Capex, Property and Infrastructure in 2012?

All of us are watching market to understand if recent market uptrend is small pullback on the way to down OR start of new uptrend. Personally, We think based on all indicators we track we do not expect sensex above 21000 in 2012. However, Market should give rally of at least 6 months in 2012 and we are closely going to watch if next bottom is higher bottom in Sensex/Nifty which made low of 15135/4531 on 20-Dec-2011. To put it differently, after good run up recently Indian Equity may start correction in next 1-2 weeks and after that correction we will watch turning point. On forming higher bottom ONLY we can say fresh uptrend of 2012 has started. Lets watch.
Our Mathematical Model tells us beaten down sectors which made new highs in 2008 may give 30-40% returns in 2012 if sensex makes higher bottom and continues uptrend from hereon. Fundamentally, We have been expecting 2-wheeler parts, Multiplex, Cement and Export oriented companies to give good results in 2012 but our Mathematical Model is considring very high correction (some are down 90% from 2008 peak) of Infrastructure, Engineering, Capital Goods and Property sectors and suggesting they may give better returns from now onwards. As Reders will recollect we never recommended buy on these sectors till date but now our Model is generating buy. 2-wheeler parts, Multiplex, Cement and Export oriented companies may give good results and steady returns but they may not give returns as high as Infrastructure, Engineering, Capital Goods and Property sectors so one can add a Property stock OR an Engineering stock from reputed promoters if one is already holding a 2-wheeler part stock and a Cement stock in portfolio.

Note that we coul be 100% wrong on above view.

Sensex in 2012

Yesterday, we were discussing about markets with two of our smart friends. While we all friends have been tracking markets since 1999 IT boom and have been tracking more or less every sector, every promoter and most of stocks traded on BSE we have NOT given much importance to general market view while picking a stock.
However, yesterday at some point we started discussing about view on general market and just out of fun we all did a small exercise. We all 3 came up with possible Market direction in chart form. We hereby attach our own chart, which we created looking at different indicators we track. Please be aware we could be 100% wrong in our market view so do not take it seriously :-).

Small Cap/Midcap out-performance?

We have seen possible bottoming formation of small and midcap indices last week. From now onwards Smallcap and Midcap Indices (and Small/Midcap stocks) may out-perform Largecap BSE Sensex/Nifty for next few months. Why we see this possibility? We attach Weekly chart which shows Ratio of BSE Smallcap Index/BSE Sensex.

When see above chart we note that Smallcap which peaked at 0.54 times Sensex on 09-09-2010 (Smallcap was 10,249 and BSE Sensex was 18,799 on 09-09-2010)much before actual peak of Small cap Index touched 0.35 times sensex In first week of Jan and has more or less completed its downtrend and now ready to give upward rally min to 0.40 times sensex. Our Indicator (see below pane) is showing that Smallcap Index is extremely obversold now and possibly suggesting rally in Small cap Index AND in Ratio for next 5-6 months. Be aware, Ratio means we will see relative out-performance of Small cap Index between Smallcap and Sensex NOT absolute levels of Smallcap/Sensex.

USD INR - Weekly Chart Update

Today USDINR closed at 51.60 - this is very significant as Dollar has broken rising trendline which started from low of Rs. 43.85 in August 2011. This indication tells us we may see decline in Dollar for next few months minimum before it starts its journey above 54.31 - High made in Dec 2011. This means Indian Equity may start uptrend for next few months given there is low probability of Dollar going up above 54 in next few months. See attached chart and note possible support levels for Dollar on the way to decline. Looking at long term USDINR charts we feel Dollar must decline to 49.09 over next 4-5 months and we could see corresponding uptrend in Indian Sensex/Nifty. We will also post updates on other indicators we track as and when we find something interesting.

We have also seen extreme oversold condition in Small and Midcap Indices telling us investors must start investment in Midcap/Smallcap stocks where they find Management is reputed and company continues to perform well in upcoming Q3 FY12 results. We personally are keenly going to watch Q3 Fy12 results of 2-wheeler tyres, Multiplex, Auto/Engg Exportes and finally Export Logistics companies.

2012 Leap Year and history

We got one forwarded email which we are posting here.
In every leap year BSE Sensex's 'YEAR HIGH' was above previous year's high since its inception.

1980: 148 (1979 High was 131.59)
1984: 280 (1983 High was 252.92)
1988: 719 (1987 High was 578.75)
1992: 4546 (1991 High was 1955.21)
1996: 4131 (1995 High was 3943.66)
2000: 6150 (1999 High was 5150.99)
2004: 6617 (2003 High was 5920.76)
2008: 21206 (2007 High was 20498.11)
2012: ????? (2011 High was 20664.80)

Will we see High above 20664.80 somewhere in 2012? :-).

