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.
Wednesday, April 2, 2008
Is the US already into recession????
It seems Americans are having a tough time grappling with their personal finance as well as the health of their national economy.There is bad news left,right and centre.Rising unemployment,soaring gasoline prices,sky rocketing commodity prices,crashing home prices,a sliding dollar,a bumpy stock market,escalating inflation have kept the American economists right on their toes.However the fears are backed by firm evidences.Dollar has weakned aginst Yen&Euro to record levels.There has been a huge liquidity problem in the American ecomy.FED has tried to inject liquidity by slashing interest rates six times from 5.25% to 2.25% since September.But that has sounded a death knell for the dollar and failed to stop the collapse of Carlyle Capital & Bear Sterns.Pundits believe that these developments may set the stage for bankruptcy of the two biggest mortgage entities in the US - Fannie Mae and Freddie Mac. FED also announced that it would lend up to $200 billion to investment banks in exchange for the banks' beaten-up mortgage-backed securities.Uncle Sam has already announced tax-cuts upto $150bn which would increase spending by the Americans households. They are already cutting down on expenditure as reflected in retail and home sales data.By the end of 2007, 36 percent of consumers' disposable income went to food, energy and medical care, a bigger chunk of income than at any time since records were first kept in 1960, according to Merrill Lynch.
Technically it takes two consecutive quarters of shrinking economic activity i.e. negative GDP growth to confirm a recession. Although no political authority has officially declared a recession many economists now believe that US is already into recession.Some are equating it withv the Great Depression while rest with 1970’s ‘stagflation’ crisis. The US economy has already fallen into a recession, according to 71 percent of 55 economists surveyed by The Wall Street Journal.
Billionaire investor Warren Buffett claims the United States has already fallen into recession and warned that shares prices still may have some way to fall.He believes that a sharp slowdown is already underway marked by rising oil prices which may ignite inflation in a “serious way”.He also backed out from the offer to reinsure $800bn of government-issued bonds underwritten by MBIA, Ambac and Financial Guaranty Insurance.Former Fed Chairman Alan Greenspan wrote in the Financial Times in March that the financial crisis — which he said would likely be the "most wrenching" in the United States since World War II — would end only when housing prices stabilize.
David Rosenberg, chief North American economist for Merrill Lynch, believes that the US has entered its first full-blown economic recession in 16 years.He feels that the parallels to the 1970s go much deeper than just the shock of record oil prices, which tripled during the 1973-1975 recession and have seen a similar rise in recent years. Then as now, food prices rose along with energy. Then as now, declining home prices gave homeowners ulcers over equity. And the dollar, which held up fine in the 2001 recession, is falling now even more than it did in the early '70s — 9 percent then on a trade-weighted basis, 14 percent in the last year, according to the Federal Reserve. "The mid-1970s is the best template," believes Rosenberg, "if there is any."
If the situation is similar to 1970’s then more is yet to come.That era saw Standard & Poor's 500 index fall 36 percent from its peak to its trough. Right now, the S&P 500 has only lost 15 percent from its record highs of October 2007. According to a new survey by Duke/CFO Magazine nearly 90 percent of chief financial officers of global public companies don't see an economic recovery coming until 2009.
The last time the U.S. economy tilted into recession was 2001. And it was an entirely different animal. Investors bore the brunt of that downturn as the stock market shook off the excesses of the late-'90s technology boom. Encouraged by their government — and fortified with tax rebates in their pockets — Americans kept spending. Perhaps most importantly, there was no reason for anyone to doubt the stability of the financial system. There was no credit crisis to speak of, and the housing boom had yet to begin.Dollar had not weakened to this extent. "I think the current financial crisis looks to me like the worst one since we got into the Depression," says Richard Sylla, who teaches the history of financial institutions at New York University's Stern School of Business. Almost half the economists surveyed by Wall Street Journal said a recession this year could be worse than the 2001 and 1990-91 downturns. The economists, on average, forecast meagre economic growth - just 0.1 per cent at an annual rate in the current quarter, and 0.4 per cent in the second.
Economists and market historians seem to agree that this is more than a typical, cyclical slump. The problem this time around is that no one knows the quantum of damage- how deep the wounds from the mortgage mess are?-is the biggest question.Know one knows how many mortgage backed hedge funds may go kaput.Although Bush says that recession is yet to arrive people can all but disagree.Americans might want to believe him but there are no reasons for doing so.It seems years of widening fiscal deficit,living beyond their means is really going to cost them dear.As they say this economic excess need to be set right.It seems the ghost of imprudent fiscal policy over the years will haunt the Americans for the times to come.
