The crude is hovering at an all time high.Toyota has reduced the discount on its hybrid vehicle Prius as the waiting time increases.This very piece of news reflects the sea change American consumerism is undergoing.With crude @ US $ 126 , the average American is getting ready to take on the challenge.Very soon we may see the sales of Hummer and other gas guzzling vehicles coming down.Its time for the yankees to contain their wasteful consumerism and behave in a more responsible manner.Already they are the world's biggest consumers and have a strange fetish for everything big-from Big Mac to the giant Limousine.I might sound like a grand old Green Nanny but its the bitter truth. Already unrelented spending has left US with a huge fiscal deficit which has played a crucial role in tumbling of the dollar.Sub-prime mortgage crisis and the subsequent FED rate cut by 3.25% has made the problems worse for the dollar.
Weakness in dollar has seen the prices of crude oil and other essential commodities skyrocketing.This spike in metal and food prices has caused food riots in several countries ;something the world had not heard for last few years since promethean growth of the developing world in the last few decades.
However the source of worry continues to be crude oil.Its one major factor which can bring the world economic growth to a grinding halt in coming decade.If Goldman Sachs is to be belived we are already on the path to see crude trading at US$200.One wants but cannot ignore them.They were the ones who predicted crude at US$100 per barrel while we just ignored them as doomsayers.
India imports about three-quarters of its crude oil, and our oil bill accounts for a third of the total value of all imports.India's crude basket stands at US$120 which is extremely high.Rupee has begun to weaken against dollar adding to our inflation woes.In such an environment how will the big companies & SMEs(small and medium enterprises) survive.Their margins could suffer so would their expansion plans as interest rates are already too high and may not soften in near term.This slowdown was reflected in recent IIP nos. which put down growth at 3% as against 8.6% in Feb'08.Even FY'08 industrial growth was lower at 8.1% v/s 11.6%in FY'07.These poor stats are enough for the entire country to sit up and take notice.
Crude prices may not decline to desired levels in near term and will denitely hit the margins of the businees in the country.Wage hikes we have seen in past few years could stop and this undoubtedly bring down the consumption of goods mainly consumer goods,automobiles and real estate.Real estate companies are already feeling the heat as is reflected in their share prices which have taken the worst beating.Government too is in a strange dilemma.They don't to be seen a doing nothing specially when there are assembly election in key states.General elections too aren't far away either.Oil PSUs will continue to bleed as they will be sacrificed at the altar of aam-admi politics.But this move will backfire as their capability to secure oil blocks abroad will take a beating endangering our oil security.Already our desperate politicians are taking steps ,which they should avoid,like banning futures trade in few commodities and curbing steel price hikes.
At the personal level its time for us to use oil much more responsibly.Inflation could come down if we get a good monsoon and a bumper crop thereafter.These are tough times for economists,government and common man alike.Till then don't mind taking a bus to the office and avoid those long drives at the weekend with our girlfriend.Instead buy her a popcorn at a theatre near you.
Tuesday, May 13, 2008
Thursday, May 1, 2008
Is the worst over for Indian Market?
Most of investors might be taking a sigh of relief at the latest bounce back market has seen from 4800 to 5200 levels.But the larger question which still lingers in their minds that ‘is the worse over?’.Have we really seen the bottom or is there still some pain left?The problem is that nobody knows where the actual bottom is and when it is likely to be seen.But the experts have their opinions to this most important question for the financial market participants..Warren Buffet believes that the correction will be longer,deeper than expected. “ I wouldn't want to predict what the stock market will do. But my feeling from what I see in the economy, is that this will not be short and shallow” says Buffet.But if this was the case then why did he buy Wrigley’s chewing gum for US $ 23bn at this time!