Defty Dow Jones Ratio

We track ratio of BSE Sensex/Dow Jones to understand India's relative out/under performance in global market.Ratio is statistical measure against normal intuition based judgement to understand out/under performance. Dow is proxy for Developed market so we think this is good ratio an Analyst must track. Some of our friends give more importance to Defty/Dow Jones Ratio which is Indian market (Nifty) performance relative to Dow Jones in Dollar terms.
We below attach last 9 years Ratio of Defty/Dow Jones.

No need to mention Indian market is currently under-performing Dow and has broken key supports and looking at current setup looks like Defty is headed for 0.21 times DOW from current 0.24 times Dow before we see any uptrend in Indian Market?

India's yield curve inversion

We track different indicators to predict next market/economic move. One strong indicator to predict economic cycle worldwide is 'spread (difference) between long term and short term government bond yields'. Yield Curve Inversion occurs when this spread becomes Nil. Historically such invesions were followed by Recessions.
We hereby attach chart showing difference in yield between 10-years(long term) and 3-months(short term) Indian government bonds. We also add BSE Sensex above this spread chart for meaningful comparison.

If we check above chart we see how in last 5 years spead peaked/bottomed before BSE Index. Also we note in 2008 spread started rising immediately after falling below Nil but this time in 2011 we are yet to see decisive upmove in spread to confirm upturn in India's economy and thus BSE Sensex. We will continue to post updates.

OECD's CLIS for India

We attach long term quarterly chart giving BSE Sensex ( Indian Equity) and OECD's Composite Leading Indicators together. CLIs value is up to latest available Oct 2011 and source data courtsey of OECD.
If we notice we are yet to see CLIs value to start upward trend. Based on history we can expect Sensex/Nifty to reverse down trend AFTER OECD CLIs reverse downtrend first. Lets hope for turn around in next 1-2 months :-).

Comparing BSE double top with Dow Jones double top

In one of our old posts we compared BSE Sensex's double top of 2008-2010 with that of BSE's own double top of 1992-1994. Today we attach chart wherein we try to compare BSE's double top of 2008-2010 with double top of Dow Jones of 1966-1968.

If someone believes "History repeats itself" one should carefully check both charts and one can clearly conclude we are headed for long range bound (14000-21000 ??) consolidation phase of few years before Sensex can break its 2008 high.

South Indian Cement Stocks (updated)

Every Analyst is now a Macro Analyst and we read/hear all discussions on what is happening in Europe/US and Indian Government Inaction/Politics. Now, When we talk to investors we see their frustration/disappointment near peak towards Indian Politics. No wonder some technical analysts have started giving lower target of Nifty below 4000/3000 etc :-). Looking at current bleak Business enviornment due to Political Inaction etc We are inclined to believe that we may see some dramatic change in political situation for better. What will happen we don't know but this kind of time can not and will not continue looking at our history. Investors have forgotten it took only 1 day(18-May-2009) to change India's sentiment from Negative to Positive. Any sharp fall if at all happens will be final downfall we feel. At the same time we feel market will be in range for next 1-2 years so only stock pickers will be able to make money.
We feel south based cement companies are in last phase of down cycle. We are hopeful about their out-performance so advisng investors to take exposure in them . Cement prices are around Rs 300/bag in southern India, higher by Rs 40-45 over last year. Inspite of low demand season and higher capacities we see that prices are holding firm at present levels due to established players' proven pricing power in the market. After monsoon cement demand may see boost from the metro rail project and Housing activities so it means companies currently benefitting from pricing may benefit from pricing and volume both post monsoon when demand picks up. Top 3 players which are also most reputed promoters are available around 6-7 forward FY12 PE, less than twice BV and EV/Tonne from $60 to $120/tonne at a time when their OPM is above 30% is like a steal IF someone believes demand will pick up over next 1-2 quarters.
See below top 3 players last 6 Q results:

Disc: Above stocks are held by clients/family members.

USDINR - Various Comments

(source:Economic Times)

India Defty Weekly Chart

Fund Manager watching and tracking Indian equity markets from outside India looks at NSE's Defty Index more than our normal Nominal Nifty because Defty is actually Nifty in Dollar terms. So, Defty is better benchmart for allocation accross different asset classes as it also take into account exchange rate. We can also say Defty is actually US ETF Manager's Benchmark because US ETF listed outside India which invests in Indian Nifty finally mirrors Defty. We attach Defty Index weekly chart from our system.

Looking at chart above we notice correction in Indian Equity has been actually higher for Foreign Investors who invested in India than domestic investors. If we check 2 of our indicators we see that both indicators are currently pointing to nearterm downside - it could be in terms of Nominal Nifty downside OR possible decline in Rupee against Dollar. However same indicator's values point that correction could be over in next few weeks not even months. Downside may stop soon and then we could see range bound consolidation of few months before they move higher.