US recession will definitely bring pain for Indian economy.Indian companies have major outsourcing deals from the US. India's exports to the US have also grown substantially over the years. The India economy is likely to lose between 1 to 2 percentage points in GDP growth in the next fiscal year. Indian companies with big tickets deals in the US would see their profit margins shrinking. The worries for exporters will grow as rupee strengthens further against the dollar. But experts note that the long-term prospects for India are stable. A weak dollar could bring more foreign money to Indian markets. Oil may get cheaper brining down inflation. A recession could bring down oil prices to very low levels and cool down the boom in commodity prices being witnessed the world over.
Technically it takes two consecutive quarters of shrinking economic activity i.e. negative GDP growth to confirm a recession. Although no political authority has officially declared a recession many economists now believe that US is already into recession.Some are equating it withv the Great Depression while rest with 1970’s ‘stagflation’ crisis. The US economy has already fallen into a recession, according to 71 percent of 55 economists surveyed by The Wall Street Journal.
Billionaire investor Warren Buffett claims the United States has already fallen into recession and warned that shares prices still may have some way to fall.He believes that a sharp slowdown is already underway marked by rising oil prices which may ignite inflation in a “serious way”.He also backed out from the offer to reinsure $800bn of government-issued bonds underwritten by MBIA, Ambac and Financial Guaranty Insurance.Former Fed Chairman Alan Greenspan wrote in the Financial Times in March that the financial crisis — which he said would likely be the "most wrenching" in the United States since World War II — would end only when housing prices stabilize.
David Rosenberg, chief North American economist for Merrill Lynch, believes that the US has entered its first full-blown economic recession in 16 years.He feels that the parallels to the 1970s go much deeper than just the shock of record oil prices, which tripled during the 1973-1975 recession and have seen a similar rise in recent years. Then as now, food prices rose along with energy. Then as now, declining home prices gave homeowners ulcers over equity. And the dollar, which held up fine in the 2001 recession, is falling now even more than it did in the early '70s — 9 percent then on a trade-weighted basis, 14 percent in the last year, according to the Federal Reserve. "The mid-1970s is the best template," believes Rosenberg, "if there is any."
If the situation is similar to 1970’s then more is yet to come.That era saw Standard & Poor's 500 index fall 36 percent from its peak to its trough. Right now, the S&P 500 has only lost 15 percent from its record highs of October 2007. According to a new survey by Duke/CFO Magazine nearly 90 percent of chief financial officers of global public companies don't see an economic recovery coming until 2009.
The last time the U.S. economy tilted into recession was 2001. And it was an entirely different animal. Investors bore the brunt of that downturn as the stock market shook off the excesses of the late-'90s technology boom. Encouraged by their government — and fortified with tax rebates in their pockets — Americans kept spending. Perhaps most importantly, there was no reason for anyone to doubt the stability of the financial system. There was no credit crisis to speak of, and the housing boom had yet to begin.Dollar had not weakened to this extent. "I think the current financial crisis looks to me like the worst one since we got into the Depression," says Richard Sylla, who teaches the history of financial institutions at New York University's Stern School of Business. Almost half the economists surveyed by Wall Street Journal said a recession this year could be worse than the 2001 and 1990-91 downturns. The economists, on average, forecast meagre economic growth - just 0.1 per cent at an annual rate in the current quarter, and 0.4 per cent in the second.
Economists and market historians seem to agree that this is more than a typical, cyclical slump. The problem this time around is that no one knows the quantum of damage- how deep the wounds from the mortgage mess are?-is the biggest question.Know one knows how many mortgage backed hedge funds may go kaput.Although Bush says that recession is yet to arrive people can all but disagree.Americans might want to believe him but there are no reasons for doing so.It seems years of widening fiscal deficit,living beyond their means is really going to cost them dear.As they say this economic excess need to be set right.It seems the ghost of imprudent fiscal policy over the years will haunt the Americans for the times to come.
US recession will definitely bring pain for Indian economy.Indian companies have major outsourcing deals from the US. India's exports to the US have also grown substantially over the years. The India economy is likely to lose between 1 to 2 percentage points in GDP growth in the next fiscal year. Indian companies with big tickets deals in the US would see their profit margins shrinking. The worries for exporters will grow as rupee strengthens further against the dollar. But experts note that the long-term prospects for India are stable. A weak dollar could bring more foreign money to Indian markets. Oil may get cheaper brining down inflation. A recession could bring down oil prices to very low levels and cool down the boom in commodity prices being witnessed the world over.
