<br />
Bearish Phase: Correction is still pending and the indices will head lower to the support lines shown in the graph.<br />
<br />
In either scenario, the risk-reward ratio is in favor of buying on delivery basis for Diwali 2015.<br />
As far as the longer term is concerned, I am reiterating the bullish stance and would like to remind readers that Nifty is poised to cross the 10k barrier over the next 3-4 years. As far as trading is concerned, one should exercise caution in FnO space in current scenario. Volatility / Implied Volatility are high and even a sideways move is sufficient to reduce option prices. On the other hand, with higher IVs, even a large move may not bring substantial difference to the options.<br />
<br />
For futures, this kind of volatility can erode significant margin in case the position goes against traded direction. This is even more critical considering that soon, contracts will have new lot sizes that are higher and thereby increase risks. It is very tempting to look at the swift gains that can be made with the higher lot size, but greater the reward, greater the downside when the position goes against.<br />
<br />
Unless one is a seasoned player with tight money management rules and discipline, the current phase is not conducive for options in the Indian market. It is much better to stick to buying the dips on delivery basis. Ignore the media as their job is to fill airtime with news. The same point will be used to justify the market move. Suppose BankNifty had started the week on a positive note after reduction in base rates from HDFC Bank and the news regarding too big to fail banks on India, the justification would have been that lower rates imply economic confidence and larger loan books etc etc etc. Since banking stocks have been hammered over the last 2 days, the excuse has been that lower interest rates mean lower interest income etc etc etc. So whether the prices move up or down, the same point will be used for justifying in a different way.<br />
<br />
For fundamentals, the USD-INR exchange rate will be a critical barometer and the faster we come back to the sub-64.25 levels i.e. Rupee strengthening against the dollar, the faster will be the recovery for equities.<br />
<br />
Onion prices are going through the seasonal spike and will reverse to normalcy soon. Overall inflation numbers are ok [though I don't agree with RBI's inflation measuring metrics] The way things are moving, a rate cut is highly likely before Diwali 2015 that will fuel the relief rally.<br />
<br />
For September series, we have already got the strong moves in the beginning of the month. In a couple of sessions more, the volatility cooling effect should start with a range-bound market in between. Large moves in either direction with higher volatility will return to the market around 22nd September [Fall Equinox] and prices on 30th September will be most critical to determine underlying strength / weakness.<br />
<br />
Happy Investing / Trading<br />
<br /></div>
Anonymoushttp://www.blogger.com/profile/07755997257225334558noreply@blogger.com0tag:blogger.com,1999:blog-4190541639700840242.post-79479490076566200692015-08-26T04:48:00.001+05:302015-08-26T04:48:36.541+05:30Indian Indices Crack Over 4% - What Next???<div dir="ltr" style="text-align: left;" trbidi="on">
Well the last 2 sessions have been sending shock waves across markets. Everybody is wondering what the hell is happening. The last time, such deep corrections at index level happened was in 2008-2009. In my tweets and previous posts, I had categorically mentioned that 64.25 on USD-INR would be a firewall breach as far as equities are concerned.<br />
<br />
However yesterday's fall did surprise a lot and in all likelihood, there could be some steeper cuts this week. What was surprising was that a lot of media pundits tweeted "When the US market sneezes, the world gets fever" or something on those likes. Bull**** I say to them. It is not even an apple to orange comparison - understand this; the market capitalization of Apple [AAPL] is equal to the market capitalization of the Indian stock market [well almost]<br />
<br />
We have our own cues and own technicals and fundamentals. Most of the major bad news have been put behind us; Grexit avoided [at least for now] and hence Euro-zone is stable. US Fed Rate hike will take a bit longer. Then comes the Chinese dragon. A country can't keep on growing at the same rate for perpetuity. The strong 7% to 8% growth posted for over a decade now have as it is more than tripled the country's GDP. Now the base effect is much larger.<br />
<br />
Commodity prices are collapsing and in most likelihood are in the last leg of fall. Given current prices, cost of production is way below market costs. Most players will stop production as it will only amplify losses. So a recovery in commodity prices is the next logical step over the next few months [I have given my reasons vis a vis Dollar Index in my previous post]<br />
<br />
Let us evaluate Nifty. Below are the Weekly Charts based on yesterday's close<br />
<br />
Nifty Weekly<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjz-hR0EKSSAT6DSQSCbop_x5RWYoT5Dzs286BvWAdfszyB_iQzWibod-Llvl0oLPAhxsnyFgmQa9o-Ra8oIHZzu2naK7bkTSDX3Dt8MLQJas6yK3YBMUWCAmIaNK8XVqmAMKM0h2Nz3e7a/s1600/NIFTY+EOW.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="225" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjz-hR0EKSSAT6DSQSCbop_x5RWYoT5Dzs286BvWAdfszyB_iQzWibod-Llvl0oLPAhxsnyFgmQa9o-Ra8oIHZzu2naK7bkTSDX3Dt8MLQJas6yK3YBMUWCAmIaNK8XVqmAMKM0h2Nz3e7a/s400/NIFTY+EOW.png" width="400" /></a></div>
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj8_lXw3so1vYU7PpbDz5RoTEkmnqOqyDLGeSHOIVO4eBSpHgWEVy3Yb4g_FVoj6m590ybj2mWZLDi5egBa-JAyCYJdicXmZxxNZxEGamytou7Wk-M2GJhWTy7NK99FMjJrqAzPQAwKBoMA/s1600/BANKNIFTY+WEEKLY.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="225" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj8_lXw3so1vYU7PpbDz5RoTEkmnqOqyDLGeSHOIVO4eBSpHgWEVy3Yb4g_FVoj6m590ybj2mWZLDi5egBa-JAyCYJdicXmZxxNZxEGamytou7Wk-M2GJhWTy7NK99FMjJrqAzPQAwKBoMA/s400/BANKNIFTY+WEEKLY.png" width="400" /></a></div>
<div class="separator" style="clear: both; text-align: justify;">
For Nifty, there are 2 swings to take into account</div>
<div class="separator" style="clear: both; text-align: justify;">
1] Swing from 5100 to 9100 [Aug ' 13 lows to the all-time high, rounded]</div>
<div class="separator" style="clear: both; text-align: justify;">
61.8% retracement = 6628 [Longer Term]</div>
<div class="separator" style="clear: both; text-align: justify;">
<br /></div>
<div class="separator" style="clear: both; text-align: justify;">
2] Swing from 6400 to 9100 [Last Major Swing High To all-time high, rounded]</div>
<div class="separator" style="clear: both; text-align: justify;">
61.8% retracement = 7431 [Medium Term]</div>
<div class="separator" style="clear: both; text-align: justify;">
<br /></div>
<div class="separator" style="clear: both; text-align: justify;">
The base building around 7400 levels has been well cemented from May 2014 till date. In the short term, I don't think we will go below 7400 levels [even with a sharp correction for now]</div>
<div class="separator" style="clear: both; text-align: justify;">
<br /></div>
<div class="separator" style="clear: both; text-align: justify;">
By Diwali 2015, we can expect Nifty to scale 8550 at a minimum [barring Black Swan events]</div>
<div class="separator" style="clear: both; text-align: justify;">
Given the volatility, it might be difficult to trade FnO unless one is seasoned and disciplined. However, SIP with 4 to 5 tranches in blue chips will be a good way to play the current fall.</div>
<div class="separator" style="clear: both; text-align: justify;">
<br /></div>
<div class="separator" style="clear: both; text-align: justify;">
Also, we need to look at the behaviour of Nifty on a larger time frame with fundamentals in place. The Nifty cycle is largely driven by the political cycle</div>
<div class="separator" style="clear: both; text-align: justify;">
<br /></div>
<div class="separator" style="clear: both; text-align: justify;">
First major life-time high was in Jan '08 [6357] and the same was fueled for 4 years with UPA 1 and the credit expansion with the US housing markets and advent of Euro</div>
<div class="separator" style="clear: both; text-align: justify;">
<br /></div>
<div class="separator" style="clear: both; text-align: justify;">
The technical bottom for the same was expected at 3900 but the severity of credit crisis post Lehman Brothers took it down to 2252 levels but within 6 months, the technical bottom was reclaimed</div>
<div class="separator" style="clear: both; text-align: justify;">
<br /></div>
<div class="separator" style="clear: both; text-align: justify;">
UPA 2 brought in the next major leg up with a significant gap-up and then we went on to retest 6338 in Nov '10. QE facilitated a major portion of the subsequent rise post May '09</div>
<div class="separator" style="clear: both; text-align: justify;">
<br /></div>
<div class="separator" style="clear: both; text-align: justify;">
Then we went to a corrective mode [6338-5691-6181-5177-5944-5196-5740-4728-5400-4531] from Nov '10 to Dec '11</div>
<div class="separator" style="clear: both; text-align: justify;">
<br /></div>
<div class="separator" style="clear: both; text-align: justify;">
There was a good rally as a precursor to elections 2014 and we saw a huge gap-up and lifetime highs yet again. Liquidity injections by ECB, BoJ and BoE helped despite Fed taper.</div>
<div class="separator" style="clear: both; text-align: justify;">
<br /></div>
<div class="separator" style="clear: both; text-align: justify;">
But can you observe a pattern over here? The large chunks of upside happen around the election year with stratospheric levels and then we get into a corrective mode. Corrections come with a combination of domestic and global factors. When the correction is driven by domestic factors, it is less severe in terms of price but longer in duration. When the correction is driven by global factors, even the deepest supports get breached in panic only to see things recover within a short time period at least to the technical supports.</div>
<div class="separator" style="clear: both; text-align: justify;">
<br /></div>
<div class="separator" style="clear: both; text-align: justify;">
Come on let us face it - markets will have swings up and swings down. India has had meteoric rallies over the last 2 years with the index almost doubling and individual stocks even tripling and quadrupling. I am not talking about mid-caps here but large caps.</div>
<div class="separator" style="clear: both; text-align: justify;">
<br /></div>
<div class="separator" style="clear: both; text-align: justify;">
Axis Bank, ICICI Bank, Kotak Bank, Yes Bank, SBI all have doubled tripled or quadrupled</div>
<div class="separator" style="clear: both; text-align: justify;">
Infosys, Wipro and TCS have more than doubled</div>
<div class="separator" style="clear: both; text-align: justify;">
Britannia, HUL, Dabur etc</div>
<div class="separator" style="clear: both; text-align: justify;">
LT, BHEL more than tripled</div>
<div class="separator" style="clear: both; text-align: justify;">
MRF, Bosch, Maruti, M&M have quadrupled</div>
<div class="separator" style="clear: both; text-align: justify;">
<br /></div>
<div class="separator" style="clear: both; text-align: justify;">
The heartening part of the rally this time has been the fact that blue chips have performed extremely well with existing business models [unlike Suzlon, Unitech, JP, DLF, ADAG Group etc that was the case last time] </div>
<div class="separator" style="clear: both; text-align: justify;">
<br /></div>
<div class="separator" style="clear: both; text-align: justify;">
If we look at the Rupee-Dollar exchange rate, so far the correction has been less severe. In 2010-2011, when the rupee went from 48.25 to 52.25, the index shaved off over 30% in less than 6 months from 6338 levels. </div>
<div class="separator" style="clear: both; text-align: justify;">
<br /></div>
<div class="separator" style="clear: both; text-align: justify;">
Bottom-line: Corrections are good and healthy for the market. Regardless of where the current correction ends, Nifty has a very high probability of reclaiming 8550-8600 levels [if not more] within the end of 2015 [barring Black Swan Events]. Use current corrections to buy on delivery basis in a systematic and phased manner. As usual, a well diversified way would be to buy Nifty Bees and BankBees. I won't recommend Junior Bees and Infra Bees as of now because they are still very expensive and are most fragile [When I had recommended these last time, InfraBees was around 180 a piece and Junior Bees was around 115 a piece. Currently these 2 ETFs are way above those prices]</div>
<div class="separator" style="clear: both; text-align: justify;">
<br /></div>
<div class="separator" style="clear: both; text-align: justify;">
On a longer term horizon, Nifty is well-poised to hit the 5 figure mark of 10k levels but that I reckon will happen only after the next election cycle.</div>
<div class="separator" style="clear: both; text-align: justify;">
<br /></div>
<div class="separator" style="clear: both; text-align: justify;">
Happy Investing</div>
<div class="separator" style="clear: both; text-align: justify;">
<br /></div>
<div class="separator" style="clear: both; text-align: justify;">
<br /></div>
<div class="separator" style="clear: both; text-align: justify;">
<br /></div>
<div class="separator" style="clear: both; text-align: justify;">
<br /></div>
<br /></div>
Anonymoushttp://www.blogger.com/profile/07755997257225334558noreply@blogger.com0tag:blogger.com,1999:blog-4190541639700840242.post-42357758337389789332015-08-14T06:51:00.001+05:302015-08-14T06:51:10.803+05:30Some Longer Term Buying Opportunities - Bargain Buys<div dir="ltr" style="text-align: left;" trbidi="on">
The strengthening of the dollar has been playing truant as far as commodities are concerned. Hence, on Indian bourses also, we are seeing some blue chip names getting battered and for all one knows, these are perhaps buying opportunities with a 2-3 year time horizon<br />
<br />
First things first, let us evaluate Dollar Index<br />
The Dollar Index has surged from 75 odd levels in 2011 to 99 levels and even in case of extreme panic, it may spike to 101 levels. Almost 5 years now and a correction in Dollar index is on the cards. What news and events will take it there, I do not know. However, technical correction of 50% retracement will gradually take it back towards the 85 levels. Of course that will not happen immediately but over a period of 2 years<br />
<br />
Even at constant commodity prices at current low levels, this dollar weakening will automatically propel commodity linked prices by 25% to 30%. As we are aware, commodity prices will also not stay stagnant. They will rise along with the weakening dollar giving an upside potential of 50% to 60% of blue-chip commodity price linked stocks<br />
<br />
Tata Steel<br />
Last time, Tata Steel had its fall arrested in the 200 zone. This time, even 200 may not hold and there is every chance that the stock may test 150 levels. That is fine. It is a Nifty bell-weather stock and will continue to be so. It will eventually surge to 350-400 levels<br />