Smallcap Index - Nov 20, 2011

We have seen Smallcap Index (broader markets) getting hammered in last few weeks. Today when BSE Sensex is down about 22% from peak of Nov 2010 we see that midcap index is down 35% and smallcap index is down whopping 45% from their peaks in Nov 2010. Certain stocks are down between 70 to 80%. What next? We attach 2 charts from our own system.

1. Smallcap Index Monthly Chart:

2. Ratio of Smallcap/BSE Sensex which indicates out/under performance of Small cap Index vis-a-vis BSE Sensex.

If we check both the charts and indicators we track we observe small cap index (6182) currently is around its strong support of 6111 and may give upward pullback soon. We hear lot of Analysts telling us capitulation in small/mid cap stocks with target of 5000 in smallcap index soon but looking at above charts capitualtion may happen only after few months NOT now?

New Year wishes

We wish all our readers a prosperous new year. This samvat year we have decided to talk to our smart friends often than reading Newspapers and watching blue channels :-).
We talked to our genius friend on Diwali and here is summary:
Our friend who correctly predicted big rally in Oct 2011 feels we may see minor correction in risk assets starting from begining of Nov 2011 for about 10-11 days. He says after that 10-11 days correction risk assets will start final upmove up to 3rd/4th week of Nov 2011 where he expects peak of recent uptrend in Dow, Gold, Crude and EM equity like Indian BSE. By 3rd/4th week of Nov 2011, He expects Dow Jones to peak around 12800, Gold at $1800, Crude at $ 100 and BSE to peak around 18500.
He expects all above risk assets to start slow decline like we have seen in last few months and expects final capitulation around Apr 2012 which he says will be starting point for next major bull run in all the above classes. At that point he expects Dow to come around 9000, Gold at $1150, Crude at $65 and BSE Sensex at 14000. Oops.
We personally continue to hold 2 wheeler Tyre and 2 wheeler Part stocks and waiting for results of South based cement and port logistics companies for possible buys.

Like us our friend could be wrong so do not go by what we have written here :-). Happy new year again.

Russell Napier on Bloomberg

We watch Russell Napier's recent interview in Bloomberg.
Napier says Asia's CBs like India's RBI has lot of room to reduce rates in deflationary scenario, Decline in corporate profits are cyclical in Asian EMs compared to DMs and he expects Asian EM Equity to bottom in next 6-9 months. He recommends buying Asian Currencies.

Comparing double top 2008-2010 with 1992-1994

Being a student of historical cycles study we are strong believer in notion 'history rhymes if not repeat'. Like most Analysts We do NOT think we will see repeat of 2008 wherein market crashed to 7700 in Oct 2008 from 21000 top in Jan 2008. We consider current market phase starting from Jan 2008 top of 21000 - similar to market phase after Apr 1992 top of 4600.
- In both peaks - 1992 and 2008 we saw biggest euphoria for Indian equity.
- We saw sharp decline in 1992 and 2008 after euphoria.
- After decline we saw sensex making double top in 1994 and 2010.
- Inspite of negative newsflow about Euro, Indian Politics etc in 2011 we are experiecing slow and steady decline in Sensex similar to 1995 NOT sharp crash like 2008.

We attach chart comparing sensex in 1992-2000 to 2008-current.
If Some (like us) believe above 1992-2000 playing out in markets now one should focus on individual stocks than following major index Sensex/Nifty because Sensex may remain in range for next 2-3 years but individual stocks will give super returns than Sensex.
Note: We could be 100% wrong in above view. Reader should NOT go by what we think or believe but make independent view.

India Gold-BSE Sensex Historical Ratio

As written before we attach Quarterly chart of Indian Gold/BSE Sensex Ratio since 1980. Gold prices are spot - London FIX and for 10 gms.

As we see in this chart ratio made high of 12.91 in Jan 1980 when Gold closed at Rs. 1660 and BSE closed at 128.57. This ratio continued to fall steeply up to Mar 1992 at 0.74 where Gold closed at Rs. 3198 and BSE Sensex closed at 4285.
However, We notice since 1992 to current 2011 (20 years) this ratio has been moving in small band of 0.52-1.70. We can say unless and untill we see major calamity (e.g. global deflation, war etc) this band of 0.52-1.70 should remain strong support/ resistence for this ratio. Currently, ratio is 1.55 and over next 6-9 months we expect BSE Sensex to have max downside to 13000 which means Gold should correct/consolidate from current level of 25000 for next few months (6-9 months) and take support around Rs. 20-21000 before moving higher. After consolidation Gold can move up to around Rs. 35,700 (expected Sensex at 21000 * 1.7) sometime in 2012 end to mid 2013.
Please note there are multiple variables in this ratio based projections - one wrong assumption can turn calculation upside down so be warned we could be 100% wrong in above view.