Tuesday, March 4, 2008
The Death of the Dollar
Another rate cut and the fate of the dollar will be sealed.World may see the end of the dollar era. Will it will mark the end of dollar hegemony as some experts are
believing?Although nobody can quantify the havoc an incessantly weakening dollar may wreck on the global economy,experts unanimously believe that it will be immense.Already FED Chairman Ben Bernanke has signalled another rate cut which has sparked a rally in bullion, crude oil,metal and commodity prices.Gold is touching new highs due to heavy buying by the funds as an hedge against inflation or a “political and economic uncertainty”. Gold rose to a record $976.32 in London while crude oil has risen to a record $103.05 a barrel. It seems the market is already factoring in another rate cut. Bernanke also said a housing slump may cause smaller U.S. banks to fail and unemployment to increase, fueling speculation Fed policy makers will increase the pace of interest-rate cuts.Market expects a 50-75bps rate cut in March’08.
The wide spread pessimism regarding dollar doesn’t stand on weak grounds but is backed by firm evidences. The dollar fell to the lowest in almost three years versus the yen and a record against the euro on growing signs of U.S. economy slipping into a recession. The dollar traded below 105 yen for the first time since May 2005 after Federal Reserve Chairman Ben S. Bernanke said the weaker currency is helping reduce the trade deficit. Euro is trading at an all time high of $1.52 since its launch in 1999. Since the euro's introduction, the dollar has declined 23 percent against the single currency, and 46 percent from a record high of 1.2089 euros in October 2000. Merrill Lynch & Co. analysts led by Daniel Tenengauzer forecast the euro to ``peak'' at $1.57 around the end of March. The dollar is headed for its biggest monthly fall of over 2.3%against the euro since September before a government report likely to show consumer spending stagnated in January, giving the Fed more reason to cut interest rates.The U.S. Dollar Index, which tracks the currency against six major counterparts, yesterday declined to 73.63, the lowest since its start in 1973.
The Fed has also lowered its 2008 growth forecast to 1.3 % - 2 %, from a forecast of 1.8 % - 2.5 % in November. Meanwhile, the US Trade Deficit narrowed in 2007, for the first time in six years, to 711.6 billion dollars from 758.5 billion in 2006, according to the Commerce Department. U.S. exports in 2007 rose to a record $1.62 trillion, lifted by an 18 percent jump in goods sold to China, an 8 percent increase in shipments to Canada and 5 percent more sales to Japan. The export boom for American businesses comes at the expense of some international rivals, and the euro's strength is becoming an irritant to some finance ministers in the EU. Treasury Secretary Henry Paulson said he favors a ``strong'' U.S. dollar that reflects the competitiveness of the world's largest economy in the long term.
Moreover there is no end to the bad news which are continuously flowing into the market,confirming the fears. According to the U.S. data, consumer sentiment hit a five-year low and consumer expectations slumped to the worst in 17 years, supporting the view that economy may be in a recession. Ben Bernanke has already confirmed what his various Fed colleagues had been saying: that they are more worried about growth than inflation, tacitly promising more rate cuts.So in near term the decline of dollar is likely to continue uncontested.Latest German economic data hints that European Central Bank may not cut interest rates as of now, thus keeping the Euro strong.Looking at US history government may not intervene as of now. U.S. government hasn't intervened in markets to bolster the dollar since August 1995. The last time a U.S. Treasury chief directed the Fed to buy or sell currencies was in September 2000, when it sold dollars for $1.33 billion in euros.Another bad news appears on the inflation front.Rises in the oil price have correlated with gains in euro against the dollar. A higher oil price does greater damage to the US than other big economies because of the US’s well-known oil addiction. It also shows that inflation pressures, whatever the Fed says, have not gone away.
So Ben seems to be in a catch-22 situation.Cutting interest rates is imperative to stimulate growth & tackle sub-prime mortgage writedowns which have already crossed $100bn and are feared to rise upto $300bn.So infusing liquidity is important.On the other hand weak dollar is pushing up commodity prices causing inflation above comfort zone.But for now Ben seems to be ignoring inflation fears and may go ahead with a rate cut. Soon global financial system may see itself coming to terms with the death of the dollar and the turmoil thereafter.
believing?Although nobody can quantify the havoc an incessantly weakening dollar may wreck on the global economy,experts unanimously believe that it will be immense.Already FED Chairman Ben Bernanke has signalled another rate cut which has sparked a rally in bullion, crude oil,metal and commodity prices.Gold is touching new highs due to heavy buying by the funds as an hedge against inflation or a “political and economic uncertainty”. Gold rose to a record $976.32 in London while crude oil has risen to a record $103.05 a barrel. It seems the market is already factoring in another rate cut. Bernanke also said a housing slump may cause smaller U.S. banks to fail and unemployment to increase, fueling speculation Fed policy makers will increase the pace of interest-rate cuts.Market expects a 50-75bps rate cut in March’08.
