Sceptic or an Optimist?

Reading the interview of billionaire hedge fund manager Jim Rogers in a leading business daily today just reiterated my belief that our attitude in life is a big determinant of our investing actions. In a very candid conversation, Mr. Rogers talks about how both BJP and Congress have not been and will not be good for India . According to him , India has been badly managed for 60 years and all the politicians should be thrown out. When asked about who would he like to replace them with, he talks about men with enough power to bring in change like Deng Xiaoping  in China. As I read further I hear more and more skepticism. While some of his arguments are indeed true and there is no denying the fact that India has grossly under performed its potential, but to say that its policies are garbage is another extreme. When asked about his views on Narendra Modi, who is being projected as the panacea to India’s problems, Mr. Rogers continues to be wary and admits that he would still not invest in India. So where would he invest? And the answer is Russia. I do not understand his fascination with Russia given that the Government there itself believes they will grow at 2.5% for the next decade . In contrast, India’s Government has been maintaining that we will be able to go back to high single digit GDP growth rates!! Optimism or Denial? Bit of both. Just optimism will not get us… Read More

Make or Break week for equities

Nifty has been stuck in a small range of 100 pts for the past one week and this week promises to break it out of that range. The direction of breakout will be determined by a whole host of economic events which includes the RBI and Fed policy on Oct 29 & 30 respectively, followed by F&O (Futures & Options) expiry and September fiscal deficit data on Oct 31 and the PMI (Purchase Manager’s Index) numbers across the globe on Nov 1. Lets look at each event and which way it can swing the markets. RBI policy: Consensus opinion on the street is that Governor Rajan will hike repo rate by another 25 bps while reducing MSF by the same number. Such expectations have firmed after the recent CPI  (Consumer Price Inflation) number which came in substantially higher at 9.84% vs. 9.52% (MoM). Because a 25 bps rate hike is already priced in, it should not be a big dampener for the markets. All eyes will hence be on the commentary on the higher inflation, any revision to inflation and growth rate for FY14 and any increase in the limit on borrowing from repo window. If the governor does not offer any negative surprises in his commentary or using other unconventional measures to control inflation, markets will take the 25 bps hike in its stride and look for cues from the Fed. But if there is a substantial hawkish tone to the commentary on growth inflation dynamics then Bank Nifty would… Read More

NaMo charm leading the Indian markets higher?

Indian markets moved closer to their previous historic highs at the back of broad based buying from Foreign Institutional Investors (FII’s). Markets which were largely range bound through the week even after news of end of US political impasse, shot up with renewed vigour on Friday. Many believe that it is Narendra Modi, BJP’s Prime Ministerial candidate, whose charm is working on the markets. A survey by ET poll on Friday released the latest data on political math for 2014 Lok Sabha Polls. While reaching the 272 mark will be an uphill task for BJP led NDA, the growing popularity of Narendra Modi is no secret. His popularity seems to have grown even in states like UP and Bihar where BJP does not hold strong ground. I think what works hugely in favour of NaMo is India’s voter profile for 2014 elections. Consider this, one out of every two voters in India today is in the age group 18-35 years (Source: Census of India 2011). No wonder Congress Party Vice president has been talking only about the role of Youth in shaping Indian economy. Markets would now be eyeing election results in 5 states over next two months to gain direction on the results of 2014 polls. NaMo is a clear favourite as far as the markets are concerned given his acclaimed Gujarat model of development. For an economy which has hit rock bottom growth levels in nearly a decade, it is a much awaited opportunity to turn the corner…. Read More

Keeping the Faith

The stalemate between the democrats and republicans continues as discussions and multiple debates lead to nowhere. US debt default if it materializes, would make it the first developed economy to default since Nazi Germany (1933) reports Bloomberg. But the pertinent question is would lawmakers be naive enough to risk such a default which would be nothing short of being catastrophic for financial markets the world over. Probably not, or that is what the street is expecting cause the US equity indices were largely flat as the American shutdown entered its 14th day. European and some of the emerging markets on the other hand last week clocked gains ranging from 1-3.5% as flows momentum continued. Is the US shutdown really good for India and other emerging economies? Certainly not. Stifling growth in one of the world’s biggest economies is not good news for anyone specially when the green shoots were just starting to show. In a globalized world one cannot afford to be myopic or turn a blind eye to such possible catastrophe.  IMF recently lowered its growth targets for global growth and cited weakness in emerging economies as the primary reason. The IMF chief even went onto warn the US lawmakers that they risk pushing the world into recession. In such a scenario, what do you do as an investor/trader in Indian equities when all fundamental data points to gloom and doom? Ride the tide while it lasts. While the valuations appear stretched at an index level, several pockets in… Read More

Liquidity is back

I have mentioned this in several previous posts that liquidity is the single most factor that determines the course of Indian markets. For an economy where close to 48% of the market’s free float is held by Foreign investors (Citi group report), global liquidity becomes the most influential factor. The second most important factor would be liquidity conditions at home. With the RBI Governor living upto his promise and cutting the MSF rates by 50 bps, bulk of the liquidity tightening has been reversed. This send out a strong signal that with fears of tapering at the back burner, the currency has stabilized and does not need RBI’s unconventional measures to hold ground. The biggest beneficiaries of this move are banks which raise bulk of the money from wholesale market like Yes Bank, Indusind Bank among others. The managements of some of these banks have also said that they will lower rates in response to MSF cut and the lengthening of the borrowing tenure to 7 &14 days as against 1 day. Question is should you be buying these banks at current levels? No, not unless you are a trader looking to make a quick 5-7% in a risky trade. Markets are extremely volatile and have run up at the back of positive news on CAD and trade deficit front. Also, US pain has been India’s gain as longer the slowdown continues, the slower will be the recovery in US. But as an investor one should buy not just in… Read More