Gold - DJIA Ratio since 1980 (Update 1)

1. Most discussion in international investment community today is on Gold. We attach our own quarterly chart of Gold (Spot London Fix) since 1980. We also attach in second panel Gold/DJIA ratio.

If we look at above chart specially of ratio (Gold/DJIA) we can see Gold was 0.75 times of Dow Jones in Jan 1980 when Gold made monthly close of $653 on and Dow Jones made monthly close of 875. This ratio continued to fall for next 19 years when it made low of 0.238 when Gold made monthly low of $253 in Aug 1999 and Dow made monthly close of 10,829.
Currently ratio is at 0.146 and If we apply Fibonacci based retracement(pullback) levels we can expect Gold to touch 0.20 times DJIA minimum- first 23.6% retracement and then possibly ratio can even touch 0.3 (38.2% retracement). This tells Gold is currently in JUST correction mode and if it holds level of 1500 it can see much higher levels in 2012/2013 - may be $2700? which is calculated by worst case scenario of Dow Jones at 9000 in 2012 * 0.30. Note we could be 100% wrong in this view. Fundamentally, We feel Gold will peak only when we see major crises in Currency markets possibly major panic in Euro which we expect in 2012 only.
2. We also attach Gold chart with Gold-Crude ratio since 1980.

Here we note Gold/Crude ratio made peak in 1986 at 34 when glut in Oil supply made Crude price tank to $10.25 which was bottom in Oil prices next few years. This ratio continued to fall up to Aug 2005 and made low of 6.28.
We now see that Ratio is coming out from falling channel of last 22 years and getting ready to touch 34 again in next few months. Our personal view is Crude will NOT fall below$65 (61.8% fibonacci support from $34 low of 2009 to Apr 2011 high of $114). So, can we expect Gold min at $2210 ($65 * 34) by 2012-2013?. Note we could be 100% wrong in this view.
We will also post similar study of Indian Gold Price with BSE Index.

Taylor's Interview

There are very few Analysts and Gurus we read/listen SERIOUSLY. Our own definition of Guru is different from others. One such Guru we read seriously is John Taylor. We had posted link of Taylor's interview on Bloomberg on May 12, 2011. He has been accurate in his view -'Dow Jones rally being over' that too just a week after its peak on May 2, 2011 :-). We read Taylor's latest Interview in Barron's.

Taylor uses Computer Models to predict trend. We personally and some of our friends are 'Just Beginners' in that field :-).

USD INR Long term charts from 1980

Lot of comments and mails we got today is on Indian Rupee against Dollar post we wrote before. Our friends also asked us to provide long term USDINR chart which we referred in our post. We attach Quarterly USDINR chart since 1980 (We have data back to 1973 but we feel its more relavant from 1980).

If we look at above chart we clearly see that level of 44 is strong support for Dollar where we see trendline support connecting low of 1988 and 2008 and we may NOT see breaking of that level in next 2 years minimum. At the same time we see that Dollar will face strong resistence at 51 from trend line resistence connecting high of 2002 and 2009. This 52 should not come at least for next 4-6 quarter if our view is correct. So, broadly speaking we are looking at 47-51 range for next 4-6 quarters which made us believe we may see Engineering/Automobile/Parts exports and Ports/Logistics as new booming sectors for India over next 3-4 years. We could be 100% wrong in this view.

Shanghai Composite

We attach our own system's Monthly chart for Shanghai Composite Index.

If we look at chart we note China's Shanghai Composite Index which currently is at 2433 may take or break support around 2300 level in next 1-2 months. We note that rising trendline connecting 2005 low and 2008 low MAY give support to Chinese Index for next uptrend.

Also, If we accept the arguement that EMs will take lead in lifting world economy from downturn we must see SCI take support at given level in next 1-2 months.

Rupee and Quality Midcaps - This time it is different?