The wide spread pessimism regarding dollar doesn’t stand on weak grounds but is backed by firm evidences. The dollar fell to the lowest in almost three years versus the yen and a record against the euro on growing signs of U.S. economy slipping into a recession. The dollar traded below 105 yen for the first time since May 2005 after Federal Reserve Chairman Ben S. Bernanke said the weaker currency is helping reduce the trade deficit. Euro is trading at an all time high of $1.52 since its launch in 1999. Since the euro's introduction, the dollar has declined 23 percent against the single currency, and 46 percent from a record high of 1.2089 euros in October 2000. Merrill Lynch & Co. analysts led by Daniel Tenengauzer forecast the euro to ``peak'' at $1.57 around the end of March. The dollar is headed for its biggest monthly fall of over 2.3%against the euro since September before a government report likely to show consumer spending stagnated in January, giving the Fed more reason to cut interest rates.The U.S. Dollar Index, which tracks the currency against six major counterparts, yesterday declined to 73.63, the lowest since its start in 1973.
The Fed has also lowered its 2008 growth forecast to 1.3 % - 2 %, from a forecast of 1.8 % - 2.5 % in November. Meanwhile, the US Trade Deficit narrowed in 2007, for the first time in six years, to 711.6 billion dollars from 758.5 billion in 2006, according to the Commerce Department. U.S. exports in 2007 rose to a record $1.62 trillion, lifted by an 18 percent jump in goods sold to China, an 8 percent increase in shipments to Canada and 5 percent more sales to Japan. The export boom for American businesses comes at the expense of some international rivals, and the euro's strength is becoming an irritant to some finance ministers in the EU. Treasury Secretary Henry Paulson said he favors a ``strong'' U.S. dollar that reflects the competitiveness of the world's largest economy in the long term.
Moreover there is no end to the bad news which are continuously flowing into the market,confirming the fears. According to the U.S. data, consumer sentiment hit a five-year low and consumer expectations slumped to the worst in 17 years, supporting the view that economy may be in a recession. Ben Bernanke has already confirmed what his various Fed colleagues had been saying: that they are more worried about growth than inflation, tacitly promising more rate cuts.So in near term the decline of dollar is likely to continue uncontested.Latest German economic data hints that European Central Bank may not cut interest rates as of now, thus keeping the Euro strong.Looking at US history government may not intervene as of now. U.S. government hasn't intervened in markets to bolster the dollar since August 1995. The last time a U.S. Treasury chief directed the Fed to buy or sell currencies was in September 2000, when it sold dollars for $1.33 billion in euros.Another bad news appears on the inflation front.Rises in the oil price have correlated with gains in euro against the dollar. A higher oil price does greater damage to the US than other big economies because of the US’s well-known oil addiction. It also shows that inflation pressures, whatever the Fed says, have not gone away.
So Ben seems to be in a catch-22 situation.Cutting interest rates is imperative to stimulate growth & tackle sub-prime mortgage writedowns which have already crossed $100bn and are feared to rise upto $300bn.So infusing liquidity is important.On the other hand weak dollar is pushing up commodity prices causing inflation above comfort zone.But for now Ben seems to be ignoring inflation fears and may go ahead with a rate cut. Soon global financial system may see itself coming to terms with the death of the dollar and the turmoil thereafter.
Tuesday, January 15, 2008
Buy Noida Toll Bridge for high return..
NOIDA TOLL BRIDGE has huge land bank to the tune of 200acres in Delhi and 30 acres in Noida.Value may unlock once the company gets a development rights from government.Land bank is valued at 1500crores which is impressive angainst the backdrop of 1433crore worth of market-cap.It has repaid its heavy loans and traffic too has risen impressively on DND flyover in last year.Traffic is expected to double in next 1.5 years.Trafffic is likely to surge in FY’09 with opening of Mayur Vihar Link road.Its sales numbers have risen impressively from 22.34cr to 31.56 crore in six months ended September 2007.PAT for the same period has quadrupled from 3.81cr. to 14.74cr.So for the year ending March 2008 PAT can be expected to stand at Rs30 crore level.The EPS works out to around 1.60 level.The company is promoted byIL&FS which provides it a strong backing.The counter can see 135-140 level by 2008 end itself. So traders with an year long perspective can expose their portfolio to the following scrip.
Tuesday, December 18, 2007
What ails the commodity markets????
What ails the commodity markets?
MMTC and India Bulls Financial Services are jointly planning the fourth national commodity exchange. MMTC had sought Commerce Ministry’s approval to hold a minority stake of 26 per cent in the special purpose vehicle to be floated for the new commodity exchange. They have applied to the regulatory body. Forward Markets Commission (FMC) for the same. However with three nationwide exchanges already operational in the country the FMC Chairman, Mr. B.C. Khatua, expressed reservation on allowing a broking firm to promote an exchange. Many might believe that competition among could benefit commodity trading. However this view is grossly misplaced.