<br />
Hindalco<br />
Let us ignore the Novelis loss for now. Fact of the matter is that Hindalco is the global leader as far as cans for food and beverages segment is concerned. It has been doing extremely good backward integration to reduce power costs [the biggest cost as far as aluminium manufacturing is concerned]<br />
Short-term, the stock may go to 75 levels also and that is fine. With recovery in aluminium prices, and weakening of dollar, the stock will find its way back to 150+ levels<br />
<br />
Cairn<br />
The stock has its price linked to crude oil prices. In between, there was a risk of losing out cash with merger with Vedanta. Now that majority share-holders have rejected that move, it is still a crude oil price play. To the extent Cairn steers clear of merger with Vedanta, the max downside that this counter can have is in the 100-120 zone. However, when crude prices will eventually surge towards 65 dollars per barrel, this counter will come to 275+ levels IMHO<br />
<br />
The regular index will follow its own course. However, there are instances when there are good opportunities to pick at bargain prices and hold in the portfolio. These counters IMHO are right now presenting opportunities to be picked. They may not end up multi-baggers like the FMCG, IT or Pharma but still have potential to generate 30% CAGR returns over the next 3 years<br />
<br />
Disclosure: I have personal holdings directly / indirectly through family members in these counters. I have also recommended these counters to people in my professional network</div>
Anonymoushttp://www.blogger.com/profile/07755997257225334558noreply@blogger.com0tag:blogger.com,1999:blog-4190541639700840242.post-21105313522831168412015-08-02T12:05:00.000+05:302015-08-02T12:05:11.771+05:30Outlook For August 2015<div dir="ltr" style="text-align: left;" trbidi="on">
So it has been yet another roller coaster month starting with gains, then a sudden fall and a mind boggling recovery. If we analyze the last 3 months, this has been a pattern with Nifty<br />
<br />
It starts the series with a rock solid opening only to fizzle out sooner. A lot of people are already resigned to the fact that August may again repeat the same story. Unless a Black Swan event comes through, I personally believe that this time the story will tilt towards the bulls.<br />
<br />
Over the last couple of months and July as well, the 8380-8425 zone was critical on the monthly time-frame. In May, the series ended at 8433 [border] and in June the series ended at 8368 giving a fair clue that prices would gravitate towards 8400 as we move closer to expiry.<br />
<br />
31st July is the first day of the August series and it seems deja vu as far as first day of stellar performance is concerned. What is critical is that it is the close of the month as far as technicals are concerned [Technicals don't care when expiry is done!] The crucial zone for month close was 8380-8425. We have closed well above that for the calendar month of July. This makes August series a high probable month for bulls. Will there be no correction at all?? Corrections are healthy for the market and will take place - the quantum is what matters. So from a mathematical, statistical and technical point of view, the max downside is 8180 for August series barring Black Swan Events.<br />
<br />
Even if the Nifty drops to 8180 levels, it is poised to recover smartly just as the case was with the recovery from 7940 levels. On the upside, 8800-8825 zone has been a high resistance zone on Nifty. As of now, the expected range for Nifty in August series is 8200-8800. We are right at the middle zone right now. I cannot say which end of the range will get a visit first. If we do get to the upper end of the range first, I will be cautious with shorting. On the downside, I would be a buyer in the 8180-8280 zone with SL at EOD < 8080<br />
<br />
For the BankNifty, the expected range is 17800-19200 levels. 18800 level also has been critical for the last 2.5 months with just 1 week when BankNifty was above this zone. When I look at the major banking names, even with a stellar performance on Friday, SBIN is at critical resistance of 275-282 band. ICICI Bank has stiff resistance at 325 levels for now. LT has made a double top in the 1825 zone. Which end of the market will be visited first - will get clearer by Wednesday, 5th Aug '15.<br />
<br />
NIFTY / BANKNIFTY CHARTS<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgM9HZUTqk4jTbI9OxZat-X-mgjNpQHPvlOCyC8mrmne3eDlbC4MTO-Ka1beCD1T4d1Rl3exBxi1Mc3VkOtkWvaWD4LCUXeC8xRo0pFNnPnzSJmYyxECpmjt0hyphenhyphenDKLvxn90Fq3_SBVyFxpU/s1600/NIFTY+EOD.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="180" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgM9HZUTqk4jTbI9OxZat-X-mgjNpQHPvlOCyC8mrmne3eDlbC4MTO-Ka1beCD1T4d1Rl3exBxi1Mc3VkOtkWvaWD4LCUXeC8xRo0pFNnPnzSJmYyxECpmjt0hyphenhyphenDKLvxn90Fq3_SBVyFxpU/s320/NIFTY+EOD.png" width="320" /></a></div>
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgyR4jzxcZgtD_4qZN68h3TzcbMTmFQ6cbxz0elUZvr2OIr_y5B2iGzxe5en3UUd0g6duYlYRdYruFWoSauLAZSlp-I8wARY66FZsUd90vxGiAh9ldJnbyLAp8eohE-2HLicqkDbPAso8JB/s1600/NIFTY+EOW.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="225" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgyR4jzxcZgtD_4qZN68h3TzcbMTmFQ6cbxz0elUZvr2OIr_y5B2iGzxe5en3UUd0g6duYlYRdYruFWoSauLAZSlp-I8wARY66FZsUd90vxGiAh9ldJnbyLAp8eohE-2HLicqkDbPAso8JB/s400/NIFTY+EOW.png" width="400" /></a></div>
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjLEHeKN8emMORocxR3ZZD5upR3Gb2MeAcEaQixF_FIOw9f0gdT1N2hyphenhyphenloi-jD9UC4PxdC7Fdv9Ir7xZmPNvN-zk-Bcl9Pq0HuNVpfDFJoHgDfyfuhgTEXOgKNtShwAep345EbKZp3wAZVZ/s1600/BANKNIFTY+EOD.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="225" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjLEHeKN8emMORocxR3ZZD5upR3Gb2MeAcEaQixF_FIOw9f0gdT1N2hyphenhyphenloi-jD9UC4PxdC7Fdv9Ir7xZmPNvN-zk-Bcl9Pq0HuNVpfDFJoHgDfyfuhgTEXOgKNtShwAep345EbKZp3wAZVZ/s400/BANKNIFTY+EOD.png" width="400" /></a></div>
<div class="separator" style="clear: both; text-align: center;">
<br /></div>
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjZTF9xkuyJhCnuvla2sPjQVnEKTEcBPIBk9RbsfkmbPPpyFw6PkgnDJYAVx-vnjc1ankIUfhls8TxsHerCgUZs_S8CPIXUK7F621FSyMXG-a1KgPoFwFs-mfUdSkOb2Sk8gL53AAal4tjv/s1600/BANKNIFTY+WEEKLY.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="225" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjZTF9xkuyJhCnuvla2sPjQVnEKTEcBPIBk9RbsfkmbPPpyFw6PkgnDJYAVx-vnjc1ankIUfhls8TxsHerCgUZs_S8CPIXUK7F621FSyMXG-a1KgPoFwFs-mfUdSkOb2Sk8gL53AAal4tjv/s400/BANKNIFTY+WEEKLY.png" width="400" /></a></div>
<div class="separator" style="clear: both; text-align: center;">
<br /></div>
<div class="separator" style="clear: both; text-align: justify;">
A glance at the weekly chart clearly shows that unless there is some major economic catastrophe, the severest correction will not take Nifty below 7442-7525 levels.</div>
<div class="separator" style="clear: both; text-align: justify;">
<br /></div>
<div class="separator" style="clear: both; text-align: justify;">
BankNifty weekly chart clearly shows why most of the action will be in the 18500 +/-300 points zone for most of August series [21, 34 and 50 week Moving Averages are trying to converge at 18500 levels] First, they will converge [4 to 6 week process] and then determine whether an upper cross-over has to happen or the other way around. As far as my understanding of MAs in higher timeframes is concerned and the concept of 'Regression To The Mean', even if on an hourly or daily time frame, prices go above / below 18200 and 18800, prices will gravitate or levitate towards 18500 till convergence of 21, 34 and 50 week MAs]</div>
<div class="separator" style="clear: both; text-align: justify;">
<br /></div>
<div class="separator" style="clear: both; text-align: justify;">
The range is pretty good on Nifty as well as BankNifty from a trading perspective in August. Falls will be buying opportunities. As far as shorting goes, it is better to wait for confirmation on at least daily time frame. </div>
<div class="separator" style="clear: both; text-align: justify;">
<br /></div>
<div class="separator" style="clear: both; text-align: justify;">
For the EOD June contest, our winner is Asit. My apologies for not having got back to you in time.</div>
<div class="separator" style="clear: both; text-align: justify;">
Will connect with you personally next week.</div>
<div class="separator" style="clear: both; text-align: justify;">
<br /></div>
<div class="separator" style="clear: both; text-align: justify;">
Stocks for buying on delivery basis [Longer Term Recommendations]</div>
<div class="separator" style="clear: both; text-align: justify;">
I would still go with the metals pack Tata Steel and Hindalco. Tata Steel may correct downwards upto 150 levels also but will find its way back to 300, followed by 450 in a 3 year timeframe.</div>
<div class="separator" style="clear: both; text-align: justify;">
<br /></div>
<div class="separator" style="clear: both; text-align: justify;">
Hindalco may correct downwards to 70-75 levels also but it will most likely reclaim 160 in a 3 year timeframe. </div>
<div class="separator" style="clear: both; text-align: justify;">
<br /></div>
<div class="separator" style="clear: both; text-align: justify;">
Tata Global Beverages: The stock has been in a range of 120-150 for over 3 years now. It is likely to do that for some more time. However, I personally believe that this stock is a potential multibagger with a 5-7 year horizon in mind. This stock has potential to repeat the past outperformance of Tata Coffee and Trent Retail.</div>
<div class="separator" style="clear: both; text-align: justify;">
<br /></div>
<div class="separator" style="clear: both; text-align: justify;">
In the financials, L&T Finance and IDFC would perhaps be the next outperformers with a 5 year horizon in mind. L&T is gearing up to be a supermarket of funds and insurance and will perhaps bag a banking license soon. IDFC has been good with fund management on both equities and debt. With more innovative products like Trade Finance and Supply Chain finance, this stock has the potential to be the next Yes Bank / Kotak Mahindra Bank in terms of relative stock outperformance.</div>
<div class="separator" style="clear: both; text-align: justify;">
<br /></div>
<div class="separator" style="clear: both; text-align: justify;">
We must note that such scrips stay in embryonic / gestation phase for longer periods of time and then shoot up like bamboo sticks. One needs to be extremely patient. There was a time when Axis Bank and ICICI Bank were traded at 28 rupees a share [2.8 rupees considering the stock splits] They simply kept oscillating around this range for almost 5-6 years before soaring to stratospheric levels</div>
<div class="separator" style="clear: both; text-align: justify;">
Even the 52 Week Low of ICICI Bank is 100 times the original price [considering split]</div>
<div class="separator" style="clear: both; text-align: center;">
</div>
<br />
To summarize, I don't think there is too much potential for Hindalco and Tata Steel to outperform as such. The true range is known. These counters should be accumulated when the prices are below the true ranges. Being linked with prices of metals on international markets and debt-intensive nature of the businesses, they can't go on to make fresh highs. Forget fresh highs, they perhaps may not even visit the old highs!<br />
<br />
Tata Global Beverages is a futuristic story on aspirational Indians. L&T Finance and IDFC are in the budding stages to become the next Sriram Transport Finance, Yes Bank, Kotak Mahindra Bank, Bajaj Finserve etc.<br />
<br />
Disclosure: I do have personal holdings in the mentioned counters directly or through family members. I have also shared / recommended these counters with contacts in my professional network. </div>
Anonymoushttp://www.blogger.com/profile/07755997257225334558noreply@blogger.com0tag:blogger.com,1999:blog-4190541639700840242.post-64914813148604933242015-07-01T10:54:00.001+05:302015-07-01T10:54:56.190+05:30Outlook For July 2015<div dir="ltr" style="text-align: left;" trbidi="on">
Well it has been a very exciting June series on expected lines with large swings in either direction.<br />
The Grexit woes are currently looming large. I won't get too much into the details as I have already covered the same in 2 separate posts.<br />
<br />
What do we expect for July 2015???<br />
Common market mantra for Nifty is Sell in May & Go Away / In July Make the Nifty Fly<br />
Sell in May was not a predominant theme this time and it is too early to hazard a guess for July<br />
<br />
Review of Nifty / BankNifty Charts<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgdFmXAYO3GTWBmYMhBWjOvXxJKDIgRgC_yCrjn3-te4_p2nLgfPyTfpf_RLLThnzALiOIphRr7-A-TyRGZ4l7anCezV9C6XOQAY3eLPWu9h-KAnsMc1SWp4a3ws1jGrKBgHlmMeH7yroTC/s1600/Nifty-EOD.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="225" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgdFmXAYO3GTWBmYMhBWjOvXxJKDIgRgC_yCrjn3-te4_p2nLgfPyTfpf_RLLThnzALiOIphRr7-A-TyRGZ4l7anCezV9C6XOQAY3eLPWu9h-KAnsMc1SWp4a3ws1jGrKBgHlmMeH7yroTC/s400/Nifty-EOD.png" width="400" /></a></div>
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgwKti1rJeHPSE7ZQwylsV0Bt_UaOiZkFvJJNKjTJeUb0BamFK4L89ryc0sRTm8Nz_FMCbQQFAIFbhCREBkZWepBVGPpUvptr8_DKJ-NeQleSKAQxVjWPCxmk5mjaxioKx-eI62_cS_CWUN/s1600/Nifty-EOW.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="225" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgwKti1rJeHPSE7ZQwylsV0Bt_UaOiZkFvJJNKjTJeUb0BamFK4L89ryc0sRTm8Nz_FMCbQQFAIFbhCREBkZWepBVGPpUvptr8_DKJ-NeQleSKAQxVjWPCxmk5mjaxioKx-eI62_cS_CWUN/s400/Nifty-EOW.png" width="400" /></a></div>
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh1NcwYCMecx9bCqsp6Oozt5YnUQIfuUU2vAGs9L7v7NCPapIK4Cck4uoOf3K_SL4hu5eG0HPbzhdDWOyeeaXZ-ESqrvm0g1b0U0e-SWPWA4ktPWocyCE9Od-6n8WGgh5mD2BVKgGVcNZmx/s1600/BankNifty-EOD.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="225" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh1NcwYCMecx9bCqsp6Oozt5YnUQIfuUU2vAGs9L7v7NCPapIK4Cck4uoOf3K_SL4hu5eG0HPbzhdDWOyeeaXZ-ESqrvm0g1b0U0e-SWPWA4ktPWocyCE9Od-6n8WGgh5mD2BVKgGVcNZmx/s400/BankNifty-EOD.png" width="400" /></a></div>
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgiuTwdQBRRFwTJCn9QEtNe1TvIfX8K351F0Hl0teh98da3Lk_ofLAYARQanHgb-8iuW3Q3H3KzpLYPqnUZzO50o7GkYuog5vVnBcHgL7pUidCbBGQWOufqIAPFPbNvolwHITUkU94FUB5u/s1600/BankNifty-EOW.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="225" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgiuTwdQBRRFwTJCn9QEtNe1TvIfX8K351F0Hl0teh98da3Lk_ofLAYARQanHgb-8iuW3Q3H3KzpLYPqnUZzO50o7GkYuog5vVnBcHgL7pUidCbBGQWOufqIAPFPbNvolwHITUkU94FUB5u/s400/BankNifty-EOW.png" width="400" /></a></div>
<br />
<div class="separator" style="clear: both; text-align: justify;">
As far as Nifty is concerned, there are 2 major resistances to be conquered</div>
<div class="separator" style="clear: both; text-align: justify;">
<br /></div>
<div class="separator" style="clear: both; text-align: justify;">
1] 8425 [apprx] The prev swing highs prior to June expiry</div>
<div class="separator" style="clear: both; text-align: justify;">
2] 8493 A major swing high from where the previous fast and furious fall started towards 7940</div>