According to our limited knowledge we see 2 things completely different compared to general trend in Indian stock market in past.
Firstly, Rupee’s depreciation against Dollar:
Biggest news over last few weeks has been depreciation of Rupee against Dollar. Rupee is down almost 10% in last 4- 5 weeks from around 44 to about 48+ currently.
Looking at long-term charts it looks difficult to us that Dollar will come down to 44 against Rupee in near future. However, This time we have not seen major selling by foreign investors in Indian Equity telling us current decline of Rupee is considered positive by foreign investors NOT negative for long term India story. Some friends argue foreign investors will take exit now AFTER start of Rupee Depreciation; they give us immediate USDINR target of 52+, we do not agree. We feel level of 52 was seen at the height of Lehman downturn which may not come easily. Experts are telling us depreciation in Rupee is due to global risk aversion etc. While this is debatable, we want to emphasize importance of cheap currency in the current globalised world. Rupee Depreciation will make already booming Indian exports more competitive, Imports costlier giving boost to domestic manufacturing sector, may bring in lot of foreign capital, which is convinced about long term India growth story. We must also note cheap currency may bring in Inflation, which is already running high, but we feel Inflation may come under control in next few months looking at good monsoon across India.
If we do not see sudden appreciation in Rupee in next few months we feel export related sectors especially Ports and Auto/Hi-tech engineering sector may become next happening sectors in India like IT was in 1999, Construction was in 2004 and Consumer was in 2009. We will continue to watch and we may be 100% wrong in above view.
Secondly on Quality Midcaps:
We have seen lot of damage in Midcap and Smallcap Index this time starting from November 2010. Indian Midcap Index is down from around 8800 to 6300 and Small cap Index is down from 11300 to 7100 now. We have seen lot of damage to stocks coming in these 2 indices. However, We note like in 2008 when everything got sold off we do NOT see same situation this time. In 2008 it was like fire sale where all good bad stocks got hammered 70-90% from peak. This time in 2011 we see that stocks from reputed management, which has high corporate governance standards, has hardly corrected. We note almost all stocks from our favorite Murugappa group have hardly seen any correction. Similarly, Stocks from TVS, Kalyani, Tata, Bajaj etc. are not at all correcting even when we continue to hear Sensex target of 8000 etc. Similarly, Lot of MNC companies in Port, Auto Parts, Engg. Capex etc are refusing to go down in falling market. Note we are talking about only NON Consumer stocks here, We are not even considering Consumer theme stocks, which is already leader sector of this move so no surprise when they are making new highs in falling markets.
Hottest debate among our friends this time is – If we Sensex at 13000 (It may or may not come) OR Small cap Index at 6000 (It may or may not come) in next 6-8 months will we see proportionate decline in above mentioned good quality stocks? We personally think NO. We feel this time quality stocks will move up based on their inherent strength and will actually give super duper returns when tide turns.
We welcome comments on both the above points.

Q1 FY 2012 Results

Today's Updates:
1. We have seen end of season for Q1 2012 results (Apr-Jun 2011). We give brief summary of sectors we track:
Tyres:
We have added Tyre sector stock post Q1 FY 2012 as we see great results from this sector in coming 2-3 quarters. We have high expectations from this sector in terms of returns over next 1 year as demand specially from 2-wheeler is still good and raw material prices continue to go down. When all Auto parts companies went up these companies did not participate and we feel now its their time.
Port and Port Logistics:
We have seen fantastic results from Port and Port logistics (Container Freight Station, Inland Container Depots, Cold Storage etc.) companies due to rising exports and imports. India's department of commerce wants to triple exports to $750 Billion by 2017 and for that country needs investment to the tune of $7.6 Billion. We feel this sector has huge potential going forward and investor must add stocks from this sector. We personally like MNC Port company and both Port Logistics companies.
Agri Input:
SSP Fertiliser companies gives best performance in this quarter. We saw flat to marginal increase in YoY sales and EPS of SSP fertiliser companies. We remain optimistic on the sector as a whole with 1-1.5 years view.
Complex Fertiliser and Agrochemical/Pesticide companies gives best performance in Q2 and Monsoon progress has been more than satisfactory which means next quarter Q2 FY12 (Jul-Sep 2011) quarter will see bumper results from these stocks so we recommend holding on to these stocks.
Starch Derivative:
Starch Derivative companies gave flat QoQ growth in Sales and EPS. We have also seen rising cost and slowing overall demand in this sector. However, Stocks are quoting at forward PE of 4-5 and near their Fy12 Book Value. We expect demand to increase over next 2-3 quarters given growth in consumption and decline in raw material cost so we continue to remain optimistic on starch derivative companies and suggest hold.
Abrasives:
We have seen impact of industrial slowdown on the results of Consumable Abrasive companies wherein we saw flat/declining trend in QoQ results.
We saw terrific results from Super Abrasive company due to lower base and bright prospects of Auto Capex. However, stock has doubled in last than 1 year.
Due to above reasons We have suggested exit from Abrasive sector stocks.
Bearings:
Like Abrasive Bearing demand also mirrors Industrial Production which is slowing down and the same is reflected in Bearing companies' results. We have seen flat QoQ results from MNC Bearing company we track and declining QoQ results from Indian Bearing company we track. We feel one should reduce holding in Bearing stocks in upcoming upward market pull back.
Commodities:
Given global slowdown expectations commodity stocks we track (Crude, Tea) have been going down and we are still waiting for signs of bottoming in them.

