Dismal global cues and the possibility of a rate hike wreaked havoc with the markets. The Nifty closed at 4,266 down 81 points, while the Sensex shut shop at 14,293 down 278 points. Selling was seen in capital goods, metal, power, realty, auto, oil, pharma, and banking stocks.
Sangeeta Purushottam, Head-Institutional Business, Religare Securities, said the markets are heading toward some level of capitulation on negative news flows.
On money flows, she said there is no major redemption pressure in domestic mutual funds. "They are sitting on the sidelines. FIIs are putting off incremental fund raising, while insurance companies are buying."
According to Purushottam, crude is the key sentiment driver. "Domestic inflation is another worry. Good Q1 FY09 results may help sooth sentiment to some extent."
Sudarshan Sukhani of Technical Trends said we are in a current bear market. “The next support level for the Nifty could be anywhere between 3,600 and 4,200, which is very wide. So, it is not possible to make a call and say that the Nifty is going to find support here or there. But based on current momentum, we will certainly break 4,000 and then see where we stop. At this point, there is no sense in going and buying.”
Excerpts from CNBC-TV18’s exclusive interview with Sangeeta Purushottam and Sudarshan Sukhani:
Q: The markets nearly lost 10%, does it look there is more pain left in the near-term?
Purushottam: It is certainly not looking pretty at all. The flow of the negative news continues. The market does seem to be heading towards a certain level of capitulation, which is something that a lot of players have been talking about. Many people did expect the markets to re-test its earlier lows, and head a little lower than where we hit in January. That does seem to be playing out right now. It is also a little hard to call where the bottom is going to be, unless and until we see some turn in newsflow itself.
Q: What’s going to turn it, because flows are weak from global guys? With crude sort of cooling down dramatically, can you think of something in the near-term which can turn sentiment aside of the small short covering rallies which we see from time to time?
Purushottam: Crude is key. It remains to be seen whether we are going to see crude come down in the short-term. That is the most visible trigger. So, if crude shows some respite then that could help the markets.
The markets are also watching the inflation number very closely these days. It is certainly going to turn down in the next few weeks.
The other piece of news, which is likely to come out about two weeks from now, is the results season. Expectations have been toned down over the last few quarters. If for any reason that turns out to be a little better than what people expect to support the market, then that could turn bring some level of respite.
However, it’s what lies around the horizon, apart from crude, which is going to be the major trigger.
Q: Where does one see the end to the pain in banks because they get hammered before and after the news? When do start buying them?
Purushottam: Banks are beginning to look quite attractive in terms of valuations. The uncertainty about the market is preventing buying from coming in. One is not really sure whether they going to get cheaper. But if one takes a look at the banking sector as a whole, you tend to perform broadly inline with the market over the long-term. The good time to buy banking stocks is when they have gone through a huge bout of underperformance, which is what we are really seeing right now. That’s seems to be one sector which is in a way capitulating first.
We may see some meaningful bounce backs. It is a little hard to say whether it is completely bottomed out, till we get a sense about the overall market. But valuations on prices to book are beginning to look quite cheap. Many of them have actually come to the bottom of their 4-5 year trading ranges.
Q: What about infrastructure? L&T dashed very quickly to Rs 2,400 and BHEL is languishing. What are the fears, which are pegging infrastructure stocks down so much?
Purushottam: In infrastructure, the concern really hasn’t been so much on demand, because most of these companies are sitting on healthy order books. There is reasonable revenue visibility over the next couple of years, even if we assume that there is some slowdown in order inflows in the next few quarters. The bigger concern really there is on margins. How much will inflation actually hit margins? How many companies will be able to pass on the cost increases? Many of these orders were taken a few years earlier and they may not have completely passed through escalation clauses. That is really the bigger fear as far as the infrastructure sector is concerned. Part of the fall actually was a correction of fairly excessive valuations. Some of the stocks had become very expensive. The second concern really is the impact on margins.
Q: What's your take on liquidity after speaking to your institutional clients from both the FII perspective, which has been a continuous sell, and from mutual funds who have just sitting on quite a bit of cash but don’t seem to be in any tearing rush to deploy it?
Purushottam: Domestically, most people tell us that they haven’t really seen huge redemption pressures. Cash flow positions are fairly comfortable, so there is a fair amount of liquidity actually waiting under the sidelines, which is the silver lining. Whenever the news flow does turn, we would probably have a fairly strong rally. But as of now, there is really a lack of conviction in terms of what is the right time to get back into the market.
The international flow obviously has been negative for the last several months. We do hear of clients that some people are facing redemption pressures or putting off implemental fund raising. The liquidity picture there doesn’t look as comfortable. In fact, domestic liquidity has been better. The insurance sector has actually been buying consistently. So in times like these, they do come in and accumulate. Domestic liquidity overall has been lot more comfortable than the international one.
Q: How are you mapping the Nifty from hereon?
Sukhani: We have already broken down from that significant support level of 4,400. We are in a bear market and therefore we should not be surprised when prices fall, because that is what a bear market is all about. Once 4,400 is broken, what is the next level that we should be looking for? Unfortunately, there is a free fall after that.
The levels could be anywhere between 3,600 and 4,200, which is very wide. So, it is not possible to make a call and say that the Nifty is going to find support here or there. But based on current momentum, we will certainly break 4,000 and then see where we stop. At this point, there is no sense in going and buying. We are still trying to catch falling knives, but traders must be careful. These sharp vicious bear market rallies come and they wipe off all their short profits. One of them is likely to come tomorrow.
Q: If you get higher levels on the Nifty in some short covering rally, would you consider shorting that rally or is that dangerous as well?
Sukhani: It is not dangerous because this is a bear market. When the Nifty goes towards 4,400, you have to wait patiently for the rally to give signs of exhaustion. But once those signs start coming in, it will be a short selling candidate again, based on the current technical picture of the market. Short sellers should be rewarded repeatedly.
Q: Do you think we will see sub-4,000 levels in this leg of the downside?
Sukhani: Yes. I hope I am wrong. But it does appear that 4,000 will break down.
Q: What are you seeing on the charts of some of the heavyweights which are coming off very sharply like Reliance and SBI?
Sukhani: SBI has been underperforming, so the charts are telling us that the underperformance will continue. If the Nifty makes another decline, then we are likely to see banks go below Rs 1,000. The Reliance and Nifty are going hand in hand. So, any weakness in the Nifty tells us that Reliance will also fall.
Q: What about L&T which has collapsed to Rs 2,400?
Sukhani: L&T has broken support levels. There is a free fall and nothing to hold it. I am not saying it will reach there, but there is nothing to hold it before Rs 1,500-1,600. So, it can stop wherever it wants.
Source: Moneycontrol.com
Tuesday, June 24, 2008
Monday, June 16, 2008
Expect risk re-pricing to begin
Arindam Ghosh of Mirae Asset Management expects the risk re-pricing to begin. If crude prices stay at current levels, he thinks there would be under -recoveries to the level of USD 60 billion. The consumption of commodities will go up considerably, he added.
Excerpts from CNBC-TV18’s exclusive interview with Arindam Ghosh:
Q: What might we do for the foreseeable future? Is the worst of the pressure behind us you think?
A: The worst is behind us. Clearly we are getting to see some kind of a pullback, which is now starting to happen even in the US markets. There is a strong case for reprising now to start happening and over a one-year period the risk reward definitely looks good for the Indian market.
Having said that there are definitely challenges in the short-term, the macro economic conditions have been worsening at the margin in the short-term. But clearly one needs to look beyond and needs to take a long-term view on Indian market. The core is very much intact and whilst you have these factors like inflation, oil and interest rates and typically these are all global influences now which are playing a big role and impact on the Indian market. But one needs to look beyond and essentially follow market neutral strategic.
Q: How is the mood of the global investor towards India and Japanese but across the region. We have seen exodus of money. Are people looking for further underweight their India position over the next few months?
A: We have seen some amount of unwinding positions in the past but these investors do have a long-term view on Indian market. Essentially people are ready to pay a certain premium for the Indian market largely because we are a diversified economy; our dependence on exports is much lower. Typically from US perspective our view is that money has to ultimately find its place and money has to move to markets which are relatively attractive now.
In the past we have seen the US markets to be relatively much more attractive and therefore typically we have seen a period of complete risk aversion when money has actually stayed in that market. But the sense we are trying to get now from the west is that probably we would see a certain amount of risk reprising starting to happen and therefore allocation, our belief is that it’s going to increase to the emerging markets including India.
Q: Can you take a sanguine call on the Indian equity market or does it have to be a call on crude as well because Gastrom over the weekend is talking about USD 250 crude. Would any of your fundamental assumptions hold if crude were to indeed go up to between USD 150-200 or essentially that is a call you need to take, to take a call on equities in India over the next one year?
A: Crude will continue to play a big role in the short-term movements of the Indian market. Currently our view is that if the prices stay at current levels, we would probably see under recoveries to the extent of about USD 60 billion.
What worries on the crude side is if one would analyse - one will see that while the move up has been almost by about USD 60-70 per barrel but a large part of this has been on the back of weakening dollar. But surprisingly in the recent past whilst the dollar has been kind of strengthening a little but inspite of that the crude price have continued to be inching up. There is a lot of speculative position which is been building up in the oil futures. And probably if we get to see some unwinding of these speculative positions happening we may see a cooling off to happen on crude prices.