The commodity trading in the country has stagnated around 15,000 crores much below the equity segment volumes of over 100,000cr. Globally volumes in equity segment pale in front of commodity volumes. This is anomaly in Indian markets can largely be attributed to excessive intervention from the government and rollback on reforms by the government. It’s a pity that options are yet to be introduced in commodity trading which leaves little room for hedging ones position. Barring a few metals and agricultural commodities most of the contracts have little liquidity. Although contracts covering over 80 commodities have been launched in various exchanges only a handful of commodities attract large volumes. Institutional players FIIs and Mutual funds don’t participate in the market, restricting liquidity to few traded commodities. This leaves them vulnerable to cartelisation and price manipulation making a mockery of the principle of price discovery.
On the other hand government and its netas love to blame the commodity futures market for inflation in food grains. The so-called ‘aam-admi’ government finds an easy scapegoat in commodity futures trading with little acknowledgement of its own policy failure. Poor agricultural infrastructure and lack of investment has taken sheen off food grains cultivation. Minimum Support Price (MSP) declared is very low and private players like ITC are discouraged to buy directly from the farmers, with government fearing a price rise. This Soviet-style curb on prices doesn’t incentivise agriculture and inhibits growth. This is reflected in poor agricultural growth registered in last few years which has dipped below pre-1990 levels. The agricultural growth in FY2006-07 was a meagre 2.7% and pales in front of the 11% growth registered in manufacturing for the same period. The government investment in agriculture fell from 1.8 percent in 1993 to 1.3 percent in 2003. Agriculture’s share of India’s GDP has fallen from 45 percent in 1972-1973 to 21 percent in 2004-2005. However almost 60 percent of India’s 1.1 billion people depend on agriculture for their livelihood.
What is the reason for critical state of agriculture? The answer is regulation , or to be precise ,its over-regulation.Agriculture needs investment and sadly government is not doing so.So why not let the corporate money flow into agriculture.Investment at individual level too can be made if the producers get proper prices which they are denied as layers of middlemen are involved in procurement & distribution process.Sadly that too is discouraged when organised retailers are made to shut shops by the state, pandering to the demands of guilded middlemen. If farmers receive good prices for produces then they are likely to invest in agriculture and will look to improve yields. However this has not happened,making small scale cultivation unsustainable. This also explains the sharp decline in wheat production last year and heavy migration from rural to urban areas in last few years. So the ultimate loser is the largest chunk of the ‘aam-admi’ electorate, the farmer itself. The urban ‘aam-admi’ pays extra for the same commodity for which the rural ‘aam-admi’ has received little and middlemen pocket the lion’s share of the profit. If that was not enough our government loves to import wheat for the countrymen at exorbitant rates. The Government first rejected the tender which offered wheat at $263 per MT in June citing steep price. After 10 days, it changed its mind and ordered import of 5.7 lakh tonnes of wheat at $325 per MT. Indian farmers are paid only Rs 850 per quintal, but through imports, foreign farmers are paid Rs 1,600 per quintal. Similar rates to Indian farmers would have huge impetus to domestic production. To be true the role of the state has remained restricted to free power, subsidized fertilizer and tax-free agricultural income.
All the above-mentioned shortcomings point into one direction; that the government is directionless when it comes to tackling rise in prices of commodities. It protects the middlemen and blames futures trading for price rise. Infact it’s the wrong policies of the government itself which are to be blamed. But then our netas are very apt at blame game and the best way for them to tackle inflation was banning future trading in key four commodities like wheat and pulses in March’07. That argument was more politics and less economics.
This was clear from a study by IIM Bangalore professor Gopal Naik which forms the key input for a panel set up by the Government under Planning Commission member Abhijit Sen to examine the effects of futures trading in agricultural commodities on their consumer prices. Naik’s study establishes that there is no evidence to show that futures trading had any significant influence on their spot market rates. In fact, a comparison of data on futures trading between wheat and Chana suggests that a more reformed agricultural commodities market is likely to be more beneficial to farmers.
The study looked at price volatility in a 30-month period before and after the introduction of futures trading in agriculture commodities. For wheat, price volatility increased from 7.09% between January 2002 and June 2004 — before trading was allowed — to 13.63% between July 2004 and December 2006 after introduction of the exchange markets. This jump is attributed to of lower production, lower stocks, and soaring international prices of wheat by Naik. “The year 2005-06 turned awful for wheat production,” says the report, “the actual production (68.6 million tonnes) turned out 5 % less than forecast which led to prices soar up by 8%.” Also, this year, international production dipped and global prices rose by almost 20 per cent to $158 per tonne. In the case of Chana, price volatility, in fact, marginally decreased from 6.4% between April 2002 and March 2004 before future trading was allowed to 6.16% between April 2004 and March 2006 after introduction of the exchange markets. However, there was high volatility during April 2006-March 2007, which the report says, was the result of “panic” over lower Chana production due to “weather aberration.”