When we talk in context of the Indian markets our desi experts have an array of different opinion.Some like Shankar Sharma of First Global remain as bearish as ever.He feels that the bear pressure could remain on the market for a couple of years to come. The global bear market is underway and can last for two-three years, he added. The markets have seen a price correction and can see a time correction now, he said.According to Sharma, there may be at least a year before the bull run resumes. One may see intermediate bounces, but it is unlikely to be sustainable, he said. He added that it is quite possible that india may fall up to 50% from its all-time highs. Indian markets gave over 62% returns from 1987 to 1992.But despite of liberalization and attractive IIP growth numbers of 9-14% in the first half of the 90s market failed to retest the highs of 4300.He believes that the market could see a prolonged bear run,something similar to post 1992 crash. In equity markets, returns are not evenly spread out over the measurement period. They come in bunches. They are compressed in very short spans of time. So, if you miss out that period and have come at the end of that period or came too far before the period began, your returns are very sub-optimal.Now this is something we don’t really want to listen because we don’t like it,even if its true.
Ramesh Damani,Member of BSE, said the recent rise is a rally within a bear market. The worst may not be over yet and markets would tend to be more circumspect. US technical analysts don't see Dow making new highs in 2008. He adds that India may find it difficult to chart its own course. He is beginning to see impact of inflation in the US. He thinks inflation will be a big problem and will take time to tame.
Rakesh Jhunjhunwala feels that the markets have seen a bull-run since April 2003 and one cannot have a bull market without corrections. The corrections would be testing the investors’ patience and their sheer belief in the markets, he said. ”All the corrections we have had in the last four years have had been deep but they have not been deep time-wise. I think the real patience and the real belief in the equity and in the market comes when the market tests you time-wise. So I think this is going to be one of the deepest and the longest corrections that we are going to have, in what I believe is going to be a very long bull market,” Jhunjhunwala said.To him the market may not re-test the highs until next six quarters. He believes that 4,100-4,200 which corresponds to 12,500-13,000 on the Index is a level which is not going to be penetrated easily. 5,300-5,400 upside on the Nifty is a level that we will not be broken easily. Market could pass a year or 18 months in the 4500-5300 range ,he says.
Ridham Desai MD and Co-Head-Equity, Morgan Stanley feels that one is likely to see more downside before market bottoms out.The market may take some more time to form a bottom, Desai said. He also said that, the price correction shows that India may be in a bear market. To him most indicators show that the market is in a 'fear zone'. On a more positive note, he affirms that the market may see an end to the pain by the third quarter of this year.He also feels that 12,500 is a strong support which is unlikely to be broken and there’s only 20-25% probability of the Sensex going down to 11,000.He expects a slowdown in earnings which could confirm a bear market.
Samir Arora of Helios Capital feels that, the investors are giving too much importance to waiting, for the so-called ‘bottom’. He said that he has not changed his sector preferences in the portfolio from last year, nor is he worried about a further fall, The key, Arora said, is whether to buy or not. He said that the odds are against the market correcting at around 50% from the peaks. The domestic institutions need to show some more conviction in market, Arora said. He believes that the FIIs are staying away due to the complete lack of domestic participation.
Manish Chokhani, Enam Consultants said that India had a dual issue of capital flows and of an over-extended stock market.He sees the FY09 Sensex EPS sat Rs 950 -1,050. He said that the earnings may compound at over 15% and at over 20% in an optimistic scenario. He said that the FIIs have not deserted India but he feels that the crisis is more of the confidence in the domestic investors.Chokani said that the markets are unlikely to under shoot and that it seems unlikely that the Sensex will go down to the 12000 levels. He added that there were many companies with good valuations, like Reliance, for example. He added that the foreign investors are waiting for signals to enter market in big way.
Thus keeping these different viewpoints in mind one can be nothing but a bear.The underlying of all these experts remains same.There could be more pain in this market than we may like to believe.The situation in US is showing no signs of improving.Rather Europe too could join US on the recession bandwagon.Japanese economy remains as bad as ever.German business confidence is sinking.Oil and commodity prices are ruling an all time high causing a breakout of food riots.So under such global environment it would be foolish to expect returns seen in past few years.All one can say at this point of time is that stay cautious as dangerous curves lie ahead.