Deja Vu

It’s Deja Vu all over again as US prepares for shutdown if the spending limit is not enhanced by tonight. Republicans are holding the Obama Govt. hostage as they want to delay the Obamacare Act by another year to make proposed changes to the health plan. The impact can be seen over the financial markets with the mood across Asia and Europe jittery and precious metals trading in the green. Will the Govt. face a shutdown at midnight today? I don’t think so. While it has happened twice since 1977 that the Govt. has been forced to shut down (both occasions, republicans seem to have been responsible), the same looks unlikely as they might pass a spending measure that lasts a few days to give both the parties further time to negotiate. A stand off that continues longer will threaten the fragile economic recovery in the US. A shutdown could reduce fourth-quarter economic growth by as much as 1.4 percentage points, depending on its duration, according to economists. That is not something either of the parties would risk. Back home, NaMo chant gathered further steam with BJP’s PM candidate Narendra Modi’s magnetic pull drawing crowds in the Delhi rally. Even in Tamil Nadu, the sheer numbers in which Indian voters gathered to hear Modi is something not seen before even for a rally by the Chief Minister. Although drawing crowds and converting the same into votes are two completely different things, the charismatic leader is definitely becoming a national personality and making the… Read More

Over to you Mr. Rajan

That is exactly what Ben Bernanke’s latest policy announcement sounds like to Indian ears. Fed Chairman has done his bit in giving some breathing space to the emerging markets to fix their problems at home before he decides to cut back on the bond buying program. In hindsight, it seems like Mr. Rajan knew the outcome of Fed meeting on advance and hence deferred the RBI policy to a day after the FOMC meet!!So then what can be expected from the mid quarter monetary policy review tomorrow. I do not think the RBI governor will surprise us with a rate cut. Reasons are plenty: Despite easing pressures on rupee and CAD, there is anecdotal evidence to suggest that inflation remains a big concern with latest data being above expectations and showing possible reversal in trend (6.1% vs. 5.7% MoM). While rupee has rebounded from lows of close to USD 70, the relief may be short term because tapering will come to haunt us sooner or later. Growth revival is more a function of structural changes rather than just reversal of interest rate cycle. What RBI is more likely to do is gradually ease liquidity by rolling back measures announced in July’13. The Governor in his first speech talked about being more transparent and hence we hope to hear a more clear road map for scale back of liquidity tightening measures. Also there are options being explored to open a special window for financing of priority sectors like auto and housing… Read More

To Taper or not to Taper?!!

Popular opinion on the street for today’s Fed decision is the announcement to taper to the tune of USD 10-15 billion starting October 2013. Will the Fed chairman meet or defy expectations? My thought is as long as there is no stark announcement of any major cutback in bond buying program, markets will cheer the completion of the event and the uncertainty that comes along. Equities and bond markets have been rallying in the expectation of “Light Tapering” post the recent sluggish data on the employment front. This rally will get a further leg up if the announcement is indeed more dovish than hawkish. What is more pertinent from markets point of view is the successor for the current chairman. After the former Treasury Secretary, Larry Summers pulled out of the race, hopes are now being pinned on the Fed Vice Chairman – Janet Yellen. Her outlook is perceived as more dovish given her clear stance on putting joblessness on equal grounds as inflation and letting inflation rise in short term if the same is necessary to bring down unemployment. That is good news for the markets. A word of caution though, emerging market equities and currencies have already rebounded 8-10% from lows and hence further upside will be limited. In Indian context, there have been few fundamentals changes on the ground (rebound in currency, exports and the resultant trade deficit, passage of important reforms, hike in petrol prices and green shoots in auto sector) but the valuations appear stretched… Read More

Up, Up and away

Indian markets saluted pragmatic measures by the new governor and have staged a rally of 15% from lows in a matter of 8 days. But RBI governor is not the only one when to be credited for the comeback witnessed in equities. To determine whether such a rally is sustainable, lets try and look at some other factors that led to it: Currency fears receded as RBI announced measures to increase foreign flows and aid banks and exporters alike. Rupee which hit a low of close to 70 is now trading below 64.  America’s stance on Syria has softened where they have postponed any military action if Syria surrenders its chemical weapons. Lower than expected recovery on the job front in US has receded concerns on large scale tapering in Sep’13. Passenger vehicle sales have come in the green after 10 months recording a growth of 4.47% YoY. Good monsoon has also had a positive affect on the demand from rural areas with two wheeler sales rising 6.7%. Exports have also brought in some cheer to the market with growth of 13% in Aug’13. Month on month basis, this is the second month that saw double digit growth. Proposal of an operator friendly policy for spectrum – auctions, trading and usage charges. While these are some of the green shoots visible to market participants, a new high or sustained rally depends a lot on benign global liquidity environment, meaningful turnaround in the capital investment cycle, continued recovery in consumer driven… Read More