However ignoring all these facts government took the regressive step of banning commodity futures in four commodities and that too at a time when we are projecting Mumbai as an International Financial Centre. This has brought trading volumes in commodities down to a trickle. This sends a wrong signal to domestic as well as overseas investors who want to invest in Indian market as a whole. Already institutional investors are barred from commodity trading. Even the largest stockholder of wheat in the country, the government-owned FCI, doesn’t enter the futures market. “Selective participation of FCI in the futures market would be a welcome step,” said Naik. “It will only deepen the market.”
Madan Sabnavis, Chief Economist at NCDEX Limited, feels that one of the main motivations for reviving these markets was to provide a hedge for farmers, and today, agri-trading volumes have diminished to less than 20 per cent of total traded volumes. This happened just at the time when liquidity was building up and prices were mirroring quite accurately the supply-demand conditions. Instead, it is the non-agri commodities which dominate the trading terminals, even though this is also stagnant at a higher level. However, it must be remembered that price discovery here is strictly not determined in the domestic market as they are images of international contracts and developments. The domestic price of gold or copper or crude is an image of that on, say, the NYMEX or LME. So could this mean that the core business faces the threat of stagnation, if not gradual disappearance?
An issue, which has been raised amid all the controversy, is whether farmers are participating in the market. Sabnavis fells that the answer is an honest ‘no’, because there are several hindrances in terms of accessibility and minimum lot size as farmers may not be in a position to bring an economic size lot to the exchange for delivery. Farmers can trade if there are convenient lot sizes and they cannot be offered unless there is enough liquidity — the classic chicken and egg problem. While the exchanges can offer 1 tonne contracts and 10 tonne contracts, from a buyer’s perspective, the 1 tonne contract is not economical as it would entail higher costs. So, the willing seller may not find a buyer. Therefore, liquidity would be missing and the price discovery process would be retarded.
Sabnavis feels that there is need for two entities to step in quickly. The first is the consolidator who can represent the farmers on the exchanges who consolidates the produce of, say, 10 farmers and puts in the contract. The other is to have market makers who would actually offer buy and sell quotes so that liquidity is generated and the two processes buttress one another. The regulatory processes need to be addressed with urgency to put the market back on track. He feels that institutional players like mutual funds and FIIs must be allowed to participate with well defined frontiers to add liquidity. Awareness amongst end users such as corporates must run alongside to add weight to these efforts. Or else, interest would dwindle further given that the capital market is spiralling upwards quite relentlessly.
He also demands suitable amendments in regulatory structures in four areas. Firstly, FCRA (Foreign Contribution Regulation Act, 1976) needs to be amended to bring in options. Secondly, the concept of consolidator needs to be implemented so as to bring in the farmers.
More autonomy should be granted to FMC. With a surge in trading volumes, the responsibilities of the regulator will considerably increase(in case they rise). In addition to appropriate financial and operational freedom has become absolutely necessary. FMC should be given more teeth so that it is able to take independent decisions for benefit of investors. It should not remain a mere reflection of the fancies political masters, who sadly are driven more by short-term political gains rather than long-term economic benefits.
MMTC and India Bulls Financial Services are jointly planning the fourth national commodity exchange. MMTC had sought Commerce Ministry’s approval to hold a minority stake of 26 per cent in the special purpose vehicle to be floated for the new commodity exchange. They have applied to the regulatory body. Forward Markets Commission (FMC) for the same. However with three nationwide exchanges already operational in the country the FMC Chairman, Mr. B.C. Khatua, expressed reservation on allowing a broking firm to promote an exchange. Many might believe that competition among could benefit commodity trading. However this view is grossly misplaced.
The commodity trading in the country has stagnated around 15,000 crores much below the equity segment volumes of over 100,000cr. Globally volumes in equity segment pale in front of commodity volumes. This is anomaly in Indian markets can largely be attributed to excessive intervention from the government and rollback on reforms by the government. It’s a pity that options are yet to be introduced in commodity trading which leaves little room for hedging ones position. Barring a few metals and agricultural commodities most of the contracts have little liquidity. Although contracts covering over 80 commodities have been launched in various exchanges only a handful of commodities attract large volumes. Institutional players FIIs and Mutual funds don’t participate in the market, restricting liquidity to few traded commodities. This leaves them vulnerable to cartelisation and price manipulation making a mockery of the principle of price discovery.