<div class="separator" style="clear: both; text-align: justify;">
<br /></div>
<div class="separator" style="clear: both; text-align: justify;">
2 consecutive closes above 8493 [8525 for a bit of tolerance] and Nifty opens for a retest of 8800 levels [vindicating in July make the Nifty fly]</div>
<div class="separator" style="clear: both; text-align: justify;">
<br /></div>
<div class="separator" style="clear: both; text-align: justify;">
At the time of writing, Nifty is flirting with the 8425 mark but I can stick my neck out and confirm that both 8425 and 8493 are extremely difficult to negotiate and would need a lot of volume and momentum [especially 8493 as that has stuck out for almost 5 weeks now]</div>
<div class="separator" style="clear: both; text-align: justify;">
<br /></div>
<div class="separator" style="clear: both; text-align: justify;">
On the downside, 8225, 8125 and 8025 remains good supports from where bounce backs can be expected.</div>
<div class="separator" style="clear: both; text-align: justify;">
<br /></div>
<div class="separator" style="clear: both; text-align: justify;">
On BankNifty, the critical resistance comes at 18600. As of now there is a short term double top formation around the 18800 area. 2 consecutive closes above 18600 and breach of 18800 with volume and momentum opens Nifty for test of 19200-19400 area.</div>
<div class="separator" style="clear: both; text-align: justify;">
<br /></div>
<div class="separator" style="clear: both; text-align: justify;">
As I have kept saying again and again, it is not the Greece standalone issue that is sending shivers for hot money. It is the risk of contagion and negative precedence it sets for a negative chain reaction across bond markets that will result in a lot of liquidity contraction with investors' flight to safety.</div>
<div class="separator" style="clear: both; text-align: justify;">
<br /></div>
<div class="separator" style="clear: both; text-align: justify;">
As I mentioned in an article earlier, purely from a sovereign debt perspective, ECB's standalone cost of Grexit standalone is estimated at about 40 billion euros over the next 36 months. The real uncertainties come on the shock-waves after that.</div>
<div class="separator" style="clear: both; text-align: justify;">
<br /></div>
<div class="separator" style="clear: both; text-align: justify;">
First and foremost: A large scale currency devaluation should Greece go back to Drachmas and what happens to the depositors' money in the banks. What exchange rates will be used?</div>
<div class="separator" style="clear: both; text-align: justify;">
And then if these things spill over to other PIIGS countries, the impact is much larger in countries like Spain and Italy.</div>
<div class="separator" style="clear: both; text-align: justify;">
<br /></div>
<div class="separator" style="clear: both; text-align: justify;">
The humanitarian angle: With deposits curbed at 60 Euros per card and ATM machines without cash, basic food, medicines and fuel purchases are also in danger. Procedural justice for sovereign mismanagement is resulting in a humanitarian collateral damage.</div>
<div class="separator" style="clear: both; text-align: justify;">
<br /></div>
<div class="separator" style="clear: both; text-align: justify;">
Multiplier Effect: There is not much public domain data in Europe with regards to Credit Default Swaps. Even when the previous 2008-2009 crisis took place, it was the Credit Default Swaps market that accelerated the credit crunch.</div>
<div class="separator" style="clear: both; text-align: justify;">
<br /></div>
<div class="separator" style="clear: both; text-align: justify;">
Hopefully by 6th or 7th July, we will have clarity on the issue.</div>
<div class="separator" style="clear: both; text-align: justify;">
<br /></div>
<div class="separator" style="clear: both; text-align: justify;">
So let us stick to critical levels and other indicators to watch out </div>
<div class="separator" style="clear: both; text-align: justify;">
<br /></div>
<div class="separator" style="clear: both; text-align: justify;">
For the Indian equities arena, I have already outlined the crucial resistance and support levels.</div>
<div class="separator" style="clear: both; text-align: justify;">
2 things that I will be watching very closely are USD-INR and 10-Year bond yields. As long as spot rates are below 64.25 for currency and below 8% for the G-Sec, the house is in order. If the currency starts trading above 64.25 and / or bond yields harden over 8%, the corrective phase will get prolonged. For the corrective side, the pattern target comes to around 7650-7700 zone</div>
<div class="separator" style="clear: both; text-align: justify;">
<br /></div>
<div class="separator" style="clear: both; text-align: justify;">
Which way it will go, time will tell.</div>
<div class="separator" style="clear: both; text-align: justify;">
However, for the longer term, there are a lot of individual stocks that are ripe for accumulation.</div>
<div class="separator" style="clear: both; text-align: justify;">
<br /></div>
<div class="separator" style="clear: both; text-align: justify;">
Hindalco, Tata Steel, IDFC, Nestle, Tata Global Beverages are all at attractive levels. They may fall further from current levels by another 20% to 30% but that is ok. The time horizon for these investments is around 3-4 years and expected gains are at 20% PA in the longer term.</div>
<div class="separator" style="clear: both; text-align: justify;">
<br /></div>
<div class="separator" style="clear: both; text-align: justify;">
In the second week of July, Jupiter, a major planet will move into the fiery sign of Leo. On a personal level, it will bring a lot of positive changes for some whilst challenges for some other. Across capital markets, this Jupiter transit will bring a medium term shift. Whether it is a change for positive or negative, time will tell. But some certainty and direction will come into force by the end of July </div>
<br /></div>
Anonymoushttp://www.blogger.com/profile/07755997257225334558noreply@blogger.com0tag:blogger.com,1999:blog-4190541639700840242.post-31080331592421095942015-06-30T10:25:00.000+05:302015-06-30T10:25:17.923+05:30China - Meteoric Rise and Free Fall<div dir="ltr" style="text-align: left;" trbidi="on">
Chinese markets hit multi-month highs within a short period of 6 months and have almost cracked 20% from recent highs within 2 weeks. Most Indian stock market commentators are busy harping on 2 points<br />
<div>
<br /></div>
<div>
1 - Margin selling pressure due to tighter government regulation [Partly correct]</div>
<div>
2 - Money invested in China may be re-directed to India [Grossly Incorrect]</div>
<div>
<br /></div>
<div>
As usual, when the key objective of tv anchors is to fill in airtime and prove himself / herself smart, such loose comments are inevitable. Unfortunately, a vast majority of people end up following these very delusional anchors to find themselves on the wrong side of the fence.</div>
<div>
<br /></div>
<div>
Let me first put out a 5 year Chart of Shanghai Composite v/s Nifty from Yahoo Finance for a perspective </div>
<div>
<br /></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiEryF2CzzXIYUjZ-4oWV1UD_3u9v2TsaZYmgp8lqrQAWyIG3LDOxacay4N1uZVUzieEUh6-LPSRnAFhaKgDYP0t_BqOdfBXbn0WXnH7EV2133-Rzcyl683fmSCYT-kDPeRM6zOCjpHl-CG/s1600/Shanghai+Composite.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="225" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiEryF2CzzXIYUjZ-4oWV1UD_3u9v2TsaZYmgp8lqrQAWyIG3LDOxacay4N1uZVUzieEUh6-LPSRnAFhaKgDYP0t_BqOdfBXbn0WXnH7EV2133-Rzcyl683fmSCYT-kDPeRM6zOCjpHl-CG/s400/Shanghai+Composite.png" width="400" /></a></div>
<div class="separator" style="clear: both; text-align: justify;">
The bold green line is the path of Nifty whilst the thin blue line is Shanghai Composite</div>
<div class="separator" style="clear: both; text-align: justify;">
<br /></div>
<div class="separator" style="clear: both; text-align: justify;">
Shanghai was down and out in 2013 at almost half the value of the earlier peak when all emerging economies were in their corrective phases. It stayed there for a very long time with elections due in South Africa, India, Indonesia and developed nations like Germany.</div>
<div class="separator" style="clear: both; text-align: justify;">
<br /></div>
<div class="separator" style="clear: both; text-align: justify;">
Remember that to a large extent, China pegs currency values and undoubtedly, it is the largest holder of US T-Bills and German Bunds as a sovereign across the globe. China was [and is still] trying to build on as a hegemony country of the East [Like US hegemony in the West]. The South China Sea dispute was a major factor of concern highlighted by major investment banks as well. </div>
<div class="separator" style="clear: both; text-align: justify;">
<br /></div>
<div class="separator" style="clear: both; text-align: justify;">
Once the election tailwinds went out of the way and dollar strength started surging in second half of 2014, it started making a lot of sense for fund managers seeking 'alpha' returns that the Chinese market was one major pocket of opportunity. China is a major guzzler of steel, copper and zinc and base metal prices are down in doldrums globally for over 2 years now. Oil prices started cooling off and with Dow, FTSE almost near peaks, uncertainty in Europe and expensive emerging markets, it was no brainer that China was waiting to explode as far as fund managers were concerned.</div>
<div class="separator" style="clear: both; text-align: justify;">
<br /></div>
<div class="separator" style="clear: both; text-align: justify;">
The successful IPO of Alibaba gave things a positive fillip but this rise was too much too soon. Doubling of the entire index in 6 months and that probably meant tripling and quadrupling of some of the index heavy weights.</div>
<div class="separator" style="clear: both; text-align: justify;">
<br /></div>
<div class="separator" style="clear: both; text-align: justify;">
Statistically, this concept is known as "Regression To The Mean". In simple terms, it means that something that has been grossly overperforming / underperforming for a prolonged period of time will go contrary to that trend and allow averages to catch up. We see that with sales teams across sectors, thematic mutual funds and sectoral indices as well. [Law of Averages, as we say in cricket]</div>
<div class="separator" style="clear: both; text-align: justify;">
<br /></div>
<div class="separator" style="clear: both; text-align: justify;">
For instance, a sales team that consistently hits and exceeds sales targets for 3 or 4 quarters starts tapering and cooling off for a couple of quarters. On the other hand, sales teams that were down in the doldrums suddenly stage a comeback with good sales. Fundamentally there are many reasons for that but statistically, it is something that has been established well over time.</div>
<div class="separator" style="clear: both; text-align: justify;">
<br /></div>
<div class="separator" style="clear: both; text-align: justify;">
Let us take India itself for instance; In the 2005-2008 rally when we hit 6300+ for the first time in Nifty's history, FMCG and Pharma were steady overall but not rank outperformers. Cyclicals and Infrastructure was the buzzword. By the time the entire correction of 2008 peak corrected and we scaled 6300+ again in Nov '10, most of the stellar performers of 2008 were anywhere between 50% and 80% down. 2010 was the time when FMCG, IT, Automotive started becoming pet themes outperforming frontline indices and cyclicals [HUL was around 280 at Nifty Nov '10 peak and Asian Paints was around 350 (adjusted for stock split), Tata Motors hit lows of 125, Maruti 750 M&M 630]</div>
<div class="separator" style="clear: both; text-align: justify;">
<br /></div>
<div class="separator" style="clear: both; text-align: justify;">
From a global indices perspective, DJIA and DAX were rank outperformers in the 2010 to 2014 period. DAX rallied from 5750 levels to 11k+ levels despite the Euro-zone crisis; DJIA was at 10800 in Oct '11 and went on to scale 16k by end 2013. Nikkei more than doubled from 2012 to 2015. With all the After getting to these levels, the subsequent leg up has not been very inspirational. Euro-zone problems intact, massive QE, Shanghai was a rank under-performer in global activities. So what would law of averages indicate? It was time for the Chinese dragon to spit fire.</div>
<div class="separator" style="clear: both; text-align: justify;">
<br /></div>
<div class="separator" style="clear: both; text-align: justify;">
Early indications of the Chinese dragon waking up from slumber was the way it has been lapping up physical gold from the time gold went below 1450 dollars / ounce [and China has an almost 5 month order to delivery backlog! Details can be obtained from the LME notes and World Gold Council]</div>
<div class="separator" style="clear: both; text-align: justify;">
The way Chinese government is using T-Bills as collateral to fund massive infrastructure projects was a clear indicator of things to come. </div>
<div class="separator" style="clear: both; text-align: justify;">
<br /></div>
<div class="separator" style="clear: both; text-align: justify;">
By September 2014, the Chinese dragon woke up from slumber and started breaking out of some critical resistances one after the other. The problem was the rise in Chinese markets was too much too soon and pretty much an asset bubble with a lot of margin trades [leverage] Chinese central banking agents were absolutely right in implementing tighter leashes because an index that languished at less than 50% off old peaks for over 2 years suddenly shot up defying gravity big time. Media pundits are again harping along big time about China being in a bear market since it has breached the 20% fall from peak.</div>
<div class="separator" style="clear: both; text-align: justify;">
<br /></div>
<div class="separator" style="clear: both; text-align: justify;">
I am not even getting into Elliott Waves here - simple technical analysis tells you that large swings up or down tend to retrace at least 50% in nominal terms and 38.2% in semi-log terms. So for an index that has moved from 2200 levels to 5200 levels, a 50% retracement is very much on the cards that pegs the retracement to go to at least 3700 levels before resuming the next leg upwards.</div>
<div class="separator" style="clear: both; text-align: justify;">
<br /></div>
<div class="separator" style="clear: both; text-align: justify;">
A lot of Indian tv anchors are making an absolute fool of themselves by saying money will move out of China into India. Taking the major index stocks into account, Indian stock market is worth a little over 1 Trillion USD. Chinese penny stocks alone are worth 8 trillion!!</div>
<div class="separator" style="clear: both; text-align: justify;">
<br /></div>
<div class="separator" style="clear: both; text-align: justify;">
Right now, all focus is on the major Grexit and potential repercussions. The structural bull market in China is absolutely intact. In the short to medium term, it may slip to 3250 as well but it is poised to scale 7500 levels over the next 5 years. The current correction is severe simply because the meteoric rise was fueled by leverage and when deleveraging has been imposed, weaker hands will be taken out in the process. All said and done, some headwinds have to be negotiated.</div>