Difficult times ahead?

Today's Updates:
Recently we saw crash in Dow Jones after US’s rating downgrade. Actually, more important thing for us is our strong belief that Market discounts everything in advance of 6-9 months so this crash in Dow tells us world will see major negative scenario after 6-9 months. Are we going to see Deflation in US after 6-9 months?
Biggest threat to the world now is Deflation. Why? Whenever there is slowdown/uncertainty in world smart global money sells everything and goes back to Dollar. Strange but true - we have no alternative of Dollar. Dollar Index is 74. We note that Dollar Index has been on steady decline from 121 in July 2001 to low of 70.7 in Mar 2008. During the same period Dow Jones rallied from 7000 to 14000 and BSE rallied from 3000 to 21000. Crude rallied from 30 to 147 and so on.
US FED has come out with QE1, QE2 etc but we notice that Dollar Index is refusing to go below Mar 2008 low. In next few weeks we will watch if Dollar Index breaks down below 70 or starts upward movement. If Dollar Index goes down below 70 world markets will rally but IF we see upward move in Dollar Index above current 75-77 we may be headed for very difficult times.
We also check that rising 30-years US Bond prices and falling yields are telling us money is flowing back to US bonds(Dollar). We notice bond price is 135 which is near 3 years high of 142.5. In the next few weeks we will see if it is able to cross previous high and get difficult times for the whole world. On the positive side US will come out with some thing in the form of QE which suppresses Dollar which again triggers rally in world markets. What will happen we personally don’t know but if we do not see weakness in Dollar Index, Strength in Rupee and rally in risk assets globally in next 2-3 weeks, We must raise cash as per our risk profile and buy Dollar.

India Tyre sector - re-rating due?

Today's Updates:
1. We have seen good strength in Indian Tyre sector stocks over last few weeks. We feel this is primarily driven by strong demand from OEM/Replacement market on one side and falling raw material (Natural Rubber) prices on the other side. Tyre companies have shown 25-30% sales growth in FY11 and similar growth in Q4 2011 quarter on the back of rising Auto sales specially 2-Wheeler sales. On the cost side Natural Rubber constituted between 40-75% of sales for indian tyre companies as per annual FY11 results. We attach SGX's Natural Rubber Monthly Future's Price (US Cents/LB) chart for last 5 years (Data courtsey of IMF):


If we notice Natural Rubber went up by 90% between July 2010 ($1.48) to Feb 2011 ($2.80). Looking at the speed at which it went up and subsequent fall to recent $2.20 we feel it is highly unlikely they will touch high of $2.80 for next 6-9 months. This is good news for all Tyre manufacturers which are currently showing steep fall in margins due to rising natural rubber prices. Falling natural rubber will improve OPM for Tyre companies drastically looking at raw material's high proportion in total sales, Big ratio of Sales to Equity for most of companies and consumerism being big theme in market. We may see re-rating of whole sector in next 6-9 months. We start tracking and buying in this sector.

Yield Curve - India

Today's Updates:
1. We attach chart from Livemint report which shows spread (difference) between 10-year yield and 1-year yield of Indian G-Sec.

We read in same report about possibility of recession/dramatic slow down in India because of near inversion in yield curve of Indian G-Sec.
2. We read FT report on same topic wherein UBS's Jonathan Anderson argues inversion in yield curve for EMs is result of central banks pushing up short-term rates on one side and investors pulling down long-term rates on the other and they don’t mean “we are facing recession risk or anything close to it”. :-).

Contest for Readers

Today's Updates:
1. Today no updates from our side. Today we are keeping contest for all readers without any prize :-). Please reply with your answer by adding comment on following question:
"Which Indian businessman/group will be biggest wealth creator over next 5 years and why?"
We request every reader to comment and give his/her comment. We are also adding our own answer as comment to this post.

India Interest Rates - Historical chart

Today's Updates:
1. Inflation and Interest rates are 2 hot topics discussed among investor community globally. We wanted to check Interest Rates in Indian context since last 30-40 years and we did small study. We noted down SBI's Prime Lending Rates starting from 1970 up to current 2011 and we present same in chart form as below (click to see larger view):

