The first hint that there was a new company that is pitching for Satyam came in late evening yesterday but the name at that point of time was not confirmed; subsequently we picked up from Spice sources that they have put in an expression of interest. However, at that stage they did not name Satyam but I have now learned that this is indeed the case and this would mean that there are at least three known bidders to have come out.
We know about L&T and it has infact expressed interest formally, it has also opted to take management control. We know about Essay, their BPO business wanting to acquire some parts of Satyam's related businesses and now Spice Corp which essentially is a telecom and services company. The exact contours are not known but it is clear that this expression of interest would have to be made to the board and at the same time to the government because Satyam is a government administered company.
The dynamics of the acquisition are something that we will try and find out but at this point of time it is clear that there is a third bidder in the race.
Courtesy: Moneycontrol.com
Sunday, February 1, 2009
Tuesday, June 24, 2008
Markets near capitulation on -ve news flows
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
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
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
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