<div class="separator" style="clear: both; text-align: justify;">
<br /></div>
<div class="separator" style="clear: both; text-align: justify;">
If the Grexit crisis and contagion does hit global markets, then we may see the Dollar Index briefly kiss the 100 mark. After things cool off in Greece and the next innings of QE begins to alleviate the pain caused, we will in all likelihood see the Dollar Index cool off to about 90 levels. This is the time when the Indian Tiger and Chinese dragon will roar once again.</div>
<div class="separator" style="clear: both; text-align: justify;">
<br /></div>
<div class="separator" style="clear: both; text-align: justify;">
[What goes up must come down; smart money is always on the look out for alpha and hence regression to the mean / law of averages will play out across asset classes]</div>
<div class="separator" style="clear: both; text-align: justify;">
<br /></div>
<div class="separator" style="clear: both; text-align: justify;">
Just as we have Hang Seng Bees, we may soon get Shanghai / Shenzhen Bees in India and should that come through, it makes sense to have SIPs in that! </div>
<div>
<br /></div>
</div>
Anonymoushttp://www.blogger.com/profile/07755997257225334558noreply@blogger.com0tag:blogger.com,1999:blog-4190541639700840242.post-73631245143009172682015-06-30T03:11:00.000+05:302015-06-30T09:39:09.025+05:30The Big Fat Grexit Drama / Nifty<div dir="ltr" style="text-align: left;" trbidi="on">
Says Keynes, "Markets are irrational to the extent one is solvent"; whilst I may not agree with all his economic principles, I definitely agree with this prophetic statement of his.<br />
<div>
<br /></div>
<div>
We started with a huge gap-down and all major index futures across the globe were showing cuts of over 4%. First it was the put writers who ran for cover, then we saw some brave gladiators aggressively write calls only to run for cover towards the end.</div>
<div>
<br /></div>
<div>
Whenever this kind of uncertainty hits the market, there will be multiple knee-jerk reactions and at the end of the day, one starts wondering what the hell is going on! Technicals are supreme; temporarily they may show ticker prices contrary to technical expectations and that always happens in conditions of flux and panic. However, these tendencies are exceptions and eventually prices move back to regular technical conditions.<br />
<br />
Going purely by a technical outlook for Nifty [I will be making a separate detailed post tomorrow with outlook for July 2015], we had a large swing down from 8493 to 7940 in April series.<br />
<br />
8493 - 7940 = 553 points [61.8% = 342]<br />
7940 + 342 = 8280 So a move upto at least 8280 was very much on the cards. What really happened was a fast and furious pull-back [signs of a structural bull market] all the way to 8425 odd levels.<br />
<span style="background-color: black;"><span style="color: white;"><br />
<b><i><u><span style="font-size: large;">With today's gap down opening and lows of 8200 [rounded], the swing has been 8425 - 8200 = 225</span></u></i></b></span></span><br />
<b><i><u><span style="background-color: black; color: white; font-size: large;">[61.8% = 8340 apprx]</span></u></i></b><br />
<br />
Tomorrow is the monthly close. For the last 2 months or so, the critical price on a monthly time-frame has been around the 8380-8425 zone [Last month's critical number was 8410] If we do manage to close around the 8380-8425 zone tomorrow, then it suggests that regardless of where markets go in the early part of July 2015, prices will try to stage a comeback towards the end of the series exactly as they did in June 2015]<br />
<br />
Back to Greece and why markets are so worried.....<br />
<br />
ECB funding to Greece has been about 340 billion Euros over the last 60 months i.e. about 5.5 billion Euros a month [Note that this is the estimate for GREECE ALONE] If the series of bailouts have to continue, then the amount can be upwards of 500 billion Euros for the next 5 years!<br />
<br />
Good economists also pride themselves highly on Game Theory and always say "Think Forward - Reason Backwards" It is difficult and time consuming for me to put out the illustrations here but as the so called Troika is examining the situation with Greece, the starting premise for ECB with Greece is "Heads = Greece Wins, Tails = Germany loses"<br />
<br />
This game needs to be evaluated from ECB perspective<br />
Node 1: ECB allows concessions to Greece. The immediate effect will be that the other PIIGS nations will haunt ECB even more with concessions offered to them. [Greece and Ireland are small drops in the messy ocean. Spain and Italy are the white elephants to manage. And if managing 1 drop like Greece costs almost a trillion euros including already spent money and further funding needs, imagine the costs for other PIIGS nations]<br />
<br />
Node2: ECB allows Greece to get booted out of the Euro zone by coercion or by voluntary exit, it sends strong signals to other PIIGS nations that one cannot take the ECB for granted. However, this option then comes with far greater pain. There are trillions of dollars worth of derivatives betting exactly on a Euro-zone contagion. And these derivatives are largely spread across the bond markets and the moment Greece is booted out, there will be immediate repercussions in the derivatives markets of other Euro-zone members bringing in a temporary liquidity freeze not just in Greece [already in place today] but the entire Euro-zone<br />
<br />
As this happens, it also sets a precedent for other PIIGS nations to work out on exit options. Regardless of which way the ECB decides on Greece, there is inevitable pain. From a Greece stand-alone perspective, the cost of Grexit has been estimated at about 1 billion dollars a month over the next 36 months as per Angela Merkel's calculations [refer bloomberg.com news and views from Saturday for details] Just as RBI does not care what Dalal Street wants, ECB does not care what equity markets want. Central banks have their objectives in a different realm all together<br />
<br />
They are however aware that there will be a huge liquidity squeeze with Grexit because of the panic in bond markets and a HUGE RISK of Germany returning to DMs that will perhaps end up trading at 2:1 against USD if this event does take place. Any return to DMs for Germany will almost close doors for German goods and services all over the globe. Exports are the key to Germany's survival.<br />
<br />
Last but not the least, there is the humanitarian aspect<br />
Some of the images on Sunday were extremely disturbing<br />
Queues outside of ATM machines resembled the queues Indians have at Shirdi Sai Baba Temple or Tirupathi Balaji temple! There was a 76 year old lady who was in the queue for 2 hours to withdraw her maximum quota of 60 Euros and when her turn at the ATM counter did come up, there was no cash left in the machine! The lady just fainted out of physical and mental stress!!<br />
<br />
To get a feel of how bad the situation is, forget supermarkets but talk to mom and pop grocery stores [equivalent of our kirana stores] and pharmacies. With social security cover and/or medical insurance, a person cannot be denied access to medicines. Over the last 5 years, medical bill settlements have seen ballooning turnaround times [Remember that most of the medical insurance is underwritten by banks' insurance arms] From a regular 1 week turnaround time in 2009-2010, the turnaround time has gone up to an average of 90 days. Legally, medicines cannot be denied to people with genuine documents. With the bank run that has just begun, pharmacies are not sure whether they will even get back money rightfully due to them if the system itself goes bankrupt<br />
<br />
As far as mom and pop stores are concerned, they have every right to refuse customers any form of credit, even to purchase essentials like milk, fruits, vegetables. That being said, these very stores may not get credit from stockists and super-stockists and with no resolution in place, the entire country's stockpiles of essentials will last for no more than a month.<br />
<br />
Along with the Grexit, it will be a return to Drachmas for Greece that will be at least 10 times lower in comparison with Euro and release hyperinflationary trends. [In the post- World War time zones, Germans had to carry millions of DMs in wheel barrows to grocery stores to just pick up basic essentials. From a humanitarian aspect, Germany is very well aware of the pain, a common man has to go through]<br />
<br />
One last example of the problem: A small business owner logged on to his internet banking account. As it happened with Cyprus in 2013, the system ended up displaying messages on the lines of "Book Balance xyz Euros; available for transaction = 60 Euros. It can be very frustrating indeed to not be able to access your own money. They money stuck in the bank can end up becoming literally worthless if Grexit happens.<br />
<br />
So whilst the mainstream press is pointing fingers at Greece alone prolonging the negotiations, fact is that ECB also wants time to ring-fence itself and minimize the pain. It is definitely not a pleasant site to see people not being able to buy essentials with their own money for mismanagement from the baking sector [both Central Banks and Private Banks]. ECB is looking at every possible loophole in the derivatives legal codes to avoid having liquidity crisis for Credit Default Swaps.<br />
<br />
To summarize, there is inevitable pain for Greece, ECB and in fact the entire Euro-zone. The only thing that one has to look at is how to minimize the pain. Also note that should a contagion take place, forget about US Fed raising interest rates or other major economies tightening monetary policy - it sets up the platform for next round of QE<br />
<br />
So that is the background for the ongoing panic and volatility. Technicals may go out of the window for a brief 1 week timeline only to come back. As long as Rupee-Dollar exchange rates remain below 64.25 levels and bond yields do not jump past the 8% spot rate for 10 year treasures, India remains an active. Markets may not fall immediately but Rupee-Dollar above 64.25 and bond yield above 8% will the first indication of a large wave down.<br />
<br /></div>
</div>
Anonymoushttp://www.blogger.com/profile/07755997257225334558noreply@blogger.com0tag:blogger.com,1999:blog-4190541639700840242.post-88604668857108574172015-06-04T05:22:00.001+05:302015-06-04T05:22:16.944+05:30Maggi In A Soup??? WTF<div dir="ltr" style="text-align: left;" trbidi="on">
So Maggi has been in the news for excessive chemicals in food. Don't people know that. Pepsi and Coke have carbolic acid and aspetim [in diet versions] that are harmful???? [Note that I am a heavy consumer of Diet Pepsi n Coke Zero] Cigarettes are injurious to health - I find it stupid that US and Canada courts are awarding billions of dollars as fines to tobacco companies for "not warning adequately risks of tobacco consumption" People are well aware of what they are getting into [as mature adults. Nevertheless, I can speak only for myself and I am fully aware of risks when I pick up that puff or that peg. And most people are - it is a choice made]<br />
<br />
Anyways coming back to Maggi - let us face it folks. It is an FMCG product that follows the conventional supply chain as of now. Factory to Regional Distribution Centre, Regional Distributor to Super Stockist, Super Stockist to Stockist and Stockist to Point of Sale. Business means every time a product or service changes hands, there is a margin to be paid. Conventional FMCG business works on the following premise [Average and Ballpark Figures]<br />
<br />
Point of Sale - Margin = 10%<br />
Stockist - Margin = 8%<br />
Super Stockist - Margin = 6%<br />
<br />
So for a product that costs 10 rupees, 2.4 have to be kept aside for margins for these players<br />
Another 2 rupees have to be kept aside for trucking, warehousing and wastages<br />
So from an MRP of 10 bucks almost half is already shaved off as expenses and these are all operating expenses. Then comes the aggressive marketing campaigns and salaries to be paid to staff. What is left is just about 3 bucks to produce [mostly contract manufacturing]<br />
<br />
So is there any scope to have "healthy" ingredients??? "Healthy Food" means well controlled procurement of "good ingredients" that come at a price. That is why the meal at Taj or Sheraton costs that high. If you want a pack of noodles for 10-15 bucks, there is bound to be artificial chemicals in the product. [Because the company has to manufacture within the 3-5 rupees price band]<br />
<br />
Note that I am not justifying Nestle or Maggi. The point I am trying to drive is that as far as the common man is concerned, s/he is well aware that if you pay peanuts, you get monkeys. This is universally applicable to staff, products and services.<br />
<br />
When we go to the street corner to savor that bhelpuri, samosa, wada pav, chole kulche, we are well aware that quality will be a challenge. We attribute that to unorganized food sector and make our choice.<br />
<br />
Just because Maggi belongs to a brand like Nestle, it is creating news. Even that is fine but then one needs to also evaluate Yippees, Chingles, Feasters [Private Label of Aditya Birla Group], Knorr et al. Take any of these brands and the odds of them failing quality tests are as high as Maggi. Right now, my personal contention is that since the issue has cropped up, why single out Nestle alone. Subject ITC, HUL, Aditya Birla, MTR, GITS all for food safety standards. Since this issue has cropped up, let there be a fair evaluation of the entire sample space.<br />
<br />
We have had agitations with regards to pesticides in soft drinks, genetically modification in KFC. It will be in the news for sometime [till media keeps trumpeting it on prime time] and then fade away.<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhV8dbVHBHoEaNYFlJJ1RDWAryS31LrbRzbQ9j47XFV640BUrZRPM1kRZ-r8W19ANZjXjVvGJxzRGc0K1E5KUjt1E-hDPAM5B7KhzoEUpLYk8Q20uTDzrPLhRWGwLpShgiBsI6fCwKvohM/s1600/NESTLE+EOD.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="225" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhV8dbVHBHoEaNYFlJJ1RDWAryS31LrbRzbQ9j47XFV640BUrZRPM1kRZ-r8W19ANZjXjVvGJxzRGc0K1E5KUjt1E-hDPAM5B7KhzoEUpLYk8Q20uTDzrPLhRWGwLpShgiBsI6fCwKvohM/s400/NESTLE+EOD.png" width="400" /></a></div>
This is a daily chart of Nestle from 2013. Look at the volume bars.Whenever Nestle has traded on extra-ordinary volumes, yes prices collapse in the short term [3 to 6 months] and then resume their upward march. Currently, we have not yet reached the volumes that existed in 2013-2014<br />
<br />
Normal Trading Volume on Nestle 80k to 100k shares<br />
<br />
26th Nov '13 - Volume = 750k with spot price around 5000 bucks a share<br />
<br />
28th Feb '14 - Volume = 850k with spot price around 4800 bucks a share<br />
<br />
By 10th March 2015, Nestle stock was trading at 7500 clocking a 50% gain in 18 months.<br />
<br />