On the other hand government and its netas love to blame the commodity futures market for inflation in food grains. The so-called ‘aam-admi’ government finds an easy scapegoat in commodity futures trading with little acknowledgement of its own policy failure. Poor agricultural infrastructure and lack of investment has taken sheen off food grains cultivation. Minimum Support Price (MSP) declared is very low and private players like ITC are discouraged to buy directly from the farmers, with government fearing a price rise. This Soviet-style curb on prices doesn’t incentivise agriculture and inhibits growth. This is reflected in poor agricultural growth registered in last few years which has dipped below pre-1990 levels. The agricultural growth in FY2006-07 was a meagre 2.7% and pales in front of the 11% growth registered in manufacturing for the same period. The government investment in agriculture fell from 1.8 percent in 1993 to 1.3 percent in 2003. Agriculture’s share of India’s GDP has fallen from 45 percent in 1972-1973 to 21 percent in 2004-2005. However almost 60 percent of India’s 1.1 billion people depend on agriculture for their livelihood.
What is the reason for critical state of agriculture? The answer is regulation , or to be precise ,its over-regulation.Agriculture needs investment and sadly government is not doing so.So why not let the corporate money flow into agriculture.Investment at individual level too can be made if the producers get proper prices which they are denied as layers of middlemen are involved in procurement & distribution process.Sadly that too is discouraged when organised retailers are made to shut shops by the state, pandering to the demands of guilded middlemen. If farmers receive good prices for produces then they are likely to invest in agriculture and will look to improve yields. However this has not happened,making small scale cultivation unsustainable. This also explains the sharp decline in wheat production last year and heavy migration from rural to urban areas in last few years. So the ultimate loser is the largest chunk of the ‘aam-admi’ electorate, the farmer itself. The urban ‘aam-admi’ pays extra for the same commodity for which the rural ‘aam-admi’ has received little and middlemen pocket the lion’s share of the profit. If that was not enough our government loves to import wheat for the countrymen at exorbitant rates. The Government first rejected the tender which offered wheat at $263 per MT in June citing steep price. After 10 days, it changed its mind and ordered import of 5.7 lakh tonnes of wheat at $325 per MT. Indian farmers are paid only Rs 850 per quintal, but through imports, foreign farmers are paid Rs 1,600 per quintal. Similar rates to Indian farmers would have huge impetus to domestic production. To be true the role of the state has remained restricted to free power, subsidized fertilizer and tax-free agricultural income.
All the above-mentioned shortcomings point into one direction; that the government is directionless when it comes to tackling rise in prices of commodities. It protects the middlemen and blames futures trading for price rise. Infact it’s the wrong policies of the government itself which are to be blamed. But then our netas are very apt at blame game and the best way for them to tackle inflation was banning future trading in key four commodities like wheat and pulses in March’07. That argument was more politics and less economics.
This was clear from a study by IIM Bangalore professor Gopal Naik which forms the key input for a panel set up by the Government under Planning Commission member Abhijit Sen to examine the effects of futures trading in agricultural commodities on their consumer prices. Naik’s study establishes that there is no evidence to show that futures trading had any significant influence on their spot market rates. In fact, a comparison of data on futures trading between wheat and Chana suggests that a more reformed agricultural commodities market is likely to be more beneficial to farmers.
The study looked at price volatility in a 30-month period before and after the introduction of futures trading in agriculture commodities. For wheat, price volatility increased from 7.09% between January 2002 and June 2004 — before trading was allowed — to 13.63% between July 2004 and December 2006 after introduction of the exchange markets. This jump is attributed to of lower production, lower stocks, and soaring international prices of wheat by Naik. “The year 2005-06 turned awful for wheat production,” says the report, “the actual production (68.6 million tonnes) turned out 5 % less than forecast which led to prices soar up by 8%.” Also, this year, international production dipped and global prices rose by almost 20 per cent to $158 per tonne. In the case of Chana, price volatility, in fact, marginally decreased from 6.4% between April 2002 and March 2004 before future trading was allowed to 6.16% between April 2004 and March 2006 after introduction of the exchange markets. However, there was high volatility during April 2006-March 2007, which the report says, was the result of “panic” over lower Chana production due to “weather aberration.”
However ignoring all these facts government took the regressive step of banning commodity futures in four commodities and that too at a time when we are projecting Mumbai as an International Financial Centre. This has brought trading volumes in commodities down to a trickle. This sends a wrong signal to domestic as well as overseas investors who want to invest in Indian market as a whole. Already institutional investors are barred from commodity trading. Even the largest stockholder of wheat in the country, the government-owned FCI, doesn’t enter the futures market. “Selective participation of FCI in the futures market would be a welcome step,” said Naik. “It will only deepen the market.”