Geopolitical tensions in the past - we do not look at that has one of the big drivers. We have seen some of the Gulf Cooperation Council (GCC) countries now announcing their policies of kind of trying to boost supply. But overall our view is that probably the impact on prices going to be negligible. So more of speculative build-up and unwinding of that would probably help to correct the situation of the imbalances which now exists. But if one has to look at different asset classes, we feel that commodity which includes crude is the hot asset class. And that is because most of the other asset classes have been showing negative trend and that is something we believe is going to continue in the immediate foreseeable future.
Q: Is that something you would translate into the equity market as well, change your portfolio around a bit to lean towards commodities, whether it is oil or metals or even soft commodities?
A: We are coming out with the commodity stock fund clearly because we believe that the demand-supply mismatch is going to continue for a certain period of time. And on the strength of that, we believe that consumption is going to increase as developing economies go up the curve. Also as income levels go up in the developing economies, the consumption is going to go up. So whether it is crude, food grain or even your consumption of textiles would ensure that commodity prices continue to stay up.
So for this particular fund that we are going to be coming out of with of course it is going to be largely across both hard and soft commodities. As far as our existing funds are concerned, we have been seeing a certain amount of rotation of sector but that is largely because I think by and large everyone has been taking a kind of momentum approach to investing rather than long-term investing. Because if you look at the last six months nothing has really changed in terms of sectors but in spite of that many sectors, which were kind of looking very hot prior to January 21 has suddenly come off. So I think if one looks at one year horizon and makes right investment decisions and not decisions, which are guided more by momentum, I would imagine that even some of the sectors which are now looking negative over a one-year perspective are going to be long-term drivers of growth.
Disclosures: It is safe to assume that my clients & I may have an investment interest in the stocks/sectors discussed.
Source: Moneycontrol.com
Excerpts from CNBC-TV18’s exclusive interview with Arindam Ghosh:
Q: What might we do for the foreseeable future? Is the worst of the pressure behind us you think?
A: The worst is behind us. Clearly we are getting to see some kind of a pullback, which is now starting to happen even in the US markets. There is a strong case for reprising now to start happening and over a one-year period the risk reward definitely looks good for the Indian market.
Having said that there are definitely challenges in the short-term, the macro economic conditions have been worsening at the margin in the short-term. But clearly one needs to look beyond and needs to take a long-term view on Indian market. The core is very much intact and whilst you have these factors like inflation, oil and interest rates and typically these are all global influences now which are playing a big role and impact on the Indian market. But one needs to look beyond and essentially follow market neutral strategic.
Q: How is the mood of the global investor towards India and Japanese but across the region. We have seen exodus of money. Are people looking for further underweight their India position over the next few months?
A: We have seen some amount of unwinding positions in the past but these investors do have a long-term view on Indian market. Essentially people are ready to pay a certain premium for the Indian market largely because we are a diversified economy; our dependence on exports is much lower. Typically from US perspective our view is that money has to ultimately find its place and money has to move to markets which are relatively attractive now.
In the past we have seen the US markets to be relatively much more attractive and therefore typically we have seen a period of complete risk aversion when money has actually stayed in that market. But the sense we are trying to get now from the west is that probably we would see a certain amount of risk reprising starting to happen and therefore allocation, our belief is that it’s going to increase to the emerging markets including India.
Q: Can you take a sanguine call on the Indian equity market or does it have to be a call on crude as well because Gastrom over the weekend is talking about USD 250 crude. Would any of your fundamental assumptions hold if crude were to indeed go up to between USD 150-200 or essentially that is a call you need to take, to take a call on equities in India over the next one year?
A: Crude will continue to play a big role in the short-term movements of the Indian market. Currently our view is that if the prices stay at current levels, we would probably see under recoveries to the extent of about USD 60 billion.
What worries on the crude side is if one would analyse - one will see that while the move up has been almost by about USD 60-70 per barrel but a large part of this has been on the back of weakening dollar. But surprisingly in the recent past whilst the dollar has been kind of strengthening a little but inspite of that the crude price have continued to be inching up. There is a lot of speculative position which is been building up in the oil futures. And probably if we get to see some unwinding of these speculative positions happening we may see a cooling off to happen on crude prices.
Geopolitical tensions in the past - we do not look at that has one of the big drivers. We have seen some of the Gulf Cooperation Council (GCC) countries now announcing their policies of kind of trying to boost supply. But overall our view is that probably the impact on prices going to be negligible. So more of speculative build-up and unwinding of that would probably help to correct the situation of the imbalances which now exists. But if one has to look at different asset classes, we feel that commodity which includes crude is the hot asset class. And that is because most of the other asset classes have been showing negative trend and that is something we believe is going to continue in the immediate foreseeable future.
Q: Is that something you would translate into the equity market as well, change your portfolio around a bit to lean towards commodities, whether it is oil or metals or even soft commodities?
A: We are coming out with the commodity stock fund clearly because we believe that the demand-supply mismatch is going to continue for a certain period of time. And on the strength of that, we believe that consumption is going to increase as developing economies go up the curve. Also as income levels go up in the developing economies, the consumption is going to go up. So whether it is crude, food grain or even your consumption of textiles would ensure that commodity prices continue to stay up.
So for this particular fund that we are going to be coming out of with of course it is going to be largely across both hard and soft commodities. As far as our existing funds are concerned, we have been seeing a certain amount of rotation of sector but that is largely because I think by and large everyone has been taking a kind of momentum approach to investing rather than long-term investing. Because if you look at the last six months nothing has really changed in terms of sectors but in spite of that many sectors, which were kind of looking very hot prior to January 21 has suddenly come off. So I think if one looks at one year horizon and makes right investment decisions and not decisions, which are guided more by momentum, I would imagine that even some of the sectors which are now looking negative over a one-year perspective are going to be long-term drivers of growth.
Disclosures: It is safe to assume that my clients & I may have an investment interest in the stocks/sectors discussed.
Source: Moneycontrol.com
Stay away from mkts
The markets got off to a strong start today on the back of strong global cues from Asia, and a strong close on Wall Street on Friday, but profit booking at higher levels kept gains in check, and the indices closed with gains of a little over a percentage point. The Nifty closed at 4,573 up 55 points, while the Sensex shut shop at 15,396 up 206 points.
Dipan Mehta, Member, BSE & NSE, feels the kind of relentless selling, which was being seen in the market, seems to have subsided. “There is a bit of institutional support coming in at lower levels, which is a positive. A lot of market players are in a wait and watch mode, and all eyes are on crude oil, which has seen a correction over there. The key trigger for the markets to trade higher from these levels would be a further correction in oil prices to maybe below USD 130 per barrel. If that situation were to occur then one could see the markets trade significantly higher.”
Mehta feels there is enough money on the sidelines waiting to be invested. “At the same time, there are adequate short positions also which could get covered, if there is even a slightest bit of good news coming on the oil front and from other global markets. At the end of the day, investors have to realize that whatever price moves are going to be there, they are going to be quite narrow. Stop losses have to be put in place and followed quite strictly, only then would one survive in a market like this. It’s a bit of a confusing picture at this point in time. It would be better to stay away, there is no necessity to trade."
E Mathew, Director, Mathew Easow Fiscal Services, said the markets are disappointed because 4,630 or 4,650 couldn’t be crossed decisively. “It would be much better if one had a labored sort of a view. This is because the sharp spikes undoubted are not sustainable. It is important that we sustain above the five-day moving average, which is around 4506. The Nifty needs to keep its head above 4,506. It should slowly and gradually try once again to make an attempt to cross 4,630-4,650 and then head towards 4,750. Only after the Nifty consistently maintains above 4,750, can we say that at least the short-term trend is changing for the better. I would like to re-iterate that sharp spikes would not help. It will just help in a little bit of a bear covering, but a slow labored sort of an upmove would be much better for the health of this market.”
Source: Moneycontrol.com
Dipan Mehta, Member, BSE & NSE, feels the kind of relentless selling, which was being seen in the market, seems to have subsided. “There is a bit of institutional support coming in at lower levels, which is a positive. A lot of market players are in a wait and watch mode, and all eyes are on crude oil, which has seen a correction over there. The key trigger for the markets to trade higher from these levels would be a further correction in oil prices to maybe below USD 130 per barrel. If that situation were to occur then one could see the markets trade significantly higher.”
Mehta feels there is enough money on the sidelines waiting to be invested. “At the same time, there are adequate short positions also which could get covered, if there is even a slightest bit of good news coming on the oil front and from other global markets. At the end of the day, investors have to realize that whatever price moves are going to be there, they are going to be quite narrow. Stop losses have to be put in place and followed quite strictly, only then would one survive in a market like this. It’s a bit of a confusing picture at this point in time. It would be better to stay away, there is no necessity to trade."
E Mathew, Director, Mathew Easow Fiscal Services, said the markets are disappointed because 4,630 or 4,650 couldn’t be crossed decisively. “It would be much better if one had a labored sort of a view. This is because the sharp spikes undoubted are not sustainable. It is important that we sustain above the five-day moving average, which is around 4506. The Nifty needs to keep its head above 4,506. It should slowly and gradually try once again to make an attempt to cross 4,630-4,650 and then head towards 4,750. Only after the Nifty consistently maintains above 4,750, can we say that at least the short-term trend is changing for the better. I would like to re-iterate that sharp spikes would not help. It will just help in a little bit of a bear covering, but a slow labored sort of an upmove would be much better for the health of this market.”
Source: Moneycontrol.com
Thursday, June 12, 2008
Long-term India growth story still attractive
Devendra Nevgi, CEO & CIO of Quantum Asset Management Company Pvt Ltd said that it is very difficult to take a call on the market on a daily basis. He feels the Indian markets certainly looks attractive to the long-term FII investors. He said that 15% of the FY09 earnings looks attractive, if one believes in long-term India’s growth story.