Yesterday's fall volume was about 400k shares. So there is some more downside pending as the volumes need to hit 750k to 800k shares. Technically, the critical buying levels are 5800, 5400 and 5000 levels. Of course the rally of 2014 had a sentiment effect with the new government and the next rally will not be that fast. However, just like the soft drinks and pesticide news, KFC and chicken news, this MSG and Lead stuff will be behind us soon.<br />
<br />
The stock will eventually reclaim old highs and perhaps attain newer highs of 10k levels. Since timing the market is next to impossible, this is a very good time to start an SIP on Nestle as the stock is poised to deliver 30% CAGR returns over the next 36 months.<br />
<br />
Stock has breached 200 DMA with conviction and historically when Nestle breaks 200 DMA with volume and momentum, it tends to spend about 6 months below that 200 DMA mark.</div>
reachnagraj / theknight16http://www.blogger.com/profile/08222136846834969462noreply@blogger.com0tag:blogger.com,1999:blog-4190541639700840242.post-13452631665512791222015-06-01T07:14:00.000+05:302015-06-01T07:14:11.587+05:30Euro Zone Crisis and Why It Will Be Good For Break-Up<div dir="ltr" style="text-align: left;" trbidi="on">
For the last 5 years now, the PIIGS crisis has dominated business news headlines and stock markets keep taking corrections every time there is mention of Greece. Let us first understand the basics of the common currency bloc<br />
<br />
Euro-zone always had allied interests that allowed capital, people and goods to freely move within boundaries of Europe, more so after the Berlin wall collapse ending communist forces in the eastern bloc. With the exception of Germany, most countries were net importers of goods and services and a strong currency suited business interests. Also, the Asian Currency Crisis and 9/11 terrorist attacks much later, there were strong interests within Europe to create an alternative currency to the US Dollar. Germany being a high net exporter, also needed slightly weaker levels as compared to traditional marcs. So eminent politicians of Europe and banksters discussed next steps in this regard. Thus was born the concept of Euro - one continent one currency setup. Germany being the strongest member would have control of treasury for Euro. Certain rates were fixed for the Kroners, Guilders, Francs etc and all moved to common currency Euro.<br />
<br />
Of course this had a short-term inflationary effect as salaries had to be revived by companies to match consumer spending in Euros. Things that were perhaps not adequately thought of during Euro creation<br />
<br />
1] Diversity Mix in Countries: It is critical to note that Euro-zone has far more diversity in socio-economic conditions, similar to an emerging economy like China, India, Indonesia etc. The Nordic countries like Finland, Denmark, Sweden etc always were extremely strong economies due to low population and some strong industries. UK, France, Germany were also strong players in political as well as economic blocks. [The first alarm bell rang during creation itself - UK agreed to be part of Euro-zone geographically but not economically with the common currency] On the other hand, there were countries like Poland, Hungary, Czech Republic, Romania etc that had far more similarity with emerging nations than strong nations like Germany, Denmark etc.<br />
<br />
It is no surprise therefore that even Indian technology companies like Infosys, Wipro, TCS set shop in emerging nations of Europe.<br />
<br />
2] Disparate Policy Measures: The common currency setup implies control over Euro will be with ECB [read Germany] whilst fiscal measures are responsibilities of individual nations. Such a scenario never works. For details on this, please read the articles by Nadeem Walayat [marketoracle.co.uk] through the link given.<br />
<br />
Look at India for instance - RBI and Finance meetings get log-jammed for this reason only. Everybody is pro-growth but anti-inflationary. RBI has to do a tight ropewalk to take care of both. RBI chief rightly says within tools and powers in my arsenal, I can only control monetary policy. Fiscal prudence is government's responsibility and government after government is spending far more than earnings. [That is the reason why we have such a large and active bond market globally] The bonds are money raised from institutional investors to fund government expenses that cannot be covered with the tax collections. If we have this kind of a situation within India, imagine the state in a country like Spain, Greece, Italy etc<br />
<br />
When the Euro started, it started to trade at parity with the USD. Over a period of time, it went from strength to strength. The going was good and everybody was in a mood to party. What nobody realized is challenges that will emerge over a period of time. Western society is very particular about welfare of human beings and there are a lot of provisions by governments in form of social security. So when the move to join a common currency came through, ideally there should have been as much harmony as possible towards fiscal measures as well.<br />
<br />
Peripheral countries continued with their own schemes. Perpetual healthcare, high social security net for citizens etc. The music would stop at some point though. Over a period of time, countries started finding it difficult to meet even basic obligations to bond holders and that started sending jitters across the globe. [A large part of 2010-2012 equity correction was a result of this fear] Forget earning interests, recovering principal itself was a major issue. Institutional investors in bond markets are pre-dominantly banks themselves. That is when the bailout packages started coming in.<br />
<br />
A Catch 22 situation started developing and is now reaching a crescendo; if ECB [i.e. German Tax Payers' money] keeps bailing out peripheral countries, it goes on a weak wicket back home. German citizens are angry. So when bailout packages are given to countries, they come with austerity measures. The moment there is austerity, public spending drops and creates political ripples internally in countries. Let me give 3 examples of countries based on my personal experience in those countries for considerable time for education as well as employment<br />
<br />
Denmark: It had a strong corporate say with 3 major companies i.e. Maersk [large conglomerate with multiple interests though strongest in shipping related activities], Vestas [once upon a time king of wind energy] and Novozymes. The country has one of the strongest tax regimes but also some of the best social security measures. Due to exremely low population, it is able to manage all of that. Denmark is one of the countries where you literally don't pay anything for education. Rather, the government pays you to study and as long as you keep your grades respectable, you can study as much as you want in government recognized universities without bothering about fees. Hospital care is totally government responsibility - you only pay for the doctor's fees. If you are unemployed, you get allowance from the government [with certain conditions attached]<br />
<br />
Maersk has been facing a tough time since the 2008 economic crash as shipping industry as a whole is still reeling under pressure. There is excess capacity of ships globally, ship-building once the pride of Denmark has shifted to Samsung, Hyundai in South Korea [Samsung is much more than mobile phones and consumer durables. Samsung has a very strong heavy engineering setup for ship-building, shipping containers manufacturing and Samsung accounts for almost 40% of South Korea's GDP!!!]<br />
<br />
Vestas, once a crown jewel in the world of wind energy hardware manufacturing has lost out big to the Chinese. Since 2009-2010, the company has been tightening its belt to stay afloat. Novozyme is still active but being a bio-technology and pharmacy related company does not have too many employment opportunities. Maersk, Vestas and Novozyme put together probably employ over 50% of Denmark's population directly or indirectly [just like software in India. For every 100 jobs created by the It sector, it creates another 20-30 jobs in areas like transportation, food, telecom, facilities management etc] During good times, the housing market in Denmark was on a song with housing prices making new highs almost everyday. Now with bad economic times, housing prices have tumbled and the situation is so grave that the government has had to intervene and tell banks - increase tenure of loans to customers and forget the princpal - just focus on interest servicing!<br />
<br />
Denmark or for that matter any of the Nordic countries like Norway [oil-rich], Sweden [home to Volvo, Scania and Ikea], Finland [home to Nokia-Microsoft] won't have much of a challenge. This is because of the countries' size, population and large businesses. In fact if the Euro zone breaks up and these countries go back to their old currencies 2 largest beneficiaries will be Vestas and Novozyme.<br />
<br />
France: This country has been in a crisis since 1984 though they have never acknowledged it. It is one of the most populist and socialist governments that likes to control prices and keep high taxes. The population is ageing and state coffers are dry. They jumped on to the Euro with a strong currency in mind and let us not forget the country is a net importer of goods. The challenge is that austerity simply does not work in France. The work culture is different and if people are not happy, they can go on strike. In fact, France is plagued with strikes from bus operators to metro operators almost every month in some part of the country or the other. Tourism is a major attraction in France.<br />
<br />
Spain: The people in Spain are very friendly in general and very relaxed as well in work culture. Lunch break can extend to 90 minutes as well. Spain is one of those peculiar countries where the paradox of socialist measures comes up to the surface. The average salary for simple jobs [factory workers, gas station attendants, security guards, tellers in supermarkets etc] is about EUR 1000 per month. Over 30% of the population under the age of 30 is unemployed. The government unemployment allowance is about EUR 800 per month [it varies from person to person but this is an average]. So a lot of youngsters are saying "Why should we slog out 160 hours a month for 1000 Euros salary when I can sit at home and make 800 Euros!!!" Classic Catch 22 situation for both Spanish and German governments. They want the Euro to be there as Germany is a net exporter and needs a market like Spain to stay afloat. For the Spanish government, laws for social security were made decades ago and taxes were collected in this premise. Now if the economy has to recover, you need youngsters to go out there and work. Unless the wheels of industry don't move, the government will be forever dependent on bail-outs.<br />
<br />
Whatever is applicable for Spain, is applicable for Italy, Greece as well. It was once applicable to Portugal as well but they came back on their feet smartly. The premise that the Portuguese government used was a great sell to people; "Look I understand that your minimum wage has dropped more than 50% post-crisis. However, you also need to take into account that all other expenses you have to incur have also dropped significantly as the entire industry is reeling. Your net savings were negligible even in good times and even with a 50% reduction in salary, your lifestyle does not alter significantly" The masses took heart and started getting back to work - the end result is that a lot of firms found it productive to build manufacturing plants in Portugal. Transport within the Euro-zone is not much of a challenge. So taking into account carbon footprint, time to import from Asia etc, "total cost of purchase" for goods and services form Portugal are favorable to the industry.<br />
<br />
Ireland also understood this concept well and hence the contagion has been arrested within reasonable means. Unfortunately as of now, Greece, Italy and Spain are having challenges with industrial rebound. Constitutional measures dictate that social security spend continue. Many youngsters not joining the workforce and smarter ones migrating to greener avenues like UK and US. The gap between what the countries earn and what they spend are significantly higher. Bailout packages call for austerity on these fronts but austerity comes with a lot of local backlash<br />
<br />
What if the currency breaks up? Let us go back a couple of decades when we had the Asian Currency crisis that plagued Thailand, Indonesia, Malaysia etc. Initially there was panic, hyperinflation but what next? Thailand, Malaysia, Indonesia as tourist destinations that were once upon a time only for the wealthy people and business travellers came on the radar of common man. Exports from these countries started surging higher. They became highly competitive. Yes the initial 18-24 months after the crisis broke out was chaotic. That always happens with any economic crisis. But that does not mean the end of the world.<br />
<br />
Greece, Italy, Spain etc all have strong olive production. They are excellent tourist locations. If the Euro currency breaks up and these countries go back to their original currencies, then tourism that is currently very expensive [due to Euro] will flourish. Today, just as it is common for an Asian to make at least one vacation to Thailand, Malaysia, Singapore etc, it will become very common to visit Spain, Greece and Italy in Asian currency denominations. Exports will flourish. As far as people are concerned, they just need to realize that rather than anchoring themselves with old salaries, numbers and denominations, they should focus on lifestyle. As long as they are able to get a certain kind of lifestyle [albeit a toned down version], it does not matter which currency they earn in and the amount.<br />
But there is bound to be inertia as right from kindergarten, one has been conditioned with the notion that the state will take care of you.<br />
<br />
There in lies the Catch 22 situation for Germany. They need the Euro [especially a weaker Euro] to stay competitive in industry. They have a captive market in Europe itself that will go away with the breakup of Euro-currency. The German Euro will move back to DMs and as against the prevailing Euro rates, the DMs will become twice their worth in exchange making them extremely noncompetitive. So they have a double whammy effect; lost customers as well as lost businesses. There is a vested interest on part of Germany to keep the Euro-zone intact for as long as possible. However, they face a backlash back home with tax payers who are slogging it out whilst peripheral countries are just enjoying life<br />
<br />
So if any trade pundit says that there will be a catastrophe, it is fairly logical. When such fundamental changes occur, there is bound to be short-term negatives. That being said, it is not the end of the world. If anything, it is going to make things better from the current state of affairs. From an Indian perspective, today, a Europe tour package costs about 1 lakh INR per head for about 8 to 10 days. If the Euro-zone break up happens, that will bring down the bill by about 50%. Just as travel portals are wooing you for a budget trip to the Far East, suddenly you will be bombarded with advertisements to travel to peripheral Europe. 4 Day Spain visit for INR 27k, Greek island visit for 25k etc etc etc<br />