If we study above chart we make following observations:
1. We see that Interest Rate was 7% in 1970 which went up to 19% in 1992.
Interestingly Indian Equity - BSE Sensex which was 123 (yes :-)) on 06-Apr-1979 peaked at 4546 during HM bull run on 2-Apr-1992.
2. Interest rates continued slide between 1992-2004 and made a low of 10.25% on 01-01-2004 from where it started climbing up again. Equity also bottomed around same time and then from 2003-2004 - world famous EM Equity bull run started and sensex from low of 2900 on 28-04-2004 touched all time high at 21206 on 10-Jan-2008. In the same year 2008 Interest Rates made intermediate peak at 13.75% on 12-Aug-2008.
3. After peaking at 13.75% Interest rates went down to reach 11.75% on 29-Jun-2009 from there onwards started up move to touch again 14% - current level. BSE sensex also started uptrend from 09-03-2009 and made double top (like Interest rates) at 21108 on 05-Nov-2011.
Conclusion:
Purely Technically, Looking at higher tops and higher bottoms in rising channel in Interest Rate chart our current view is - we could see Interest Rates going above current 14% over next few months before any correction. Also, Equity is leading indicator and Interest Rates follow equity trend. Looking at direct correlation between Interest Rates and Equity we could see higher levels in Equity from here onwards also - in line with Interest Rates over next few months :-).
Disclaimer: We have noted SBI PLR from different websites and data banks but can NOT guarantee 100% accuracy for the same. Above is purely technical view and we could be 100% wrong in above view so please do not make any judgement just based on above view. Any comments are welcome.

Q4 FY11 Results

Today's Updates:
1. We have seen end of Q4 FY11 (Jan-Mar 11 quarter) season. We briefly give our view on sectors we track.
Abrasives:
We saw excellent results from all Abrasive companies. They gave not only YoY growth in sales but also QoQ growth. We saw expansion of OP margins after 2-3 quarters of fall. Abrasive is indirect play on Auto and Industrial production. There are hardly 4-5 listed stocks in India which is why we still like it. One of the Abrasive stocks we track and hold went up 60-70% in last 6 months and other Abrasive stocks are quoting near their all time high price and with our bullish outlook on market may give good returns over next 3-4 quarters.
Agri Input:
Agri Input (Complex and SSP fertilisers/Agro chemicals/Seeds/Micro-Nutrients) stocks have been in consolidation mode since Sep-Oct 2010. We have written multiple times that looking at food demand in EMs we will experience next major boom in Agri Input sector similar to how we saw boom in Construction/Infra/Property/Power Equipment between 2003-2007. With expected normal monsoon this year we feel companies in this sector will give bumper results in the Q1 FY12 and Q2 FY12 which falls under normal business season. SSP sector is quoting at less than 3 FY11 PE and few Agro chemical stocks are available at 7-8 FY11 PE which needs better discounting.
Starch Derivative:
Starch Derivative companies gave good YoY Sales/OP/EPS growth BUT we saw flat QoQ growth due to riding input cost - mainly Corn. Given ongoing FMCG boom and consumerism we remain confident that Starch companies will return to growth on QoQ basis in next 1-2 quarter. Stocks in this sector is quoting at 4-5 FY 11 PE which is difficult to digest.
Bearings:
All Bearing companies gave super duper Sales/OP/EPS growth not only YoY but also on QoQ basis telling us strong demand from OEM/Replacement/General Engg/Wind Mill segment of economy. We read lot about Auto segment slowing down but we personally feel Bearings will make up in Replacement and other segment sales in next 2-3 quarters. MNC Bearing company we track is quoting at 12-13 FY11 PE and Indian Bearing companies we track are available at 5-6 PE which is low and whole sector could be re-rated in next 2 quarters.
Commodities:
We have seen sell off in all commodities in last 1 month and we will continue to see consolidation phase in Crude/Renewable Energy/Steel and Tea stocks. However, We feel after 2-3 quarters of consolidation commodities will again start upward path. We feel Crude should reach at least $ 147 over next 2 years. Similarly, We feel Steel/Tea and other commodities should go up after consolidation. We will wait for consolidation to get over in commodities stock.
Cotton Yarn:
Like other commodities raw cotton prices have crashed after upward phase. Cotton yarn companies may NOT be able to pass on immediately low prices due to inventory reasons and which is why we feel this sector will consolidate for 2-3 more quarters.
We continue to ignore previous bubble sectors - Construction/Infrastructure/Property/Power Equipments :-).

BSE Sensex Weekly Chart

Today's Updates:

1. We attach our own system's chart for latest reading of equity and forex markets. (click to view larger picture).

BSE Sensex Weekly Chart:

USD INR - Dollar Rupee Weekly Chart:

If we see Sensex chart we note that sensex has strong support around current level of 17800 from rising trendline and Dollar faces STRONG resistence around current level of 45.40 from faling trendline.

Lot of Analysts have become bearish on markets now but we still feel above levels will hold based on our other technical and fundamental indicators. However, We always believe market is above all and we could be wrong on above view. So, if Sensex slides below current levels AND Dollar moves up above 45.40 we must re-think on our current bullish view.