Excerpts from CNBC-TV18’s exclusive interview with Devendra Nevgi:
Q: What is the call for the rest of this month, is this the worst you think that it can get or might we see lower levels?
A: I think it is very difficult to take a call on the market on a daily basis. I believe that FII flows to the tune of around USD 5 billion have gone out of the market. That maybe around some of the hard flows that had come in last year. The Indian markets look attractive to long-term FII investors. 15% of the FY09 earnings looks attractive if we believe in long-term India’s growth story. In the short-run there might be some negative moves caused by negative global cues that are there in the market. But the long run would be a good time to trade in the market.
Q: What about the interest rate situation because we have had an uptick yesterday, how are you positioning yourself in some of the interest rate sensitive sectors now like banks, autos, real estate?
A: I think the repo rate hike was more or less expected by the bond markets, maybe not fully by the equity markets because the bond markets have already reacted by 5-10 bps. I do not see any major rise because of the repo rate hikes in the interest rates on an immediate basis. But yes, I certainly see the Reserve Bank of India (RBI) showing some hawkish signs on the inflation. As and when the oil price hikes get factored into the inflation numbers, it might inch very close to double-digits.
The RBI would maintain its hawkish stance towards the interest rates and inflation for the simple reason that they might be able to give up a little amount of growth even if they have to control the inflationary expectations. I think banks and autos sectors will be impacted and I think that the hawkish stance has already been in the price of some of the banks and the auto sectors. So there is no point in reacting to these kinds of changes to churn the portfolio in the short run.
Q: You have got quite a bit allocated to energy as well as a space. What leg of energy do you like right now between power and oil and gas and within that is it upstream, downstream what you prefer?
A: If you look at the Quantum long-term equity fund portfolio, we have got exposure to the oil and gas upstream as well as oil and gas downstream. As far as upstream goes, we do hold Oil and Natural Gas Corporation (ONGC). On a longer-term basis ONGC being available at a P/E of around 10, looks reasonably attractive.
As far as the downstream goes, if you talk about the three major oil companies ie. Indian Oil Corporation (IOC), Bharat Petroleum Corporation Ltd (BPCL) and Hindustan Petroleum Corporation Ltd (HPCL), there are problems now and these problems have cropped up because of the wrong policy adopted by the government as far as the oil prices are concerned.
The misallocation of resources within the economy from oil companies to fiscal deficit to consumers has created a lot of issues. But we believe that ultimately there will be a long-term solution to it and these stocks will continue to do well.
So we are holding onto the Quantum long-term equity fund. We have exposure to the oil and gas upstream as well as the downstream.
Q: Give us one word on HDFC, which is your second largest holding. Last we checked for the quantum long-term equity fund, the stock was down 7% on the interest rate concerns. How would you look at that stock in terms of valuations and prospects in this interest rate environment?
A: HDFC is in much better position than anyone in the country to understand the interest rate environment. A company with a strong business model, with fantastic people behind it and a very strong and knowledgeable treasury, they should be able to manage this interest rate risk via various options that are available in the markets. So we are not really worried about the 25 bps hike in the repo rate and how it will impact a company like HDFC in the long run a company. HDFC has probably seen interest rates going upto 15%-16% way back in 1998 and is still the same. The growth on the loan side and the advances side is still very strong. The margins on a Compound Annual Growth Rate (CAGR) basis in the long-term look reasonably good. So we really do not feel the need to act or react because we have value investors. We do not really react to a 25 bps hike, which may or may not translate into a significant and negative impact on HDFC’s bottomline.
Disclosures: My family, my fund and I may or may not have any personal holding in the stocks and sectors discussed.
Source: Moneycontrol.com
Excerpts from CNBC-TV18’s exclusive interview with Devendra Nevgi:
Q: What is the call for the rest of this month, is this the worst you think that it can get or might we see lower levels?
A: I think it is very difficult to take a call on the market on a daily basis. I believe that FII flows to the tune of around USD 5 billion have gone out of the market. That maybe around some of the hard flows that had come in last year. The Indian markets look attractive to long-term FII investors. 15% of the FY09 earnings looks attractive if we believe in long-term India’s growth story. In the short-run there might be some negative moves caused by negative global cues that are there in the market. But the long run would be a good time to trade in the market.
Q: What about the interest rate situation because we have had an uptick yesterday, how are you positioning yourself in some of the interest rate sensitive sectors now like banks, autos, real estate?
A: I think the repo rate hike was more or less expected by the bond markets, maybe not fully by the equity markets because the bond markets have already reacted by 5-10 bps. I do not see any major rise because of the repo rate hikes in the interest rates on an immediate basis. But yes, I certainly see the Reserve Bank of India (RBI) showing some hawkish signs on the inflation. As and when the oil price hikes get factored into the inflation numbers, it might inch very close to double-digits.
The RBI would maintain its hawkish stance towards the interest rates and inflation for the simple reason that they might be able to give up a little amount of growth even if they have to control the inflationary expectations. I think banks and autos sectors will be impacted and I think that the hawkish stance has already been in the price of some of the banks and the auto sectors. So there is no point in reacting to these kinds of changes to churn the portfolio in the short run.
Q: You have got quite a bit allocated to energy as well as a space. What leg of energy do you like right now between power and oil and gas and within that is it upstream, downstream what you prefer?
A: If you look at the Quantum long-term equity fund portfolio, we have got exposure to the oil and gas upstream as well as oil and gas downstream. As far as upstream goes, we do hold Oil and Natural Gas Corporation (ONGC). On a longer-term basis ONGC being available at a P/E of around 10, looks reasonably attractive.
As far as the downstream goes, if you talk about the three major oil companies ie. Indian Oil Corporation (IOC), Bharat Petroleum Corporation Ltd (BPCL) and Hindustan Petroleum Corporation Ltd (HPCL), there are problems now and these problems have cropped up because of the wrong policy adopted by the government as far as the oil prices are concerned.
The misallocation of resources within the economy from oil companies to fiscal deficit to consumers has created a lot of issues. But we believe that ultimately there will be a long-term solution to it and these stocks will continue to do well.
So we are holding onto the Quantum long-term equity fund. We have exposure to the oil and gas upstream as well as the downstream.
Q: Give us one word on HDFC, which is your second largest holding. Last we checked for the quantum long-term equity fund, the stock was down 7% on the interest rate concerns. How would you look at that stock in terms of valuations and prospects in this interest rate environment?
A: HDFC is in much better position than anyone in the country to understand the interest rate environment. A company with a strong business model, with fantastic people behind it and a very strong and knowledgeable treasury, they should be able to manage this interest rate risk via various options that are available in the markets. So we are not really worried about the 25 bps hike in the repo rate and how it will impact a company like HDFC in the long run a company. HDFC has probably seen interest rates going upto 15%-16% way back in 1998 and is still the same. The growth on the loan side and the advances side is still very strong. The margins on a Compound Annual Growth Rate (CAGR) basis in the long-term look reasonably good. So we really do not feel the need to act or react because we have value investors. We do not really react to a 25 bps hike, which may or may not translate into a significant and negative impact on HDFC’s bottomline.
Disclosures: My family, my fund and I may or may not have any personal holding in the stocks and sectors discussed.
Source: Moneycontrol.com
Wednesday, June 11, 2008
Market to trade ranged between 14,700 & 15,500
After two days of gloom, traders were cheered by a strong relief rally. The indices got off to a robust start, and maintained the momentum through the session. The Nifty closed at 4,524 up 74 points, while the Sensex shut shop at 15,185 up 296 points..
Deven Choksey of KR Choksey Securities said investors should watch crude oil prices. "Crude oil prices are likely to soften going forward. If markets are going down from this level, probably we will not be able to sustain this rise. Currently, the markets are seeing short covering. Probably, between 15,200-15,500 we may find some amount of sell-off coming in the market, which may once again take it back to around 15,000 or a little below 15,000."
Investors will have to play this particular market very cautiously, he said. "If one has short-term positions, one will have to play really well as far as this market is concerned, because it is not in your control. It opens with a gap and hits you on both sides if you are committed on either side."
According to Choksey, global regulators are coming together to curb liquidity from the global market place, which means that the money will have to come out of the speculative asset class like commodities and oil. "It also means that some amount of softening is happening sooner than later, particularly in oil. Given that kind of scenario emerging, economic fundamentals, which otherwise started turning bad, may not get as bad going forward. If funds start coming out of commodities, and crude oil, then crude oil prices will start coming down. In such a situation some amount of optimism can happen in the market, with some amount of money flowing back into equity market. Equity markets, particularly in emerging markets, may get some amount of re-rating into stocks and that could probably stabilize the market going forward."
In the short-term, Choksey said, there is some amount of short covering leading to the upside in the market, which may not survive. "The markets will once again come down but this is the kind of trading range one will have to operate in till full stability comes in. The rangebound moment has not gone away. The Sensex may trade between 14,700 and 15,500 for the next few days. If it trades for at least the next few days and sustains in this band, probably we will have to wait for newer levels to emerge on either side, based on the development that takes place in the global markets."
Vijay Bhambwani of bsplindia.com said buying commitment needs to step up sharply before one can go and buy and hold something. "I would definitely like to start reducing my commitments on the long side. Yesterday, one saw approximately 55 lakh trades on the Nifty, with an average ticket size of almost Rs 25,000. That's is not the kind of ticket size or the number of trades I would have wanted to see on a day where the markets closed off the intra-day lows. Buying commitment needs to step up sharply before one can go out and buy something."