<br />
And how do you make fund provisions for that? When [there is no question of IF - the Euro-currency collapse is inevitable] the contagion hits, there will be sharp falls in equities all over. Rather than succumb to fear seeing bloodbath on streets, at least in India we should look at building an equity portfolio. As I mentioned in my earlier post, the technical bottom for Nifty is about 7200-7400. In cases of extra-ordinary events like credit crisis, there may be short term pain perhaps even testing 5900-6200 levels. All that is nothing but great opportunities to increase portfolio holdings. Even if we go down to 5900 levels, the eventual target for Nifty is 10k [that will perhaps come in a couple of years] The fall to 5200 in Aug '13 was the sweetest spot to go long on equities. Likewise whenever the next catastrophe roils the markets, the entire 5900-7400 zone are sweet spots to buy. The purchases made in this period will translate to about 30% CAGR in a 36 month period.<br />
<br />
To summarize - Euro-zone crisis is bound to roil markets globally. Either tax payers in Germany or people in peripheral countries will ensure that it happens [each for different reasons though] Despite all the austerity discussions, ECB will try its best to keep the Euro-zone intact for as long as possible for their own interests. When that happens, it is short-term pain but long term gain for everybody having stakes.<br />
<br />
Waiting for that collapse to take place personally ;)</div>
reachnagraj / theknight16http://www.blogger.com/profile/08222136846834969462noreply@blogger.com0tag:blogger.com,1999:blog-4190541639700840242.post-38246605239660721962015-05-31T06:54:00.000+05:302015-05-31T06:58:35.080+05:30EOD CONTEST JUNE 2015<div dir="ltr" style="text-align: left;" trbidi="on">
Hello Tweeple and Blog Viewers<br />
<br />
From this month, we have a special contest on this blog i.e. EOD Prediction<br />
[By taking your mouse pointer to the text below, you will get the link]<br />
<br />
<a href="https://docs.google.com/spreadsheets/d/17ZhM6aowq19KKUthsSXBKw_oARkUXAt0FP9seE6vVzs/edit?usp=sharing" target="_blank"><b><i><span style="background-color: white; color: red; font-size: x-large;">EOD CONTEST SHEET</span></i></b></a><br />
<br />
WHAT?<br />
Predict the Nifty Closing for a trading day<br />
You just need to update your Twitter Handle and/or Email Address and post your prediction on the sheet [Link Above]<br />
<br />
Rules<br />
Only one email address / Twitter handle per user to be used<br />
Entries for a trading day should be done latest by 2pm IST<br />
<br />
Scoring Guide<br />
[Given in the link above]<br />
<br />
Prizes<br />
There are special prices for the top 3 scorers at the end of June series.<br />
Winners will be contacted individually</div>
reachnagraj / theknight16http://www.blogger.com/profile/08222136846834969462noreply@blogger.com0tag:blogger.com,1999:blog-4190541639700840242.post-24982747659381517552015-05-30T08:15:00.001+05:302015-05-31T06:40:32.679+05:30Outlook For June 2015<div dir="ltr" style="text-align: left;" trbidi="on">
So the adage 'Sell In May & Go Away' did not hold fort as far as Nifty goes. The selling happened and there was a pullback with a critical close above 8410 to end May 2015. Yesterday European markets ended sharply lower with DAX taking the strongest beating but our markets went through their own trajectory. Let us have a quick review of charts<br />
<br />
Nifty Daily<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg4gH4rKd8HuVUI6rI_0QTozpV1nuN-3DR4KU10PWArp2UjByrOykkHQQrxialUugJ97E_pjdn9KI_PlEexKuC4630NLs4ktlGtjFbweukM8Vt7nLmSK0MAsDNP-LmEzBM5a3l9hPwtYTo/s1600/Nifty-EOD.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="225" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg4gH4rKd8HuVUI6rI_0QTozpV1nuN-3DR4KU10PWArp2UjByrOykkHQQrxialUugJ97E_pjdn9KI_PlEexKuC4630NLs4ktlGtjFbweukM8Vt7nLmSK0MAsDNP-LmEzBM5a3l9hPwtYTo/s400/Nifty-EOD.png" width="400" /></a></div>
Nifty Weekly<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjljdXT5w-pGlNY7TOjF2L17X-Mt3lwtHdTLi526me33yiUBi4VKGPix9OHrb6fWU93WainvY4FBuDbUO7xoe6gzvjtsyJ8YtMlMZ3zQrGCpo2pZ2O_VEJEvwOBrP_nrKHl0JUI6roBZrs/s1600/Nifty-EOW.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="225" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjljdXT5w-pGlNY7TOjF2L17X-Mt3lwtHdTLi526me33yiUBi4VKGPix9OHrb6fWU93WainvY4FBuDbUO7xoe6gzvjtsyJ8YtMlMZ3zQrGCpo2pZ2O_VEJEvwOBrP_nrKHl0JUI6roBZrs/s400/Nifty-EOW.png" width="400" /></a></div>
BankNifty Daily<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh6tHkQnSVoNXpvh-T-cDwCN-aW2US4fYLO1I6cLWayQkCDHrH78rP07WGKEW3gabvhBeLcqe1brwoaOdNqZtAaQv5wzIdJMFYbIuWwB8Q0S2rOytVmf2ZsD9ieE85AhO809HeYekp_8BE/s1600/BankNifty-EOD.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="225" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh6tHkQnSVoNXpvh-T-cDwCN-aW2US4fYLO1I6cLWayQkCDHrH78rP07WGKEW3gabvhBeLcqe1brwoaOdNqZtAaQv5wzIdJMFYbIuWwB8Q0S2rOytVmf2ZsD9ieE85AhO809HeYekp_8BE/s400/BankNifty-EOD.png" width="400" /></a></div>
BankNifty Wekly<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhYDbffzgsQRubrIczENbRvb8upCmUeBV5UNlRB3v8edcpE5ifiHpevW-0JfeAXPbZUsWm_AbVAHsk2DwzzBiFx2Zj9zkIj7txFeToAb3k2EJ5BC_GDW9S9nlTLqX7aF_yXTpp80G5H4qM/s1600/BankNifty-EOW.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="225" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhYDbffzgsQRubrIczENbRvb8upCmUeBV5UNlRB3v8edcpE5ifiHpevW-0JfeAXPbZUsWm_AbVAHsk2DwzzBiFx2Zj9zkIj7txFeToAb3k2EJ5BC_GDW9S9nlTLqX7aF_yXTpp80G5H4qM/s400/BankNifty-EOW.png" width="400" /></a></div>
<br />
Nifty chart is extremely clear with the corrective phase. The 50 DMA line has crossed below 100 DMA confirming a corrective phase. As of now, the upside seems capped around 8625 levels and a test of 7800 is on the cards. Over the last 2 months, on 3 instances, Nifty has hit the 50 DMA and moved lower. Once on 17th April [when downtrend was strongly pronounced], second time on 22nd May around 8477 and on 29th May. Now if it does manage to pierce it with a follow up in first week of June, there is every likelihood of testing the upper end of the channel at 8625 levels. As long as 8625 is not breached on closing basis on daily and weekly basis on upside, the rallies are merely corrective bounces. Have a look at this chart<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhMqmTOnCTcmgG3WMffCwsM-xMN4K_hNoqFQbQhyiatQe4VjBz1pkyy8jsTXSvXGgH1k1d0qvB66dblUgoxZPwnegGQS5mkAfMirOc2djdRNM17tWwF0l_3t8EhM7KfzqGDOj1svYQjPoM/s1600/NIFTY+2010-2012.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="225" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhMqmTOnCTcmgG3WMffCwsM-xMN4K_hNoqFQbQhyiatQe4VjBz1pkyy8jsTXSvXGgH1k1d0qvB66dblUgoxZPwnegGQS5mkAfMirOc2djdRNM17tWwF0l_3t8EhM7KfzqGDOj1svYQjPoM/s400/NIFTY+2010-2012.png" width="400" /></a></div>
This is the corrective phase that started in Nov '10 and ended in Dec '12. There is uncanny resemblance in the pattern exhibited on Nifty currently. [However, a similar pattern was shown earlier around Diwali 2014 and it got invalidated subsequently] In the current scenario, the pattern will get invalidated with 2 consecutive closes above 8625 on daily basis or a weekly close above 8625<br />
<br />
What is divergent at the moment is the BankNifty Chart<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgH8uDsvPfUNDxNc1c12SrKHPIQZmVq9798kzwMbR0mIQa6vvSxzRNHRsOEBZjwUcMoZItbgFnP4voaSkCK4KuG-rGierdKacyjlv7Pkxp4YSmhw5IVnToqDYro8GxpC3tJhYhoJg6xxTU/s1600/BANKNIFTY+2010-2012.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="225" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgH8uDsvPfUNDxNc1c12SrKHPIQZmVq9798kzwMbR0mIQa6vvSxzRNHRsOEBZjwUcMoZItbgFnP4voaSkCK4KuG-rGierdKacyjlv7Pkxp4YSmhw5IVnToqDYro8GxpC3tJhYhoJg6xxTU/s400/BANKNIFTY+2010-2012.png" width="400" /></a></div>
In the Nov '10 - Dec '12 corrective phase, Nifty and BankNifty were pretty much following the same path. The present price Nifty chart is having the same pattern as that of Nifty Nov '10 chart but not the BankNifty chart. BankNifty also had a corrective channel and that has broken on the upside last week. Of course the Nifty index components have changed significantly compared to 2010 and changes in stocks like Asian Paints, ITC, Sun Pharma have a lot of bearing on the index. Even with these exceptions, the current divergence on BankNifty is too high to be ignored.<br />
<br />
If this is just a rally on expectations of a rate cut on 2nd June, it will fizzle out. We have to wait and see how BankNifty behaves around the 18800 levels spot and how it pans out. 2 consecutive closes above 18800 on BankNifty implies a large retrace of the fall from 20500 levels to 17200 levels with a minimum target of 19200. On the downside, the 17800-18200 levels should be able to provide support. Failure to hold 17800 levels on a weekly basis will give a steeper cut towards 16800. So the jury is split wide open on BankNifty and the range is too large 16800 - 19200 [Definitely not useful for trading].<br />
<br />
From a trading perspective, we have to go with shorter time frames. The first sign of danger for bears will be breach of 18800 on upside on closing basis. The first sign of danger for bulls will be collapse of 18250. By 5th June, there should be some clarity on this front. Keep a watch on the Twitter feed for daily levels.<br />
<br />
There are a lot of expectations on the basis of projects announced by the government and people are wondering why equities are not reacting to these news. As the saying goes, markets discount the future well in advance. Positives from these projects at infrastructure level and public spending were already discounted last year.<br />
<br />
On the positive side, German elections, UK elections have all played out. There is only negative, impending and that is future of PIIGS in Euro-zone. Greece will be the first one on news and that was the reason for sharp collapse on DAX and CAC yesterday. We need to remember that a lot of that has been factored in and over the last 2 years, ECB has ring-fenced itself well with LTRO and liquidity measures. However, in the unlikely event of Greece getting out of the Euro-block [either being booted out or Greece exiting on voluntary terms], there will be a bout of panic that will spread globally. What will shake institutional investors is not Greece per say. It is the risk of contagion spreading across Europe that will trigger panic. In the short-term, if such a thing happens, there will be a capital flight to safety to the US Dollar and German Bunds. [I will cover the Euro-zone issue in a separate post later today]<br />
<br />
Such panic will affect all markets globally but technicals will eventually rule back. So as far as Nifty is concerned, with such a long sustained tenure above levels attained in May 2014, 7200-7400 is the technical bottom. Short term irrationality may taken levels lower but the rebound will be equally sharp and swift [Remember that the technical bottom prior to Lehman Brothers crisis was 3900 but the collapse continued through to sub-3k levels only to recover] Another difference between the Lehman Brothers collapse and current crisis is that Lehman Brothers was an unknown event. Things were hunky dory and it came as a jolt to people across the globe. This time around, at least with the Euro-zone crisis, the surprise factor is not in the picture. The issue has been in the news since 2010 and given institutional investors adequate time to prepare themselves.<br />
<br />
However, there could be some black swan events that can happen, triggering a strong correction in markets. As the adage goes, correlation can be established but not causality. During the run-up to elections to 2014, I mentioned how fashion trends, media trends are all pointing towards a strong bull market for 2014 [Yes, I do believe in Pretcher's concept of Elliott Waves as well as Social Mood; that he has got things wrong since 2010 are a result of his biased thinking and self-fulfilling prophecy syndrome]<br />
<br />
So what are the social indicators pointing out that a major correction will come through over the next 18-24 months<br />
<br />
Box Office Collections: With the multiplex introduction, we have had so many genres of movies hit the box office over the last few years. In 2013-2014, even movies like Fukrey, Vicky Donor had high footfalls and showed that social mood was turning positive. Over the last 6 months, even big names and big stars have failed to set cash registers ringing. On the fashion front, advertisements were extremely bold, embarrassing parents when they showed up on screens during prime time. Now advertisements are getting even more irrational; "Ghar mein lagao HD color???", "Platinum 3G has arrived to Mumbai???" Last but not the least, BFSI companies advertising "This is the sweet spot for equities in the long run" We are approaching a top for sure.<br />
<br />
Technology has been a great enabler for making life productive. Smartphones, internet and cloud computing are all examples of how automation and technology makes us more productive. However, when valuations reach maniac proportions, it is sign of trouble. Billions of dollars for whattsapp, bookmyshow, olacabs, zomato are signs of trouble. Google has its base in advertising and the same is the case with Facebook as well. Whattsapp despite being a free platform for users, has an extremely high value for larger hi-tech companies due to the fact that it records the mobile numbers of people and will help business analytics tremendously but 19 billion??? Give me a break. We are looking at the same mania in the internet space at the moment. It is due for consolidation and there will be some clear winners. However, there will be far more flops than hits and the entire funding that technology startups are getting are in the hopes of a good IPO. All the discounts that are being showered now can be recouped with a good IPO. As soon as the credit squeeze hits markets due to geo-political and socio-economic factors, technology funding will take a hit.<br />
<br />
Fibonacci Timing<br />
2-3-5-8-13-21-34 are critical Fibonacci numbers. 2016 marks an 8 year period from the Lehman Brothers crisis. 2015 marks a 5 year period from the time Euro-zone crisis that first surfaced. [And 2008 marked the 8 year period from the 2000 economic debacle busting startup technology] The social mood and Fibonacci points towards a correction globally. That being said, it is difficult to know exact timing of events. Blind shorting can create challenges as markets are irrational. Suffice to say that beware - sudden negative surprises can spring up at a time most unexpected<br />
<br />
Statistical Significance<br />
I mentioned this in my earlier post this year as well; historically, the 3rd year of the 2nd term of a US president marks a strong correction in markets. Let us look at extremely strong global market corrections over the last few years [Taking into account 2 consecutive terms of the US President]<br />
<br />