Madan Sabnavis, Chief Economist at NCDEX Limited, feels that one of the main motivations for reviving these markets was to provide a hedge for farmers, and today, agri-trading volumes have diminished to less than 20 per cent of total traded volumes. This happened just at the time when liquidity was building up and prices were mirroring quite accurately the supply-demand conditions. Instead, it is the non-agri commodities which dominate the trading terminals, even though this is also stagnant at a higher level. However, it must be remembered that price discovery here is strictly not determined in the domestic market as they are images of international contracts and developments. The domestic price of gold or copper or crude is an image of that on, say, the NYMEX or LME. So could this mean that the core business faces the threat of stagnation, if not gradual disappearance?
An issue, which has been raised amid all the controversy, is whether farmers are participating in the market. Sabnavis fells that the answer is an honest ‘no’, because there are several hindrances in terms of accessibility and minimum lot size as farmers may not be in a position to bring an economic size lot to the exchange for delivery. Farmers can trade if there are convenient lot sizes and they cannot be offered unless there is enough liquidity — the classic chicken and egg problem. While the exchanges can offer 1 tonne contracts and 10 tonne contracts, from a buyer’s perspective, the 1 tonne contract is not economical as it would entail higher costs. So, the willing seller may not find a buyer. Therefore, liquidity would be missing and the price discovery process would be retarded.
Sabnavis feels that there is need for two entities to step in quickly. The first is the consolidator who can represent the farmers on the exchanges who consolidates the produce of, say, 10 farmers and puts in the contract. The other is to have market makers who would actually offer buy and sell quotes so that liquidity is generated and the two processes buttress one another. The regulatory processes need to be addressed with urgency to put the market back on track. He feels that institutional players like mutual funds and FIIs must be allowed to participate with well defined frontiers to add liquidity. Awareness amongst end users such as corporates must run alongside to add weight to these efforts. Or else, interest would dwindle further given that the capital market is spiralling upwards quite relentlessly.
He also demands suitable amendments in regulatory structures in four areas. Firstly, FCRA (Foreign Contribution Regulation Act, 1976) needs to be amended to bring in options. Secondly, the concept of consolidator needs to be implemented so as to bring in the farmers.
More autonomy should be granted to FMC. With a surge in trading volumes, the responsibilities of the regulator will considerably increase(in case they rise). In addition to appropriate financial and operational freedom has become absolutely necessary. FMC should be given more teeth so that it is able to take independent decisions for benefit of investors. It should not remain a mere reflection of the fancies political masters, who sadly are driven more by short-term political gains rather than long-term economic benefits.
Wednesday, October 31, 2007
Strike it Rich with the right stocks...
Very soon we may see FED Chairman,Ben Bernanke, slash interest rates by another quarter percent to bring them down to 4.5%. It seems he wants the ordinary house owner to celebrate his Christmas amid cheers rather than sulking over asset's depriciating value.But the poor man too has run out of options.To draft American monetary policy during such troubled times is no easy task either. On one hand oil is trading around $93 per barrel and commodity prices are shooting over the roof.But increasing interest rates could destroy the residential real estate which has an aggregate value of about $21 trillion, and is the single biggest source of US household wealth. If home prices fall 15%, it could wipe out $3 trillion of household wealth, and could give a huge blow to consumer spending.About 7.6 million Americans workers are employed by construction companies, so a 15% decline would translate into the loss of 1 million jobs . So the guy has little choice but to go ahead with a rate cut of a minimum 25bps.
So what does this rate-cut has in place for an Indian investor.Well we could see the dollar slumping to Rs38.Crude may test $100 per barrel and commodity prices could sky rocket.Gold is all set to test $850/oz in coming weeks and commodity bulls are all set to rake in the moolah.Weak dollar will further weaken the dollar internationally.So large hedge funds and FIIs will increase their investments in emerging markets including India.So all the investors can expect the NIFTY to test 6300 level in coming days.Similarly Sensex could test 21500 level.FII money usually chases fundamentally sound counters. So blue chips will become a lot dearer in coming days.Traders and investors can remain long. So if you want make money look out for the following counters.
1)Rel.Petro TGT 280
2)Voltas TGT 250
3)PFC TGT 270
4)PowerGrid 180
So what does this rate-cut has in place for an Indian investor.Well we could see the dollar slumping to Rs38.Crude may test $100 per barrel and commodity prices could sky rocket.Gold is all set to test $850/oz in coming weeks and commodity bulls are all set to rake in the moolah.Weak dollar will further weaken the dollar internationally.So large hedge funds and FIIs will increase their investments in emerging markets including India.So all the investors can expect the NIFTY to test 6300 level in coming days.Similarly Sensex could test 21500 level.FII money usually chases fundamentally sound counters. So blue chips will become a lot dearer in coming days.Traders and investors can remain long. So if you want make money look out for the following counters.
1)Rel.Petro TGT 280
2)Voltas TGT 250
3)PFC TGT 270
4)PowerGrid 180
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