Source: Moneycontrol.com
Deven Choksey of KR Choksey Securities said investors should watch crude oil prices. "Crude oil prices are likely to soften going forward. If markets are going down from this level, probably we will not be able to sustain this rise. Currently, the markets are seeing short covering. Probably, between 15,200-15,500 we may find some amount of sell-off coming in the market, which may once again take it back to around 15,000 or a little below 15,000."
Investors will have to play this particular market very cautiously, he said. "If one has short-term positions, one will have to play really well as far as this market is concerned, because it is not in your control. It opens with a gap and hits you on both sides if you are committed on either side."
According to Choksey, global regulators are coming together to curb liquidity from the global market place, which means that the money will have to come out of the speculative asset class like commodities and oil. "It also means that some amount of softening is happening sooner than later, particularly in oil. Given that kind of scenario emerging, economic fundamentals, which otherwise started turning bad, may not get as bad going forward. If funds start coming out of commodities, and crude oil, then crude oil prices will start coming down. In such a situation some amount of optimism can happen in the market, with some amount of money flowing back into equity market. Equity markets, particularly in emerging markets, may get some amount of re-rating into stocks and that could probably stabilize the market going forward."
In the short-term, Choksey said, there is some amount of short covering leading to the upside in the market, which may not survive. "The markets will once again come down but this is the kind of trading range one will have to operate in till full stability comes in. The rangebound moment has not gone away. The Sensex may trade between 14,700 and 15,500 for the next few days. If it trades for at least the next few days and sustains in this band, probably we will have to wait for newer levels to emerge on either side, based on the development that takes place in the global markets."
Vijay Bhambwani of bsplindia.com said buying commitment needs to step up sharply before one can go and buy and hold something. "I would definitely like to start reducing my commitments on the long side. Yesterday, one saw approximately 55 lakh trades on the Nifty, with an average ticket size of almost Rs 25,000. That's is not the kind of ticket size or the number of trades I would have wanted to see on a day where the markets closed off the intra-day lows. Buying commitment needs to step up sharply before one can go out and buy something."
Source: Moneycontrol.com
Markets may see more pain
Raamdeo Agrawal, Director and Co-Founder, Motilal Oswal Securities, said the recent sell-off in the markets was unnerving. "The markets are likely to see some more pain.
High crude prices remain a concern, he said. "This will create a lot of structural problems."
He however remains bullish on the markets. "A lot of cheap stocks are available. So, serious money can be made if one invests for 2-3 years."
Prashant Vaishampayan of Pharma Analyst, Kotak Securities said it makes sense for shareholders to tender at Rs 737 per share. He added that fundamentals will not change depending on the open offer. According to him, the generics business is not facing problems and may not be reason for a sell-off.
Excerpts from CNBC-TV18’s exclusive interview with Prashant Vaishampayan and Raamdeo Agrawal:
Q: Is it just a short covering pull back or do you think the worse is over for the moment?
Agrawal: This kind of pains lasts much longer and it does not get over in 15-20 days. So, the damage is quite deep and it is going to take some time before the market actually gets back to previous levels. Even if the index does not go down much, the pain will be there. Two-third of the market decline is over but only one-third of the pain is over. So, some more pain is ahead.
Q: What is making you apprehensive about this market setup now?
Agrawal: Oil prices are at USD 135 per barrel and still people are saying that it could be as high as USD 250 per barrel. You cannot be very right in oil prices. If the oil prices are to stay here or move around USD 120 to USD 150 per barrel, it is going to create a lot of structural problems for the local and global economy.
A lot of things will change. So, oil prices are not going to come down. The talk is how higher it can go. So, in that environment, it is looking very challenging.
Q: Would it be fair to say that the fundamentals or the environment for equities has worsened in the last 3-4 months? Are you feeling less bullish about equities for the foreseeable future?
Agrawal: I am more bullish about equities. I don’t know what is going to happen in 6 or 8 months. I am feeling more bullish purely because we can get stocks of our choice at our prices.
In equities, you can make serious money only if you buy it cheap. Four months back, it was almost impossible to buy anything worthwhile at reasonable prices. Today, you can see some values around where you can say that these are the prices in which you can make some serious money into the next 3-4 years.
Nobody knows whether in the next 6 months whether it will be down or flat. So, I am not talking about a 6-8 month scenario but a little longer-term. You need low prices in the stocks and that is what is there right now.
Q: What is your take on the deal? At Rs 737, does it make sense for shareholders to tender?
Vaishampayan: Yes, it does make great sense for shareholders to tender at Rs 737. It is a huge premium to the current market price and the acceptance ratio will be the thing that you will look at. They are going to make an offer for 20% of the company and the remaining 65% is the free float. So, the acceptance ratio is not going to be very high if everybody tenders.
Q: What about valuations for people who want to hold onto the stock beyond the open offer? What do Ranbaxy’s valuations look like? Is it wise to hold on at these valuations or better to tender an exit to the extent possible?
Vaishampayan: There are several conditions that have to be met and we really do not know what would be the exact number of shares. If there is very little response to the open offer, your shareholding remains only at 35%.
The fundamentals of the companies have not really changed; the topline and EBITDA margin analysis has not changed. Would the number of shares change dramatically because the stake has to go to 50.1? That would certainly mean a huge dilution and the per share value will go down.
If on the other hand, they get their 20% tender, there is no need for any further preferential issue which would have actually given Ranbaxy cash to do more acquisitions. So, we will have to take that call once we get to know how that offer is progressing.
Q: What did you make of the Ranbaxy deal? What would you do with the stock now?
Agrawal: I am actually surprised by the total sellout. Getting Sankyo as a partner was one thing, but this is completely a historical thing. A number one pharmaceutical company from India, which was completely homegrown, has sold out 100%.
I personally had some shares, which I have sold in the market. Right now, we have decided to exit at current prices.
Q: Do you take it as a signal that the management does not have great visibility for going forward into the next 2-3 years?
Agrawal: Somewhere the management must be thinking that either the Indian market opportunity is going to shrink significantly. Generics, per se, all over the world could be facing marginal squeeze. These could be the reasons and obviously they are not able to scale up their own R&D into the entities. Malvinder Singh must be seeing some problem. On his own, he may not be able to see how he can take the company forward from here and he is getting a good deal from Daiichi, so he took it.
Q: Is that a fair way to think for shareholders of Ranbaxy, that if the promoter himself is exiting then there is no point for the minority shareholder to hold on?
Vaishampayan: It is difficult to fault that argument in the short-term.
Q: Do you consider that the generics market is topping out?
Vaishampayan: At the previous earnings call, the management was extremely confident of growth and momentum building up. So, I don’t really see how things would have changed so dramatically in such a short time.
If you look at the quarterly numbers of other Indian companies, we are actually seeing a lot of profitability come back. Managements are becoming more and more confident. I don’t really think that generic business in India or in emerging markets and developed markets are facing that kind of a problem in the short-term.
Source: Moneycontrol.com
High crude prices remain a concern, he said. "This will create a lot of structural problems."
He however remains bullish on the markets. "A lot of cheap stocks are available. So, serious money can be made if one invests for 2-3 years."
Prashant Vaishampayan of Pharma Analyst, Kotak Securities said it makes sense for shareholders to tender at Rs 737 per share. He added that fundamentals will not change depending on the open offer. According to him, the generics business is not facing problems and may not be reason for a sell-off.
Excerpts from CNBC-TV18’s exclusive interview with Prashant Vaishampayan and Raamdeo Agrawal:
Q: Is it just a short covering pull back or do you think the worse is over for the moment?
Agrawal: This kind of pains lasts much longer and it does not get over in 15-20 days. So, the damage is quite deep and it is going to take some time before the market actually gets back to previous levels. Even if the index does not go down much, the pain will be there. Two-third of the market decline is over but only one-third of the pain is over. So, some more pain is ahead.
Q: What is making you apprehensive about this market setup now?
Agrawal: Oil prices are at USD 135 per barrel and still people are saying that it could be as high as USD 250 per barrel. You cannot be very right in oil prices. If the oil prices are to stay here or move around USD 120 to USD 150 per barrel, it is going to create a lot of structural problems for the local and global economy.
A lot of things will change. So, oil prices are not going to come down. The talk is how higher it can go. So, in that environment, it is looking very challenging.
Q: Would it be fair to say that the fundamentals or the environment for equities has worsened in the last 3-4 months? Are you feeling less bullish about equities for the foreseeable future?
Agrawal: I am more bullish about equities. I don’t know what is going to happen in 6 or 8 months. I am feeling more bullish purely because we can get stocks of our choice at our prices.
In equities, you can make serious money only if you buy it cheap. Four months back, it was almost impossible to buy anything worthwhile at reasonable prices. Today, you can see some values around where you can say that these are the prices in which you can make some serious money into the next 3-4 years.
Nobody knows whether in the next 6 months whether it will be down or flat. So, I am not talking about a 6-8 month scenario but a little longer-term. You need low prices in the stocks and that is what is there right now.
Q: What is your take on the deal? At Rs 737, does it make sense for shareholders to tender?
Vaishampayan: Yes, it does make great sense for shareholders to tender at Rs 737. It is a huge premium to the current market price and the acceptance ratio will be the thing that you will look at. They are going to make an offer for 20% of the company and the remaining 65% is the free float. So, the acceptance ratio is not going to be very high if everybody tenders.