Roosevelt started his presidential term in 1933 [when recovery from 1929 was underway] and extended and ended with World War 2<br />
<br />
October 1987 - 2nd term of Ronald Reagon [President from Jan '81 to Jan '89]<br />
<br />
October 2000 - 2nd term of Bill Clinton [President from Jan '93 to Jan '01]<br />
<br />
October 2008 - 2nd term of George Washington Jr [President from Jan '01 to Jan '09]<br />
<br />
Currently Obama is serving his 2nd term and is in his 3rd year!<br />
<br />
I am only taking into account 2 consecutive terms of a US President over the last few years and global economic scenario. Truman was the only exception when there was no major economic collapse globally. All countries were trying to bounce back from the debacle of World War 2.<br />
<br />
What is important is that there is 'statistical correlation' with 2nd consecutive terms of US presidents, especially in their 3rd years of the 2nd term. We are not blaming the presidents here for economic debacles - please that should not be the inference. As Naseb Taleb says in fooled by randomness, "Don't look for patterns in what could just be a cinnamon roll"<br />
<br />
From my personal outlook, social mood, Fibonacci and statistical outlook when all these converge towards one outlook - it is too strong to be ignored. Last but not the least, the surge in global equities has in no way created better job situations on ground. So if one keeps on shorting the market looking at these factors on a stand-alone basis, the odds of losing money are higher.<br />
<br />
Even globally, there is a remarkable shift in the underlying principles of capital markets be it bonds, stock indices or currencies. DJIA = Dow Jones Industrial Average<br />
What are the major components of DJIA today? Apple, American Express, Visa, Microsoft, IBM, Verizon, United Technologies. From the conventional manufacturing and industrial space, we just have names like Boeing, GE, Merck, Coca Cola, Mc Donalds, Chevron and Du Pont. Boeing is highly cyclical and is on the verge of topping out, GE is increasingly shifting to cloud computing and services as manufacturing is taking a hit. Nevertheless, if Apple, Microsoft, IBM could propel Dow to new highs, these very stocks can pull them down as well.<br />
<br />
As interest rates reduce, currencies were expected to behave in a certain manner and hyper-inflationary pressures should have triggered economies. 5 years of rampant money printing has had little impact on the US dollar [it has only strengthened], commodity markets have collapsed, and people are flocking to US Treasuries and German Bunds. This is simply because the rules of the game have changed. US dollar and German Bund are perceived as safe havens for separate reasons and hence classical theories no longer work. In older days, the job market and economic activity were positively correlated with equity indices. That is no longer the case.<br />
<br />
Precious Metals and Crude<br />
I keep repeating this every month. Gold and Silver have had a 13 year mega-bull run from 2001-2013. So a 3 year correction is fairly logical in terms of time. In terms of price, I think prices have found bottoms in dollar terms. For gold, any severe correction due to deleveraging of institutional speculative positions will still arrest prices within the 1000 dollars per ounce band. All said and done, at sub-1200 levels, most gold mines are making losses. And sub-1200 per ounce prices trigger a great demand for physical deliveries of gold by a lot of eastern nations. Since we are at the fag end of the correction in gold, over a longer term horizon, one can still expect a 10% appreciation per annum over the next 5 years. Silver as an industrial metal is losing sheen but is finding uses elsewhere. It is poised to grow higher again by about 10% per year.<br />
<br />
Crude oil, for all the negative commentary in the media, prices have already regained some gains and from a technical perspective, the fall from 105 levels on Nymex to 45 levels will create opportunities for a 50% retracement towards 70 dollars a barrel by the end of this year<br />
<br />
To wrap up, Nifty trend will get clearer by 5th June. The period from 15th June to 30th June will be highly volatile with 21st June Summer Solstice being a critical turning point. As of now, the range for the Nifty is at 7800 on the lower end to 8625 on the upper end. Should there be a change in this outlook, I will update it on the Twitter feed.<br />
<br />
From this month, there will be a special contest for all viewers of this blog. Predict the Nifty closing level for each day on Twitter with #NiftyParadoxContest on twitter and also update your entries on this document <a href="https://docs.google.com/spreadsheets/d/17ZhM6aowq19KKUthsSXBKw_oARkUXAt0FP9seE6vVzs/edit?usp=sharing" target="_blank">EOD JUNE CONTEST</a>. The top 3 winners will get gift vouchers. [To participate, you just need to share your Twitter handle and/or email address. The entry must be done by 2pm of that trading day]<br />
<br />
Enjoy a happening and exciting June series.<br />
<br /></div>
reachnagraj / theknight16http://www.blogger.com/profile/08222136846834969462noreply@blogger.com0tag:blogger.com,1999:blog-4190541639700840242.post-44801243162810079102015-05-02T17:31:00.001+05:302015-05-02T17:31:29.769+05:30Outlook For May 2015<div dir="ltr" style="text-align: left;" trbidi="on">
So it has been a very eventful April with large swings on both upside and downside [with a greater bias on downside]. We are now heading into May and as the market mantra goes 'Sell in May and Go Away'. One of the key take-ways was the extremely low values of Nifty spot on Monthly / Weekly and Daily time frames.<br />
<br />
On the daily time-frame, 2 closes above 8380 are needed for further impetus.<br />
On the weekly time-frame, a close above 8580 is needed on one of the Fridays in May 2015<br />
On the monthly time-frame, a close above 8325 is needed to keep bullish bias in place.<br />
<br />
Supports and Resistances<br />
As usual, old resistances will turn into supports and new resistances will be formed as Nifty moves into uncharted territory.<br />
<br />
For the remainder of 2015, the following will be crucial supports / resistances<br />
<br />
Supports: 7200 - 7440 - 7580 - 7680 -7725 - 7800 -7880 - 8025 - 8080 - 8180 - 8225 - 8280<br />
<br />
Resistances: 8325 - 8380 -8480 - 8580 - 8625 -8680 - 8725 -8780 - 8825 - 8925 - 9025<br />
<br />
The way BankNifty behaved in expiry week, it seems poised to once again to test the 18800-19200 zone. This wide band of 400 points is very crucial and failure to surpass this will invite steeper cuts on BankNifty towards 17250 over a 6 week period [apprx]. Of course the fall will not be one way just like the rise with corrective phases in between.<br />
<br />
My personal outlook is that the bull party is over for 2015 and we have entered a major corrective phase where the larger trend is down with corrective rallies in between. [Only a close above old Nifty high will alter this view]. Corrections are good and healthy for the market. Corrections do not mean one way falls always.<br />
<br />
The most recent correction on a larger scale was the period from Nov '10 to Dec '11 - about 13 months. Nifty peaked at 6338 in Nov ' 10, and the corrective pattern played out as follows<br />
<br />
6338 - 5690 - 6181 - 5177 - 5944 - 5196 - 5740 - 4728 - 5400 - 4531<br />
<br />
As we can see the falls are sharp and equally sharp are the rallies as well in between.<br />
<br />
In the current phase, I think a short-term bottom has been formed or may form one around 8025 levels. The fall has been from 8800 odd levels so a retracement to 8580 is very much on the cards.<br />
<br />
Now there is a lot of talk going on about stocks moving around 200 DMA. Let us analyze some of the charts quickly to understand price behavior in corrective phases<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEga7B_JX37PvyLYqLibG5wr_ldk_-rE_Jv2frI0Nl5kihY_2hHhpGMVR5VW_qleboxXjN8YlgX2wVoybQG_md-QAz-CsKVcM_jqIJwE9sDCYmd2S0iDPP7JlZ8jbQRGJ9SPCbyRTFcxiwU/s1600/SBIN1.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEga7B_JX37PvyLYqLibG5wr_ldk_-rE_Jv2frI0Nl5kihY_2hHhpGMVR5VW_qleboxXjN8YlgX2wVoybQG_md-QAz-CsKVcM_jqIJwE9sDCYmd2S0iDPP7JlZ8jbQRGJ9SPCbyRTFcxiwU/s1600/SBIN1.png" height="180" width="320" /></a></div>
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhkY9QOhbcjrlX9XMx_LG7fGdRTYLXjvjlpucjGN1UVf7qKbkuUaSf4bZtOqTp0vQFqlqrpBToQiDO8kRBv0HNx5YYRUYVfxHfne0yBygfXXWw6rt9FwjzJzYU3TNZM4jcAkiUccVyHyik/s1600/SBIN2.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhkY9QOhbcjrlX9XMx_LG7fGdRTYLXjvjlpucjGN1UVf7qKbkuUaSf4bZtOqTp0vQFqlqrpBToQiDO8kRBv0HNx5YYRUYVfxHfne0yBygfXXWw6rt9FwjzJzYU3TNZM4jcAkiUccVyHyik/s1600/SBIN2.png" height="225" width="400" /></a></div>
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj1EQeGs7fT6-TT9PPue_qnVV5U2EGAEX4pl8ABMthKuQu7fjXJktvi5EXpYCUFNVIrD2LYU1Vwo9fYDKe6kdw8susb3rWsi5eSvddi1A7YAta7YTIO4ayVoPuwqKiJGaY3SVXIlRT8LCc/s1600/SBIN3.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj1EQeGs7fT6-TT9PPue_qnVV5U2EGAEX4pl8ABMthKuQu7fjXJktvi5EXpYCUFNVIrD2LYU1Vwo9fYDKe6kdw8susb3rWsi5eSvddi1A7YAta7YTIO4ayVoPuwqKiJGaY3SVXIlRT8LCc/s1600/SBIN3.png" height="225" width="400" /></a></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj1EQeGs7fT6-TT9PPue_qnVV5U2EGAEX4pl8ABMthKuQu7fjXJktvi5EXpYCUFNVIrD2LYU1Vwo9fYDKe6kdw8susb3rWsi5eSvddi1A7YAta7YTIO4ayVoPuwqKiJGaY3SVXIlRT8LCc/s1600/SBIN3.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj1EQeGs7fT6-TT9PPue_qnVV5U2EGAEX4pl8ABMthKuQu7fjXJktvi5EXpYCUFNVIrD2LYU1Vwo9fYDKe6kdw8susb3rWsi5eSvddi1A7YAta7YTIO4ayVoPuwqKiJGaY3SVXIlRT8LCc/s1600/SBIN3.png" height="225" width="400" /></a></div>
<div class="separator" style="clear: both; text-align: center;">
<br /></div>
So both on upside and downside, 200 DMA is usually tested thrice for support/resistance before a clear trend emerges. Just because some stocks are trading below 200 DMA now does not necessarily mean a clear downtrend. That being said, it does not confirm uptrend either.<br />
<br />
I have been saying for the last 6 months that it is time to book out of equities and reduce net long exposure. For new investors and slightly risk averse investors, it is better to stick to the SIP mode. Decide on a corpus of say 1k to 2k for counters like LT, SBIN, Tata Steel, NiftyBees, BankBees, JuniorBees etc. With a constant amount, keep accumulating the number of units and over a 3 year horizon, they are bound to yield 20% CAGR.<br />
<br />
For the larger picture, let us not forget that 7200-7400 is a pivotal bottom. Unless a major Lehman Brothers like crisis takes place, the correction will not perhaps extend below this. In case of Black Swan events also, the falls will be accompanied by swift rallies. These are of course larger trends for investors and it is not going to help traders in any way.<br />
<br />
From a trading perspective for May 2015, first let us look at the Nifty / BankNifty charts<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhnF7iaQJCR0EyE4PlBrG5zSgKDvpHquPps2eTqAc7vk6akj-Dcz6C1oK7118CWU2_pTKBoEObMhWzSbGQe7dUWSrcsL0Xp1gl_Q5Ey1DRTLGAY9TDO_0xoGBUR1NC57pehnGxGekb98_o/s1600/Nifty-EOD.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhnF7iaQJCR0EyE4PlBrG5zSgKDvpHquPps2eTqAc7vk6akj-Dcz6C1oK7118CWU2_pTKBoEObMhWzSbGQe7dUWSrcsL0Xp1gl_Q5Ey1DRTLGAY9TDO_0xoGBUR1NC57pehnGxGekb98_o/s1600/Nifty-EOD.png" height="225" width="400" /></a></div>
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg9mY1jUTT_9TqH-GqQrTkx9zrVUsAdE_HPu7n5ETAwr13lKKQBS-9oHo3Qb5n5R6KeyR6OFddRbOvPipwmskU1V1OE4RWQQooABxe1yEc1HQP1MoufpMuwt6x3zDjKX7IdwXvQ0awVKag/s1600/Nifty-EOW.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg9mY1jUTT_9TqH-GqQrTkx9zrVUsAdE_HPu7n5ETAwr13lKKQBS-9oHo3Qb5n5R6KeyR6OFddRbOvPipwmskU1V1OE4RWQQooABxe1yEc1HQP1MoufpMuwt6x3zDjKX7IdwXvQ0awVKag/s1600/Nifty-EOW.png" height="225" width="400" /></a></div>
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjrJaTezpMUwjA0KZV5yFenHJpP_5VmEkfXMupwFeA-ff_RwTjkDRjvUGLTPeCf4o3Kwi_YJmpbKS0ry9qHCZQJ72_6N2aPPjgbMrHtBtWkn2mj8a3SM68MDU6K4cixGbFjJ8PdWDH-EEo/s1600/BankNifty-EOD.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjrJaTezpMUwjA0KZV5yFenHJpP_5VmEkfXMupwFeA-ff_RwTjkDRjvUGLTPeCf4o3Kwi_YJmpbKS0ry9qHCZQJ72_6N2aPPjgbMrHtBtWkn2mj8a3SM68MDU6K4cixGbFjJ8PdWDH-EEo/s1600/BankNifty-EOD.png" height="225" width="400" /></a></div>
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg5sxG97wn3IyAfS__vs-OtBMSkM17RWQmaI3E92h5RNkuDVruC3zqNCQi6giOwJ7wNUuu7R6VWh4WtO5VY6kk53PsDCyfFY-1e1BdweLwMBJtufAxETyJrPdDTNyu6hzkRVBRCtwsNS7Y/s1600/BankNifty-EOW.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg5sxG97wn3IyAfS__vs-OtBMSkM17RWQmaI3E92h5RNkuDVruC3zqNCQi6giOwJ7wNUuu7R6VWh4WtO5VY6kk53PsDCyfFY-1e1BdweLwMBJtufAxETyJrPdDTNyu6hzkRVBRCtwsNS7Y/s1600/BankNifty-EOW.png" height="225" width="400" /></a></div>
On a daily level, one needs to be very nimble footed. Right now, I am working on the premise that an interim bottom is already in place. For safe traders, it will only be confirmed with the level mentioned above. For a slightly risk-on trader with adequate margins, 8025 and 7800 [if it comes] are good contrarian entry points. On upside, 8580-8625 is where the short-covering rally should likely terminate [8825 in case of excessive bullish undertone with UK election verdict]<br />
<br />
On BankNifty, 18800-19200 is where the short-covering bounce should end [19800 in excessive bullish mood]. These levels keep changing on a daily basis and will be updated on the twitter feeds.<br />
The fall has been sharp and a short-covering bounce is very much on the cards within then next 5 trading sessions. Ride that wave but bear in mind the critical resistances as LARGER TREND will assert itself on Thursdays / Fridays and towards the the end of May.<br />
<br />
Assuming the larger trends go as per these lines, the downward phase will likely last till 21st June.<br />
Enjoy the upside and be alert and prepared for the larger trend where a lot of bucks are waiting to be made. The UK elections and MAT issue will be reasons attributed to the short-covering rally. For the downleg, any reason like unrest in Europe, rupee weakening, oil prices hardening - any excuse can be used.<br />
<br />
April, May and June are exciting months for trading both upside and downside; April certainly gave that though I admit that the downside was more than anticipated. Now enjoy May and June as well.<br />
<br />
<br />
<br />
<br />
<br /></div>
reachnagraj / theknight16http://www.blogger.com/profile/08222136846834969462noreply@blogger.com0tag:blogger.com,1999:blog-4190541639700840242.post-7192182582743755562015-04-22T06:02:00.002+05:302015-04-22T06:02:51.585+05:30Valuations For Hi-Tech Industries - Illustration 1 - BookMyShow.Com<div dir="ltr" style="text-align: left;" trbidi="on">
Hi There<br />
For the last 3 years, we have seen hi-tech stocks getting funding like there is no tomorrow, crazy valuations and a sense of deja vu with the 1999-2000 dot com bust. Personally, I find the valuations a bit crazy myself but first things first, let us understand the difference in scenarios prior to the dot-com bust and the current situation.<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgSZ83iJqW-NTMGcQHdwGrONPHkYbk-V5CZg9ETZyp57PdbZm3dYju0rBhxw3r3QEYZh2aLUDMFl1qIk7zRtqT1dOyfW7OedjHsggiAuU56iK8BwkeUWnL2-x7iXWzhu0txpDIbE859m_Q/s1600/HI-TECH+SCENARIO.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgSZ83iJqW-NTMGcQHdwGrONPHkYbk-V5CZg9ETZyp57PdbZm3dYju0rBhxw3r3QEYZh2aLUDMFl1qIk7zRtqT1dOyfW7OedjHsggiAuU56iK8BwkeUWnL2-x7iXWzhu0txpDIbE859m_Q/s1600/HI-TECH+SCENARIO.png" height="225" width="400" /></a></div>