When we talk in context of the Indian markets our desi experts have an array of different opinion.Some like Shankar Sharma of First Global remain as bearish as ever.He feels that the bear pressure could remain on the market for a couple of years to come. The global bear market is underway and can last for two-three years, he added. The markets have seen a price correction and can see a time correction now, he said.According to Sharma, there may be at least a year before the bull run resumes. One may see intermediate bounces, but it is unlikely to be sustainable, he said. He added that it is quite possible that india may fall up to 50% from its all-time highs. Indian markets gave over 62% returns from 1987 to 1992.But despite of liberalization and attractive IIP growth numbers of 9-14% in the first half of the 90s market failed to retest the highs of 4300.He believes that the market could see a prolonged bear run,something similar to post 1992 crash. In equity markets, returns are not evenly spread out over the measurement period. They come in bunches. They are compressed in very short spans of time. So, if you miss out that period and have come at the end of that period or came too far before the period began, your returns are very sub-optimal.Now this is something we don’t really want to listen because we don’t like it,even if its true.
Ramesh Damani,Member of BSE, said the recent rise is a rally within a bear market. The worst may not be over yet and markets would tend to be more circumspect. US technical analysts don't see Dow making new highs in 2008. He adds that India may find it difficult to chart its own course. He is beginning to see impact of inflation in the US. He thinks inflation will be a big problem and will take time to tame.
Rakesh Jhunjhunwala feels that the markets have seen a bull-run since April 2003 and one cannot have a bull market without corrections. The corrections would be testing the investors’ patience and their sheer belief in the markets, he said. ”All the corrections we have had in the last four years have had been deep but they have not been deep time-wise. I think the real patience and the real belief in the equity and in the market comes when the market tests you time-wise. So I think this is going to be one of the deepest and the longest corrections that we are going to have, in what I believe is going to be a very long bull market,” Jhunjhunwala said.To him the market may not re-test the highs until next six quarters. He believes that 4,100-4,200 which corresponds to 12,500-13,000 on the Index is a level which is not going to be penetrated easily. 5,300-5,400 upside on the Nifty is a level that we will not be broken easily. Market could pass a year or 18 months in the 4500-5300 range ,he says.
Ridham Desai MD and Co-Head-Equity, Morgan Stanley feels that one is likely to see more downside before market bottoms out.The market may take some more time to form a bottom, Desai said. He also said that, the price correction shows that India may be in a bear market. To him most indicators show that the market is in a 'fear zone'. On a more positive note, he affirms that the market may see an end to the pain by the third quarter of this year.He also feels that 12,500 is a strong support which is unlikely to be broken and there’s only 20-25% probability of the Sensex going down to 11,000.He expects a slowdown in earnings which could confirm a bear market.
Samir Arora of Helios Capital feels that, the investors are giving too much importance to waiting, for the so-called ‘bottom’. He said that he has not changed his sector preferences in the portfolio from last year, nor is he worried about a further fall, The key, Arora said, is whether to buy or not. He said that the odds are against the market correcting at around 50% from the peaks. The domestic institutions need to show some more conviction in market, Arora said. He believes that the FIIs are staying away due to the complete lack of domestic participation.
Manish Chokhani, Enam Consultants said that India had a dual issue of capital flows and of an over-extended stock market.He sees the FY09 Sensex EPS sat Rs 950 -1,050. He said that the earnings may compound at over 15% and at over 20% in an optimistic scenario. He said that the FIIs have not deserted India but he feels that the crisis is more of the confidence in the domestic investors.Chokani said that the markets are unlikely to under shoot and that it seems unlikely that the Sensex will go down to the 12000 levels. He added that there were many companies with good valuations, like Reliance, for example. He added that the foreign investors are waiting for signals to enter market in big way.
Thus keeping these different viewpoints in mind one can be nothing but a bear.The underlying of all these experts remains same.There could be more pain in this market than we may like to believe.The situation in US is showing no signs of improving.Rather Europe too could join US on the recession bandwagon.Japanese economy remains as bad as ever.German business confidence is sinking.Oil and commodity prices are ruling an all time high causing a breakout of food riots.So under such global environment it would be foolish to expect returns seen in past few years.All one can say at this point of time is that stay cautious as dangerous curves lie ahead.
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