Q: What about valuations for people who want to hold onto the stock beyond the open offer? What do Ranbaxy’s valuations look like? Is it wise to hold on at these valuations or better to tender an exit to the extent possible?
Vaishampayan: There are several conditions that have to be met and we really do not know what would be the exact number of shares. If there is very little response to the open offer, your shareholding remains only at 35%.
The fundamentals of the companies have not really changed; the topline and EBITDA margin analysis has not changed. Would the number of shares change dramatically because the stake has to go to 50.1? That would certainly mean a huge dilution and the per share value will go down.
If on the other hand, they get their 20% tender, there is no need for any further preferential issue which would have actually given Ranbaxy cash to do more acquisitions. So, we will have to take that call once we get to know how that offer is progressing.
Q: What did you make of the Ranbaxy deal? What would you do with the stock now?
Agrawal: I am actually surprised by the total sellout. Getting Sankyo as a partner was one thing, but this is completely a historical thing. A number one pharmaceutical company from India, which was completely homegrown, has sold out 100%.
I personally had some shares, which I have sold in the market. Right now, we have decided to exit at current prices.
Q: Do you take it as a signal that the management does not have great visibility for going forward into the next 2-3 years?
Agrawal: Somewhere the management must be thinking that either the Indian market opportunity is going to shrink significantly. Generics, per se, all over the world could be facing marginal squeeze. These could be the reasons and obviously they are not able to scale up their own R&D into the entities. Malvinder Singh must be seeing some problem. On his own, he may not be able to see how he can take the company forward from here and he is getting a good deal from Daiichi, so he took it.
Q: Is that a fair way to think for shareholders of Ranbaxy, that if the promoter himself is exiting then there is no point for the minority shareholder to hold on?
Vaishampayan: It is difficult to fault that argument in the short-term.
Q: Do you consider that the generics market is topping out?
Vaishampayan: At the previous earnings call, the management was extremely confident of growth and momentum building up. So, I don’t really see how things would have changed so dramatically in such a short time.
If you look at the quarterly numbers of other Indian companies, we are actually seeing a lot of profitability come back. Managements are becoming more and more confident. I don’t really think that generic business in India or in emerging markets and developed markets are facing that kind of a problem in the short-term.
Source: Moneycontrol.com
Tuesday, June 10, 2008
Markets may hit Aug '07 lows very soon
Rajesh Jain, Director and CEO, Pranav Securities said, "One would expect some sort of a dead cat bounce, even a pullback accompanied by short covering, because there have been fresh shorts initiated over the last two days. A combination of all these three should give a Nifty an upmove of close to 150 points."
He believes that should the market find their feet around this point, then 150 point pullback on the Nifty is not ruled out. Markets will see value buying in this case across investor classes even if for a very brief 150-200 points on the Nifty. But should the market slip very sharply tomorrow morning, then expect the August 2000 lows much earlier than before, he warns.
Excerpts from CNBC-TV18's exclusive interview with Rajesh Jain:
Q: Can you expect a bit of a short covering pullback from these levels or do you think it is still headed down?
A: One would expect some sort of a dead cat bounce, even a pullback accompanied by short covering because there have been fresh shorts initiated over the last two days. A combination of all these three should give Nifty an upmove of close to 150 points.
Q: What are you hearing about the institutional activity today both domestic and foreign, has there been another spate of selling?
A: The foreign segment has been caught in a pincer on the currency and stock market tickers. There is a very sharp depreciation in their portfolios. It’s not surprising that they are probably looking to sell India and probably latch on to what is expected to be a good year for US equities in terms of our performance. That is explaining part of the huge selling we are seeing from the FII segment, but the domestic institutions and mutual funds have given two very positive clues. One - there isn’t too much of redemption pressure from retail. Investors have not been succumbing to panic and unwinding portfolios, which is a positive side on the domestic front. Two - the numbers are heading towards south because there is institutional buying going on in the Indian side even today.
Q: What do you see happening for the rest of this month, do you think we have put the worst behind us or is this going to shape up to be one of those January like months or worst?
A: We are at the tipping point. Should the markets really give away in a major way in the latter part of today or even early tomorrow morning maybe in sympathy with the Dow Jones or maybe in line with what the Asian markets do. We could be visiting August 2007 lows much sooner than we had expected. Currently the markets are at tipping point. Udayan Mukherjee began the show by saying that there has been a 50-point pullback on the Nifty and it would be interesting to watch the manner in which the markets close today.
Should the market find their feet around this point then 150-point pullback on the Nifty is not ruled out and you could see the visitation of value buying across investor classes in the market even if it is for a very brief 150-200 points on the Nifty. That is a crucial thing to watch, but should the markets slip very sharply tomorrow morning, then one can expect the August 2000 lows much earlier than before.
Q: What is your own gut feeling about where this will eventually end, even if you do get a pullback of 100-150 points on the Nifty, do you think that will signal the end of the problems or would that also get sold into?
A: It would be sold into because the problems, which have triggered off the FII selling, are not going to find solutions in a hurry. You may see some come off in the crude oil prices, interest rates could worsen for India, and inflation does not seem to be letting off. We should get some of the worst figures in a couple of weeks and even globally none of these parameters are expected to act in favour of the equity markets.
Bernanke has already signalled that one should not expect anymore relief on the interest rate side and the US dollar continues to yo-yo; even for India, the rupee is expected to continue to depreciate given the crude oil scenario. So, none of these problems are going to be solved in a hurry. If this is what has triggered off FII selling, there are number of strategists who are now saying that emerging markets like India could be a secondary destination for making money as compared to the developed US markets then you will see a reverse flow of funds. Any surge in the markets, 150 or 250 Nifty points will get sold into for sure.
Along with that, we are going to see a lot of mettle selling even from various segments of Indian investors. The worst will be the side market, the tier II and tier III stocks and the penny stocks, all these will find no takers. So you will have any number of investors, traders, speculators wanting to unwind positions and portfolios in such stocks and there will be no buyers practically. You will see a lot of the market at the site melt-away completely. So at every surge, we will face the threat of the fresh selling.
Q: Any thoughts on this whole pocket of capital goods like Lanco, GMR, Punj Lloyd and how things might shape up for them?
A: The entire capital goods sector and particular the stocks that you mentioned are suffering form twin factors. First, there is almost a confirmation that the investment cycle, which the economy was witnessing and benefiting from, is at the minimum likely to stall if not shrink. If that happens most of these stocks are going to see pruning of order books and even reductions in the margins.
Secondly, most of these stocks have seen tremendous run-ups. Until January, there was huge over ownership, the valuations were very steep and most of them had great order books but these are all discounted. We have seen couple of cases where orders have been reversed and because of this there has been significant selling in this sector. There is lot of profit waiting to be booked and so in a market which has fallen steeply a lot of FIIs, institutional investors would like to book gains on some of these stocks because they had run up vertically.
A combination of all these things had made most of these stocks untouchable and there is no fresh buying emerging despite the sharp fall.
Q: You have been hearing on Anil Manghnani is sounding pessimistic, are you as pessimistic or do you think there is a chance that we may actually bounce off and not go to the lows that people are fearing?
A: There are vestiges of truth in what Anil Manghnani has just mentioned. We could be getting into a 2001-2002 kind of situation when this market saw all buyers just disappear because the funds flow picture did not offer any positive signs.
You may still have had the Indian economy chugging along but what this market lacked in that bear phase or in that bad period was a complete absence of buyers. This market has already been a ‘do not buy’ market for a August 200simple reason that there is this noise all around that you could be visiting the August 2007 lows, so you are sure that you could be able to buy all the good stocks that you want to buy cheaper. The second aspect is because of three economic factors FIIs have resorted to selling. So, even the funds flow picture could turn negative.
In such a situation, Anil Manghnani could be proved to be right. The grass root demand, which has been the main attraction for equity investments into India, has just been dented but not totally destroyed. What we could discover at the end of the first half of the numbers for the current fiscal is that despite the interest rate, inflation scenario and the rising aspirations of the large Indian population, the availability of disposable surplus incomes could both give an unexpected demand picture which has been able to tide over inflation, interest rates and currency as cost push across sectors. If this picture emerges then 2001-2002 will not be revisited. A 65% probability to that despite the hugely negative scenario around us can be expected.
Q: You spoke about 150 points bounce on the Nifty, if you had to trade that what sectors would you latch on to now, the beaten down ones like banks and infrastructure or the ones which have been relatively stronger like IT and pharma?
A: A combination of the two would be good. Pharma is a little overdone, particularly Ranbaxy, on news expectations, but we have, a) plans to buy IT and b) we think oil had once again faced too much hammering over the last couple of days. We had recommended buy on oil marketing companies yesterday and that has got vindicated today. ONGC will give a Rs 100 push even from the current levels. Defensive sectors, which have greater upside, will also be looked at. ITC would be a great buy at this point.
A momentum play like realty even though it seems to be completely out of fashion now is also good because the cut there has been sharp and on pure trading momentum pullback basis buying some of the better realty stocks could give good dividends for the next three to four days.
Q: There are some of those very valuable stocks or at least hither to held blue-chips like an HDFC Bank and an Axis Bank which have seen such severe falls probably 2006 lows getting pierced or nearing those kinds of levels, you see value in any of these or would you also say that momentum has quite shifted away from this category of stocks?
A: The banking space is right now suffering from a host of uncertainty. You have the great inflation interest rate question mark, you do not know which way the interest rates are going to pan out going forward, we do not have as transparent a system as perhaps the Fed in the US. So how will the banks grapple with the interest and most specifically the interest margin scenario?