<br />
<br />
In the early days of the internet, broadband was a far fetched concept perhaps accessible only to large corporations. It was the world of dialups. Websites had to be made with HTML pages like today but there was not much automation. One had to hire a battery of HTML writers to ensure that pages are put up. The number of internet browsers were limited and so were support infrastructure, security et al. Computers at home were rare and laptops were the privilege of the rich. For the common man, the only way to get internet access was to pay a bomb to the ISPs or go to cybercafes and pay as per usage. All said and done, the technology was absolutely new then [we only have the benefit of hindsight now to say that it was archaic technology!]<br />
<br />
All said and done, it was pretty clear that the internet would make the world flat. Suddenly, there was no need to worry about sending letters to loved ones anywhere in the world with postage or courier charges and yet worry whether the mail would reach the person. It set across the culture of instant connect as long as both sides accessed the internet and got the mail.<br />
<br />
I won't get too much into the specifics of the technology aspect. There are enough expert views on www to talk about that. Suffice to say that security, access were all limited. This post has got to do more with business models of technology and how human nature stays the same at the core.<br />
<br />
<b><u><i>Human nature as always is driven by greed and fear </i></u></b>when it comes to business and economics. Be it Dutch Tulips or American Housing or Railroads and Utilities, human beings in general are wired to be driven by greed and fear. A vast majority of people got so caught up by this mania of the world getting flat that logic was thrown out of the window to say the least. Almost everybody thought that as long as I have a website and some content out there, I can move on to financial freedom and make good money. Even smart money proved that it was perhaps not very smart. Funding moved in left right and centre to all sorts of technology related businesses without worrying about long term sustainability.<br />
<br />
Let us face it, no business can make profits outright - be it brick and mortar business or technology business. Materials need to be procured, a sound operations plan needs to be built in, target customers need to be approached so on and so forth. That is precisely the reason why banks and investment arms exist in the first place. If you want to start a food truck [Im not even getting into a basic restaurant over here], you still need to have that food truck in place. The cuisine needs to be set, people need to be informed about the existence of the food truck. And even then, the food truck can't be making profits from day one. By the time one gets critical mass and the food truck breaks even, it could be at least 2 years.<br />
<br />
Likewise, even the e-commerce and hi-tech businesses definitely needed funding to keep themselves going. <b><u><i>The main difference then and now is the business ecosystem. </i></u></b>In the previous technology boom, getting infrastructure in place itself was a very capital intensive task. What went wrong was the basic sense of how the future revenue model would be. Even if one does not have a clear picture, one needs to know what are things that can be charged for and what can be the potential profit. Nothing was done in this regard. Almost all websites had hazy but crazy projections of revenues and profits purely on the basis of people hooking their eye balls to the internet. It seems outrageous that valuations were done on the basis of number of eye balls, number of hits a website would get - bizarre.<br />
<br />
For business its simple: Revenue - Cost = Profit. Some of these costs would be operating costs whilst bulk of costs would be fixed costs to be amortized and recouped over a longer time frame. The music obviously stopped then at some point of time and Darwinian principle of Survival of Fittest kicked in. [Note that it doesn't matter what technology we use, basic human nature and basic economic principles always kick in; technology can be different but the core remains intact]<br />
<br />
The BIGGEST BLUNDER in the DOT-COM BUST was that people thought technology itself will be the new way of life and business. <b><i>What people forget is that TECHNOLOGY IS AN ENABLER - NOT A REPLACEMENT </i></b>for human beings. Human beings are by nature social beings. They need to interact with people, communicate with near and dear ones. Before the telephone came in, people only had one way and that was through letters. Telephones changed that. So the technology is an enabler to reach out to people. Then came email and it largely reduced the need for conventional post across borders. Key principle - Technology is an enabler.<br />
<br />
Also the email and chatrooms brought forth this concept very clearly at that time itself. There are enough likeminded people in the world with whom you can discuss your interests. Earlier, whether you were somewhere in downtown Baltimore in US or in some far fetched suburb in Mumbai or on the beaches of Pattaya, you could struggle to discuss and know more about Origami. You perhaps did not have enough people around to share and discuss ideas about Origami - email, messenger and chatrooms changed that. What it also did was eliminate a lot of biases. People everywhere had some superiority complexes and inferiority complexes regarding different skills, strengths and weaknesses. The dot-com proliferation showed the world that you need not have superiority complex about a lot of things. No matter how smart you think you are, there is at least 1 person who is far superior to you.<br />
<br />
Whilst these were positive, the human nature of greed and fear drew valuations way out of the way. It was deja vu Dutch Tulips mania or the Housing Bubble of US. In the hay days of 2006-2007, a pizza delivery boy could double up as a home loan specialist in the US and own a fleet of BMWs and Mercedes cars riding on the housing and mortgage boon. People bought into homes, stocks just to ensure that they are not left out of this boom. After all, in its nascent stages, the segment was clocking almost 15% growth CAGR YoY. The smartly dressed investment bankers decided to superimpose this on the industry and financial sheets. 15% growth in perpetuity.<br />
<br />
Simple power of compounding says that one can double an invested principle by a factor of 70/Interest rate. At 15% growth rate, we were talking doubling of home values and business values in 6 years. Obviously that was bizarre. Simple day to day consumption items like milk, juices, bodycare products etc grow 2% to 3% in perpetuity. That is because of economic cycles and the base effect. To double from a small base value of 2 million users to 4 million users is easy. 4 million to 8 million can start getting daunting. These were the socio-economic factors when the previous asset bubbles were built and specifically for the hi-tech boom, the challenge was the overall ecosystem specifically backend stuff that was missing. The music would stop and a crash was imminent.<br />
<br />
Now we time travel to current times. The IT ecosystem is much more robust as far as back-end operations are concerned and a large number of people access the internet across different kinds of hardware. Cost of access is marginally low. Jaw dropping valuations are coming through for a lot of hi-tech companies and we clearly can see 2 camps; one that strongly feels that such valuations are justified and the other that feels that it is deja vu 2000.<br />
<br />
Let us come specifically to Indian hi-tech companies and also understand a few businesses. I am taking bookmyshow.com as my first pilot case. Please note that the company is not publicly listed and hence I am using guesstimates to arrive at revenue and expense projections<br />
<br />
As with any business, the first thing is to figure out business volume potential<br />
<br />
There are about 12000 cinema screens in India and 10% of them are multiplexes set in Metro and Tier1 cities [Business Standard / Economic Times online articles / Bookmyshow.com About Us]<br />
<br />
Each multiplex typically has 4 screens with seating capacity of about 250 / screen and 4 shows per day. That gives us about 48 Lakh multiplex tickets potential each day in India. What really is a challenge right now is occupancy [or footfalls as measured in retail terms]. Weekdays sees about 10% occupancy at best overall and 75% occupancy on weekends at liberal levels.<br />
<br />
Advantage Bookmyshow: It is independent of these factors; its revenue is based on a fee / ticket. Also cinema tickets are just one of the revenue streams [extremely dominant today] but the same model can be replicated for a number of events like theatre plays, music concerts, sports events etc. Bookmyshow has gained the first mover advantage and gained some traction in this space as well. It is just that compared to actual market potential, these segments have not gained as much compared to mature markets.<br />
<br />
Disadvantage Bookmyshow: Due to a variety of reasons, the penetration is far below potential at present. With so many credit/debit card frauds reported almost everyday, a lot of people in general are reluctant to use online portals for making financial transactions. For regular consumption items, there is always the option of Cash/Card on Delivery but that cannot happen with BMS. So although on paper, there is potential to sell upto 2.5 million tickets per day, BMS is just about at 0.5 million tickets per day. Note that this is per day. At a convenience fee of 15 per ticket that still means revenues upwards of 65 million [68 Crores in desi parlance and that too on a cash and carry basis!]<br />
<br />
On the brighter side, 68 crores of revenue is fantastic with less than 5% of actual customers using BMS. To scale upto 10% - 20% of new customers is now pretty easy. Since the booking software and code is in place, the core technology remains the same and there will be far greater utilization of staff, resources etc. The business needs about 100 employees across departments to keep this going. The rest can be outsourced. All said and done, there are expenses to take care of and I have outlined my assumptions and projections in the sheet below<br />
<br />
<a href="https://drive.google.com/file/d/0B7zymz3aAd4GUlByY25TWFhpaTA/view?usp=sharing" target="_blank">Volume / Revenue / Expense Projections </a><br />
<br />
Without going too much into the sunk costs, as a day to day business, this model earns a healthy margin of 15% pre-tax income and with volume, the bottom-line can be as high as 40%. Hi-tech business unlike brick and mortar business can grow much faster in revenue and expenses will still grow much much slower due to the scalability factor. Classical economic theory tells us that as the market place sees high returns, more players come into the field forcing prices to Marginal Revenue = Marginal Cost. This is another beauty of hi-tech business. It is all about gaining mindshare and many rivals can get crushed just in the acquisition place.<br />
<br />
Overall though, the net pre-tax margins won't go below 10% and the market potential is huge. Trade pundits are giving BMS a valuation upwards of 1000 crores at this stage. 1000 crore valuation for a company that rakes in about 70 Crore revenue with 7 crore earnings- seems far stretched. 5 years down the line when volumes to come towards the actual potential, this business will be clocking revenues in excess of 700 crores and PAT of 70 Crores plus. With this kind of money coming in, classical economics says there will be more players coming into the picture.<br />
<br />
All in all, a fantastic business to be in with a robust business model. The company is no doubt fabulous and can easily connect with the young population of India. But no matter what way one looks at the business, 1000 crores is a far stretched valuation. Giving it parity with mainstream IT players like TCS or Infosys or HCL Tech, the fair PE multiple is about 30. We know that the earnings will be 70 Crores in 5 years time. With a PE multiple of 30, we get a fair stock price of 210 / Share. Assuming that 10 million shares are outstanding at that point of time, The best case scenario gives the company a valuation of 210 crores.<br />
<br />
The other side of the argument is the number of shares outstanding can be far greater than 1 million. I counter that by saying, the greater the number of shares outstanding, lower the EPS and hence price needs to be adjusted accordingly. The fact is that total earnings won't change in a hurry. Allotting more shares does not change the basic facts. The pie remains constant; just that the slice of the pie will chnage.<br />
<br />
To summarize, BookMyShow with its Cash and Carry model is bound to succeed. The company seems to have anticipated future needs as well and the backend operations have been secured for now as well as for a good time into the future.<br />
<br />
Current Sales / Earnings is about 70 Crores Revenue with 7 Crores Earnings. Business works on Cash n Carry model. Assuming 1 Million Shares outstanding and PE of 30, fair value of the stock will be about 210. So the reported valuation of 1000 crores is grossly overestimated and whilst that is not reason to short when the IPO and initial trading days come in, the counter should follow the steps of parent channels Network 18 and TV18.<br />
<br />
Should you buy the IPO: Yes - if the euphoria is good enough. Cash out in early listing gains.<br />
<br />
When you buy BookMyShow.com STOCK, always keep these 2 charts as a guiding principle<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjoILp9Eso5_TShS1xNzzY5k-saYMFx8vWAKYN6YJpQDd6hMEJnYpf8fDDW_d2-BGcXgbumypp_nNYft9qhO6qrYDsQ5NaitmfP10Yt8wdSuU5KFc1AI-1u2yE6KWYaHdMGz4M1ENs_Gpk/s1600/NETWORK18.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjoILp9Eso5_TShS1xNzzY5k-saYMFx8vWAKYN6YJpQDd6hMEJnYpf8fDDW_d2-BGcXgbumypp_nNYft9qhO6qrYDsQ5NaitmfP10Yt8wdSuU5KFc1AI-1u2yE6KWYaHdMGz4M1ENs_Gpk/s1600/NETWORK18.png" height="225" width="400" /></a></div>
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjCAW72KQin_WxwSY32f7oEWoZKZobp9QyWAon7kVah7FtucuAiur6uffbBDoXllpkchJoJofRqVhnEui0Prsyxr-JiJFLdtgcxdzxAIayM8hlPV2AvhqoYyL4deLal83_eH-JsYnLHWMQ/s1600/EDUCOMP.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjCAW72KQin_WxwSY32f7oEWoZKZobp9QyWAon7kVah7FtucuAiur6uffbBDoXllpkchJoJofRqVhnEui0Prsyxr-JiJFLdtgcxdzxAIayM8hlPV2AvhqoYyL4deLal83_eH-JsYnLHWMQ/s1600/EDUCOMP.png" height="225" width="400" /></a></div>
<br />
<br />
Tech valuations are highly subjective but if good old common sense prevails, we will know what is real and what is artificial. In the next valuation exercise, I will take the case of Ola Cabs<br />
<br />
<br /></div>
reachnagraj / theknight16http://www.blogger.com/profile/08222136846834969462noreply@blogger.com0