On the other hand, you are not even sure whether the credit offtakes will maintain the rosy picture that we had last year. Given the fact that the banking sector was also fairly over owned, we are continuing to see a spate of buying on banking. You will be able to get a better picture on banking in October that is after the first half numbers are known and you are closer to the next credit policy.
As far as realty, infrastructure and all these sectors are concerned, there is a complete lack of fancy. The valuations in most of these sectors had been overdone. The order books were almost as a rule greater than five years and these were hyper-discounted and there was a host of placement activity whether it was domestic or overseas, Foreign Currency Borrowing (FCBs), Foreign Currency Convertible Bonds (FCCBs), all these led to a bubble in terms of the valuation. So even though today at the grass root level, the demand for housing, roads, infrastructure and all is very robust, there is a complete negative fancy for these stocks and there are no fresh buyers and all the over ownership is resulting in terms of sustained selling.
So, the value argument even though at a base level could give you an attractive picture vis-Ã -vis the 52-week high, the absence of buyers is what makes these stocks less attractive at this point.
Disclosures: It is safe to assume that my clients & I may have an investment interest in the stocks/sectors discussed.
Source: Moneycontrol.com
He believes that should the market find their feet around this point, then 150 point pullback on the Nifty is not ruled out. Markets will see value buying in this case across investor classes even if for a very brief 150-200 points on the Nifty. But should the market slip very sharply tomorrow morning, then expect the August 2000 lows much earlier than before, he warns.
Excerpts from CNBC-TV18's exclusive interview with Rajesh Jain:
Q: Can you expect a bit of a short covering pullback from these levels or do you think it is still headed down?
A: One would expect some sort of a dead cat bounce, even a pullback accompanied by short covering because there have been fresh shorts initiated over the last two days. A combination of all these three should give Nifty an upmove of close to 150 points.
Q: What are you hearing about the institutional activity today both domestic and foreign, has there been another spate of selling?
A: The foreign segment has been caught in a pincer on the currency and stock market tickers. There is a very sharp depreciation in their portfolios. It’s not surprising that they are probably looking to sell India and probably latch on to what is expected to be a good year for US equities in terms of our performance. That is explaining part of the huge selling we are seeing from the FII segment, but the domestic institutions and mutual funds have given two very positive clues. One - there isn’t too much of redemption pressure from retail. Investors have not been succumbing to panic and unwinding portfolios, which is a positive side on the domestic front. Two - the numbers are heading towards south because there is institutional buying going on in the Indian side even today.
Q: What do you see happening for the rest of this month, do you think we have put the worst behind us or is this going to shape up to be one of those January like months or worst?
A: We are at the tipping point. Should the markets really give away in a major way in the latter part of today or even early tomorrow morning maybe in sympathy with the Dow Jones or maybe in line with what the Asian markets do. We could be visiting August 2007 lows much sooner than we had expected. Currently the markets are at tipping point. Udayan Mukherjee began the show by saying that there has been a 50-point pullback on the Nifty and it would be interesting to watch the manner in which the markets close today.
Should the market find their feet around this point then 150-point pullback on the Nifty is not ruled out and you could see the visitation of value buying across investor classes in the market even if it is for a very brief 150-200 points on the Nifty. That is a crucial thing to watch, but should the markets slip very sharply tomorrow morning, then one can expect the August 2000 lows much earlier than before.
Q: What is your own gut feeling about where this will eventually end, even if you do get a pullback of 100-150 points on the Nifty, do you think that will signal the end of the problems or would that also get sold into?
A: It would be sold into because the problems, which have triggered off the FII selling, are not going to find solutions in a hurry. You may see some come off in the crude oil prices, interest rates could worsen for India, and inflation does not seem to be letting off. We should get some of the worst figures in a couple of weeks and even globally none of these parameters are expected to act in favour of the equity markets.
Bernanke has already signalled that one should not expect anymore relief on the interest rate side and the US dollar continues to yo-yo; even for India, the rupee is expected to continue to depreciate given the crude oil scenario. So, none of these problems are going to be solved in a hurry. If this is what has triggered off FII selling, there are number of strategists who are now saying that emerging markets like India could be a secondary destination for making money as compared to the developed US markets then you will see a reverse flow of funds. Any surge in the markets, 150 or 250 Nifty points will get sold into for sure.
Along with that, we are going to see a lot of mettle selling even from various segments of Indian investors. The worst will be the side market, the tier II and tier III stocks and the penny stocks, all these will find no takers. So you will have any number of investors, traders, speculators wanting to unwind positions and portfolios in such stocks and there will be no buyers practically. You will see a lot of the market at the site melt-away completely. So at every surge, we will face the threat of the fresh selling.
Q: Any thoughts on this whole pocket of capital goods like Lanco, GMR, Punj Lloyd and how things might shape up for them?
A: The entire capital goods sector and particular the stocks that you mentioned are suffering form twin factors. First, there is almost a confirmation that the investment cycle, which the economy was witnessing and benefiting from, is at the minimum likely to stall if not shrink. If that happens most of these stocks are going to see pruning of order books and even reductions in the margins.
Secondly, most of these stocks have seen tremendous run-ups. Until January, there was huge over ownership, the valuations were very steep and most of them had great order books but these are all discounted. We have seen couple of cases where orders have been reversed and because of this there has been significant selling in this sector. There is lot of profit waiting to be booked and so in a market which has fallen steeply a lot of FIIs, institutional investors would like to book gains on some of these stocks because they had run up vertically.
A combination of all these things had made most of these stocks untouchable and there is no fresh buying emerging despite the sharp fall.
Q: You have been hearing on Anil Manghnani is sounding pessimistic, are you as pessimistic or do you think there is a chance that we may actually bounce off and not go to the lows that people are fearing?
A: There are vestiges of truth in what Anil Manghnani has just mentioned. We could be getting into a 2001-2002 kind of situation when this market saw all buyers just disappear because the funds flow picture did not offer any positive signs.
You may still have had the Indian economy chugging along but what this market lacked in that bear phase or in that bad period was a complete absence of buyers. This market has already been a ‘do not buy’ market for a August 200simple reason that there is this noise all around that you could be visiting the August 2007 lows, so you are sure that you could be able to buy all the good stocks that you want to buy cheaper. The second aspect is because of three economic factors FIIs have resorted to selling. So, even the funds flow picture could turn negative.
In such a situation, Anil Manghnani could be proved to be right. The grass root demand, which has been the main attraction for equity investments into India, has just been dented but not totally destroyed. What we could discover at the end of the first half of the numbers for the current fiscal is that despite the interest rate, inflation scenario and the rising aspirations of the large Indian population, the availability of disposable surplus incomes could both give an unexpected demand picture which has been able to tide over inflation, interest rates and currency as cost push across sectors. If this picture emerges then 2001-2002 will not be revisited. A 65% probability to that despite the hugely negative scenario around us can be expected.
Q: You spoke about 150 points bounce on the Nifty, if you had to trade that what sectors would you latch on to now, the beaten down ones like banks and infrastructure or the ones which have been relatively stronger like IT and pharma?
A: A combination of the two would be good. Pharma is a little overdone, particularly Ranbaxy, on news expectations, but we have, a) plans to buy IT and b) we think oil had once again faced too much hammering over the last couple of days. We had recommended buy on oil marketing companies yesterday and that has got vindicated today. ONGC will give a Rs 100 push even from the current levels. Defensive sectors, which have greater upside, will also be looked at. ITC would be a great buy at this point.
A momentum play like realty even though it seems to be completely out of fashion now is also good because the cut there has been sharp and on pure trading momentum pullback basis buying some of the better realty stocks could give good dividends for the next three to four days.
Q: There are some of those very valuable stocks or at least hither to held blue-chips like an HDFC Bank and an Axis Bank which have seen such severe falls probably 2006 lows getting pierced or nearing those kinds of levels, you see value in any of these or would you also say that momentum has quite shifted away from this category of stocks?
A: The banking space is right now suffering from a host of uncertainty. You have the great inflation interest rate question mark, you do not know which way the interest rates are going to pan out going forward, we do not have as transparent a system as perhaps the Fed in the US. So how will the banks grapple with the interest and most specifically the interest margin scenario?
On the other hand, you are not even sure whether the credit offtakes will maintain the rosy picture that we had last year. Given the fact that the banking sector was also fairly over owned, we are continuing to see a spate of buying on banking. You will be able to get a better picture on banking in October that is after the first half numbers are known and you are closer to the next credit policy.
As far as realty, infrastructure and all these sectors are concerned, there is a complete lack of fancy. The valuations in most of these sectors had been overdone. The order books were almost as a rule greater than five years and these were hyper-discounted and there was a host of placement activity whether it was domestic or overseas, Foreign Currency Borrowing (FCBs), Foreign Currency Convertible Bonds (FCCBs), all these led to a bubble in terms of the valuation. So even though today at the grass root level, the demand for housing, roads, infrastructure and all is very robust, there is a complete negative fancy for these stocks and there are no fresh buyers and all the over ownership is resulting in terms of sustained selling.
So, the value argument even though at a base level could give you an attractive picture vis-Ã -vis the 52-week high, the absence of buyers is what makes these stocks less attractive at this point.
Disclosures: It is safe to assume that my clients & I may have an investment interest in the stocks/sectors discussed.
Source: Moneycontrol.com
Monday, June 9, 2008
Markets may fall 10-20% in coming weeks
There is uncertainty over earnings and that is the single biggest risk for the Indian markets, Sid Khanna, Chairman and Managing Director of India Equity Partners, said. He believes that there could be a 10-20% fall possible for the market in the coming weeks.
He expects to see correction in real estate space.
Excerpts from CNBC-TV18's exclusive interview with Sid Khanna:
Q: What’s your take on the equity environment right now because there is a lot of fear which is visible?
A: I am not particularly surprised as this is certainly a period of global uncertainty which we have seen over the last few months, with events in the US and Europe. There was a considerable theory for a period of time that there was disconnect with India and the other markets. I didn’t believe in it. Some of that connect is coming through and that has combined with some local factors in terms of the uncertainty around the elections. For a considerable period of time, I was of the view that when the oil price normalization started happening there would be deep introspection in terms of industry and buying power. All of this is a period of correction and introspection about what results are going to be like for the next 12 months. I am not at all surprised actually in terms of turbulence that we see in the markets.
Q: We are also one of the worse performing equity markets, at any rate, until now. Are you seeing a specific or focused approach by money funds or money towards India right now? Is it being siphoned out only from India as market or is there generally risk aversion in the air?
A: This is a combination of factors. India was relatively the most expensive emerging market for some of the factors that I pointed out like elections. The oil price subsidy gradually is being removed. People are recognizing that India is going into a period of uncertainty over the next 12-15 months and therefore it is time to be cautious. People are asking whether this strong growth will continue at 9%, will it slip for a year or two to the 6-7% mark? These are questions in the air and therefore it’s time for global investors to be a little bit cautious about the extent of exposure.
Q: We have had 4-5 good years coming into 2008. How long do you think it would take to make the macro adjustments before we can resume the upward trajectory once again in India?
A: Growth is going to continue remain strong. One should not be too negative. In many countries, you are seeing 1-2% growth, so 9% is fantastic. If 9% comes to 7%, then it’s still a very strong showing. India will continue to grow very strongly in the next five years. The real question is going to be whether we going to restart the economic reform, are we really going to have a proper crack at infrastructure, and continue with privatization? Those are some big questions that need rapid resolutions and confidence building. If we can address them over the next 2-3 years, I really see no reason why we wouldn’t go back to the 9% or 10% grit. But if we don’t address them, I would see some slippage in growth rate.
Q: What do you think is the single biggest risk for India as a market? Is it what is happening with commodities globally or with our macros and the state of our fiscal deficit, or do you think its something else in the market or generally markets don’t have quite their eye on it right now?
A: From a market perspective, the single biggest risk today is the uncertainty in terms of where corporate earnings are headed in the next 12 months. One hears very mixed reports as you talk to corporations. Clearly their growths have lowered compared to last year. Are they going to be sharply lower or somewhat lower? As that unravels, you are going to see implications for the market. Over and above that, the macro factors about elections looming and the oil price adjustment will continue to raise a question mark for the next six months at least.
Q: The entire private equity space had kept a very close eye on real estate as an investment opportunity for the last couple of years. Now, that secondary market valuations have collapsed from a private equity perspective, how are you looking at that space?
A: From a real estate perspective, we just had those phenomenal rises going through both on land valuations as well as the uptick in commercial and residential spaces. Some of those valuations had gone considerably out of whack and this is a time for healthy correction. In that state, a large number of people were going out and looking to raise funds at relatively expensive rates from a debt perspective. These are early signs that we are going to see some correction there.
Q: The other pocket or space that got a lot of interest was infrastructure. How would you approach that whole pocket?
A: That whole sector is going to see phenomenal growth. There is a great shortage of power in India which is needed in terms of maintaining growth. A large number of private sector players are very happily coming into the sector, and have very significant expansion plans. Some of the funds which were raised in the sector earlier in the year were at valuations that were probably esoteric and not necessarily connected to market reality.
We are seeing many people now coming back to the market which are at much more realistic valuations. There is more room to go and as those projects get funded, I see very strong growth on the power generation side which will be great for India.
Q: From a market perspective, what is your view? Do you think it will get worse before it gets better here?
A: There is a probability, given the points I made earlier, that a 10-20% correction is still quite possible in the coming weeks.
Source: Moneycontrol.com
He expects to see correction in real estate space.
Excerpts from CNBC-TV18's exclusive interview with Sid Khanna:
Q: What’s your take on the equity environment right now because there is a lot of fear which is visible?
A: I am not particularly surprised as this is certainly a period of global uncertainty which we have seen over the last few months, with events in the US and Europe. There was a considerable theory for a period of time that there was disconnect with India and the other markets. I didn’t believe in it. Some of that connect is coming through and that has combined with some local factors in terms of the uncertainty around the elections. For a considerable period of time, I was of the view that when the oil price normalization started happening there would be deep introspection in terms of industry and buying power. All of this is a period of correction and introspection about what results are going to be like for the next 12 months. I am not at all surprised actually in terms of turbulence that we see in the markets.
Q: We are also one of the worse performing equity markets, at any rate, until now. Are you seeing a specific or focused approach by money funds or money towards India right now? Is it being siphoned out only from India as market or is there generally risk aversion in the air?
A: This is a combination of factors. India was relatively the most expensive emerging market for some of the factors that I pointed out like elections. The oil price subsidy gradually is being removed. People are recognizing that India is going into a period of uncertainty over the next 12-15 months and therefore it is time to be cautious. People are asking whether this strong growth will continue at 9%, will it slip for a year or two to the 6-7% mark? These are questions in the air and therefore it’s time for global investors to be a little bit cautious about the extent of exposure.
Q: We have had 4-5 good years coming into 2008. How long do you think it would take to make the macro adjustments before we can resume the upward trajectory once again in India?
A: Growth is going to continue remain strong. One should not be too negative. In many countries, you are seeing 1-2% growth, so 9% is fantastic. If 9% comes to 7%, then it’s still a very strong showing. India will continue to grow very strongly in the next five years. The real question is going to be whether we going to restart the economic reform, are we really going to have a proper crack at infrastructure, and continue with privatization? Those are some big questions that need rapid resolutions and confidence building. If we can address them over the next 2-3 years, I really see no reason why we wouldn’t go back to the 9% or 10% grit. But if we don’t address them, I would see some slippage in growth rate.
Q: What do you think is the single biggest risk for India as a market? Is it what is happening with commodities globally or with our macros and the state of our fiscal deficit, or do you think its something else in the market or generally markets don’t have quite their eye on it right now?
A: From a market perspective, the single biggest risk today is the uncertainty in terms of where corporate earnings are headed in the next 12 months. One hears very mixed reports as you talk to corporations. Clearly their growths have lowered compared to last year. Are they going to be sharply lower or somewhat lower? As that unravels, you are going to see implications for the market. Over and above that, the macro factors about elections looming and the oil price adjustment will continue to raise a question mark for the next six months at least.
Q: The entire private equity space had kept a very close eye on real estate as an investment opportunity for the last couple of years. Now, that secondary market valuations have collapsed from a private equity perspective, how are you looking at that space?
A: From a real estate perspective, we just had those phenomenal rises going through both on land valuations as well as the uptick in commercial and residential spaces. Some of those valuations had gone considerably out of whack and this is a time for healthy correction. In that state, a large number of people were going out and looking to raise funds at relatively expensive rates from a debt perspective. These are early signs that we are going to see some correction there.
Q: The other pocket or space that got a lot of interest was infrastructure. How would you approach that whole pocket?
A: That whole sector is going to see phenomenal growth. There is a great shortage of power in India which is needed in terms of maintaining growth. A large number of private sector players are very happily coming into the sector, and have very significant expansion plans. Some of the funds which were raised in the sector earlier in the year were at valuations that were probably esoteric and not necessarily connected to market reality.
We are seeing many people now coming back to the market which are at much more realistic valuations. There is more room to go and as those projects get funded, I see very strong growth on the power generation side which will be great for India.
Q: From a market perspective, what is your view? Do you think it will get worse before it gets better here?
A: There is a probability, given the points I made earlier, that a 10-20% correction is still quite possible in the coming weeks.
Source: Moneycontrol.com
Stocks hit most in last 7 trading sessions
The Indian equity markets have seen a heavy sell off during these last seven days. The Sensex and the Nifty have lost over 8% and are hovering around their psychological 15000 and 4500 levels respectively.
On the sectoral front in BSE, realty was the worst hit. It tumbled by nearly 22% in the last seven days. For the same period, Capital Goods plunged 13%, Power slipped 12%, and Metal and Banking indices slid nearly 10%.
The BSE Oil & Gas index was down 7%. Crude, trading at its peak is one of the reasons for the sectors underperformance. The BSE Auto and IT were also down by 5%, FMCG index also lost nearly 5%.The Pharmaceutical index was modestly impacted in this market mayhem; it was down nearly 2%.
In this markets free fall, stocks like Neyveli Lignite, Bombay Dyeing, UB Holdings, Lanco Infratech, Deccan Chronicle, BPCL, ABG Shipyard, Reliance Power, HPCL, HDIL, Ansal Properties and Unitech have all lost over 20% in last seven trading session (May 30, 2008 to June 09, 2008).
Stocks that lost over 20% in last 7 trading session : Source: Moneycontrol.com
On the sectoral front in BSE, realty was the worst hit. It tumbled by nearly 22% in the last seven days. For the same period, Capital Goods plunged 13%, Power slipped 12%, and Metal and Banking indices slid nearly 10%.
The BSE Oil & Gas index was down 7%. Crude, trading at its peak is one of the reasons for the sectors underperformance. The BSE Auto and IT were also down by 5%, FMCG index also lost nearly 5%.The Pharmaceutical index was modestly impacted in this market mayhem; it was down nearly 2%.
In this markets free fall, stocks like Neyveli Lignite, Bombay Dyeing, UB Holdings, Lanco Infratech, Deccan Chronicle, BPCL, ABG Shipyard, Reliance Power, HPCL, HDIL, Ansal Properties and Unitech have all lost over 20% in last seven trading session (May 30, 2008 to June 09, 2008).
Stocks that lost over 20% in last 7 trading session : Source: Moneycontrol.com
Company Name | Group | Last Price | 7 Days | % Chg |
| Spice Mobiles | S | 19.40 | 29.40 | -34.01 |
| Joonktollee Tea | B2 | 214.90 | 325.55 | -33.99 |
| Guj Heavy Chem | B2 | 48.15 | 71.70 | -32.85 |
| Networth Stock | B2 | 50.80 | 74.90 | -32.18 |
| Kirloskar (W) | B2 | 8.10 | 11.84 | -31.59 |
| Resonance Speci | S | 8.65 | 12.43 | -30.41 |
| Aishwarya Tele | B2 | 66.35 | 93.60 | -29.11 |
| Sita Shree Food | B2 | 26.35 | 37.15 | -29.07 |
| Stelco Strips | B2 | 30.60 | 43.00 | -28.84 |
| Contech Soft | B2 | 15.15 | 21.25 | -28.71 |
| Bajaj Auto Fin | B2 | 186.00 | 260.15 | -28.50 |
| Asian Electroni | B2 | 107.75 | 147.80 | -27.10 |
| Prajay Engineer | B2 | 159.90 | 217.55 | -26.50 |
| Suryajyoti Spg | S | 34.00 | 46.25 | -26.49 |
| Pasari Spinning | B2 | 9.15 | 12.43 | -26.39 |
| Haryana Fibres | Z | 62.90 | 85.44 | -26.38 |
| Brahmanand Him | B2 | 108.10 | 146.80 | -26.36 |
| IFB Agro | B2 | 58.40 | 79.25 | -26.31 |
| Tulsi Extrusion | B2 | 46.95 | 63.70 | -26.30 |
| Shreyas Interme | B2 | 31.95 | 43.35 | -26.30 |
| Micro Forge | Z | 8.85 | 12.00 | -26.25 |
| Well Pack Paper | T | 42.40 | 57.47 | -26.22 |
| Bafna Spinning | Z | 4.05 | 5.47 | -25.96 |
| Sterling Inter | S | 219.00 | 294.00 | -25.51 |
| Siddha Venture | B2 | 3.45 | 4.63 | -25.49 |
| Neyveli Lignite | A | 106.55 | 142.60 | -25.28 |
| Goldstone Infra | B2 | 55.50 | 74.15 | -25.15 |
| Systematix Corp | B2 | 41.00 | 54.60 | -24.91 |
| Almondz Capital | B2 | 22.30 | 29.65 | -24.79 |
| Pratik Panels | T | 1.82 | 2.42 | -24.79 |
| RDB Industries | B2 | 109.00 | 144.90 | -24.78 |
| Eastern Gases | B2 | 38.50 | 51.05 | -24.58 |
| Bombay Dyeing | A | 671.10 | 888.90 | -24.50 |
| UB Holdings | A | 548.55 | 725.95 | -24.44 |
| Piramal Life | B2 | 223.00 | 294.60 | -24.30 |
| Lumax Inds | B2 | 128.00 | 169.00 | -24.26 |
| Lanco Infratech | A | 370.15 | 487.65 | -24.10 |
| Pudumjee Ind | B2 | 21.30 | 28.05 | -24.06 |
| Ascent Exim | B2 | 3.72 | 4.89 | -23.93 |
| Surana Ind | B2 | 125.25 | 164.50 | -23.86 |
| Guj Stat Fin | Z | 5.26 | 6.90 | -23.77 |
| Sumeru Ind | B2 | 2.42 | 3.17 | -23.66 |
| Bihar Sponge | B2 | 21.65 | 28.35 | -23.63 |
| Tanu HealthCare | B2 | 3.99 | 5.22 | -23.56 |
| DeccanChronicle | A | 102.50 | 134.05 | -23.54 |
| Almondz Global | B2 | 38.25 | 49.90 | -23.35 |
| Alfa Transforme | B2 | 47.60 | 62.00 | -23.23 |
| Gini Silk Mills | S | 22.65 | 29.50 | -23.22 |
| Livewell HomeFi | B2 | 160.70 | 209.15 | -23.17 |
| Refnol Resin | B2 | 10.25 | 13.34 | -23.16 |
| Capman Financia | B2 | 3.00 | 3.90 | -23.08 |
| Ushdev Int | B2 | 81.50 | 105.95 | -23.08 |
| Gloster Jute | B2 | 283.05 | 367.70 | -23.02 |
| Indo Tech Trans | B2 | 377.95 | 489.15 | -22.73 |
| GSS America Inf | B2 | 292.65 | 378.50 | -22.68 |
| Hinduja Foundri | S | 174.00 | 225.00 | -22.67 |
| Softbpo | Z | 274.45 | 354.40 | -22.56 |
| Sujana Towers | B2 | 92.95 | 119.80 | -22.41 |
| Sturdy Ind | Z | 28.95 | 37.30 | -22.39 |
| Gandhinagar Hot | B2 | 53.15 | 68.45 | -22.35 |
| Fortune Fin Ser | B2 | 150.40 | 193.65 | -22.33 |
| Ajcon Global | B2 | 13.05 | 16.80 | -22.32 |
| Mardia Samyoung | Z | 8.39 | 10.80 | -22.31 |
| Adarsh Plant | B2 | 10.53 | 13.55 | -22.29 |
| APM Industries | S | 17.45 | 22.45 | -22.27 |
| Puneet Resins | B2 | 4.63 | 5.95 | -22.18 |
| BPCL | A | 278.40 | 357.70 | -22.17 |
| Shah Foods | Z | 19.90 | 25.55 | -22.11 |
| ABG Shipyard | A | 428.55 | 550.10 | -22.10 |
| VCK Capital | B2 | 6.13 | 7.86 | -22.01 |
| Williamson Mago | B2 | 40.00 | 51.25 | -21.95 |
| Nidhi Granites | Z | 16.00 | 20.50 | -21.95 |
| Mundra Port | B2 | 614.00 | 786.45 | -21.93 |
| DCB | B2 | 59.85 | 76.60 | -21.87 |
| Gulshan Poly | B2 | 229.00 | 293.00 | -21.84 |
| BGR Energy | B2 | 269.40 | 344.60 | -21.82 |
| Shakti Pumps | S | 110.00 | 140.60 | -21.76 |
| Deccan Bearings | B2 | 16.45 | 21.00 | -21.67 |
| Best and Crompt | T | 26.40 | 33.70 | -21.66 |
| Aviva Industrie | B2 | 13.50 | 17.20 | -21.51 |
| Reliance Power | A | 185.15 | 235.85 | -21.50 |
| IBN18 Broadcast | B2 | 90.15 | 114.80 | -21.47 |
| Integr Hitech | T | 2.24 | 2.85 | -21.40 |
| Winsome Brew | B2 | 7.20 | 9.14 | -21.23 |
| Pratibha Ind | B2 | 255.00 | 323.70 | -21.22 |
| Promact Plastic | B2 | 2.81 | 3.56 | -21.07 |
| SGN Cable | B2 | 1.20 | 1.52 | -21.05 |
| HPCL | A | 193.30 | 244.65 | -20.99 |
| Dollex Ind | B2 | 20.90 | 26.45 | -20.98 |
| Bk Of Rajasthan | B2 | 87.50 | 110.60 | -20.89 |
| Guj Intrux | S | 28.30 | 35.75 | -20.84 |
| HDIL | A | 573.65 | 724.45 | -20.82 |
| Karuna Cable | S | 2.32 | 2.93 | -20.82 |
| Mahan Industrie | T | 3.84 | 4.85 | -20.82 |
| Cat Technologie | B2 | 7.13 | 9.00 | -20.78 |
| Axon Infotech | B2 | 29.00 | 36.60 | -20.77 |
| B and A | B2 | 42.05 | 53.05 | -20.74 |
| Cranex | T | 3.71 | 4.68 | -20.73 |
| Kernex Micro | T | 126.30 | 159.25 | -20.69 |
| IOL Netcom | T | 96.10 | 121.15 | -20.68 |
| Ansal Propertie | A | 104.40 | 131.60 | -20.67 |
| ETC Networks | B2 | 187.60 | 236.15 | -20.56 |
| ACI Infotech | T | 5.80 | 7.30 | -20.55 |
| Ashiana Ispat | B2 | 10.25 | 12.90 | -20.54 |
| Unitech | A | 184.80 | 232.50 | -20.52 |
| Twinstar Soft | B2 | 2.35 | 2.95 | -20.34 |
| Kamat Hotels | B2 | 139.00 | 174.35 | -20.28 |
| Bodal Chemicals | B2 | 50.15 | 62.85 | -20.21 |
| Aekta | B2 | 16.20 | 20.30 | -20.20 |
| Kerala Ayur | B2 | 42.55 | 53.30 | -20.17 |
| Lotus Chocolate | B2 | 9.00 | 11.27 | -20.14 |
| FIEM Ind | B2 | 53.70 | 67.20 | -20.09 |
| Nicco Parks | S | 45.20 | 56.55 | -20.07 |
| Hindoostan Spg | B2 | 26.00 | 32.50 | -20.00 |
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