Russell Napier

Today's Updates:

1. We watch in FT Video interview of one of our favorite Analysts - historian Russell Napier.
Napier argues S & P 500 is yet to see final bottom at 400, He sticks to his 2 years old view that US long term bond yields could rise to 6%, Inflation in Emerging Markets could push Real Interest Rates to positive zone and finally EM currencies may be allowed to appreciate by EM central banks.

India - Interest Rates

Today's Updates:

1. We read FT report wherein Credit Suisse's Robert Prior compares India and Indonesia. He says RBI may have over-reacted in recent aggressive tightening, Interest rates may have peaked and by the third or fourth quarter of 2011 Bond market may rally.On equities, Prior is less sanguine as the impact of reduced growth on earnings takes time to work through.

Chemicals Analyst

Today's Updates:

1. We read Wall Street Journal report about Gauri Anand - who was top ranked chemicals analyst in Asia's best Analysts survey for identifying fertiliser sector potential and recommending Coromandel International and Zuari Ind in 2010 :-).

High Inflation with low growth?

Today's Updates:
1. We read FT report which says world faces threat of stagflation wherein we will see high inflation and low growth (meaning lower asset prices like equity).

Our view: We personally think stagflation is unlikely. Very high Inflation coupled with moderate growth is more likely outcome after few months. Food and Energy Inflation is going to be permanent feature over next few years. Of course, with corrections like the current one.

Hedge Fund Manager's view

Today's Updates:

1. We read Bloomberg report in which world's largest currency hedge fund manager - John Taylor says based on his statistical models higher-risk assets, such as equities, the euro and emerging market currencies, have either peaked or will do so by end of July 2011.

Our view: We agree with this view but for Indian equity and Indian currency we feel rally might extend up to Sep-Oct 2011. This means uptrend as and when starts should be sharp and swift before we see significant correction.

Note: Our view could be 100% wrong. Please make your own judgement.

Inflation, Market View

Today's Updates:

1. We read report in FT wherein William R. Rhodes, one of the world’s greatest financial diplomats says world faces threat of sticky(structural) Inflation over the next few months/years.

2. In another report in FT macro economic research firm Capital Economics argues Inflation risks in emerging markets are exaggerated.

We have seen sell off in commodities over last week but we personally feel at the most it might be medium term correction and commodities (specially Agri and Energy) might start upward journey after this correction gets over in few months.

As Mr. Rhodes says about China's faster currency appreciation, We feel even Indian Central Bank will use currency to combat Inflation in coming months.

3. Lot of our friends in Indian Equity market have become bearish after last week's RBI move and consequent sell off in Indian Equity. We have started hearing Sensex downside targets of 16000 and below. However, we personally remain bullish on Indian Equity markets and feel Index may NOT go below recent low of 17295 made on 11-Feb-11.

We feel RBI's seemingly panic move tells us we are at peak of Interest rate and Inflation cycle (for medium term) which should start downward journey over next few months giving us upside trigger in Indian Equity. We are yet to see RBI using Rupee appreciation to counter Inflation in next phase giving another upside trigger.

Globally, so many market experts are expecting end of quantitative easing (QE2) in the US. But we feel The Fed will try to exit, but it won’t work given vulnerable state of US economy and most likely we will see FED start QE3 :-).

Among Sensex sectors we feel given bullish outlook on Natural gas prices and consumer boom Energy and FMCG companies might take lead of next phase of up move. Among broader market Agri Input, Bearings and Abrasives remain our favorite sectors.

USD INR Chart

Today's Updates:
1. The whole world is talking about Fed's FOMC meeting and consequent impact on world currency markets due to strengthening OR weakening of Dollar.
We have read lot of reports suggesting possible reversal of QE2 but we remain Bearish on Dollar over next few months. We personally feel FED has no option but to continue to print Dollars because strong dollar means deflation in US which FED can not afford.
We attach our own USDINR weekly chart wherein all our technical indicators point to weakness in Dollar against INR over medium term. Moment we see Dollar below 44 (in short term or after few weeks) we will see breakneck rally in Rupee over next few months. This view also supports our bullish view on Indian Equity.

Market View

Today's Updates:

1. We have renewed investor interest in EMs after Japan earthquck. We wrote and have been expecting last final fall before we buy in Indian Equity but now we realise we were WRONG. Market has held on even after lot of negative news related to Corruption, Inflation, Possible Closure of QE2, European issues etc. As we wrote Crude is not impacting Indian Equity negatively even after crossing $100 level. Now we think our market has already discounted all negatives so we change our view from Bearish to Bullish. We have been reading lot of bearish views from experts but most likely market may prove them wrong.

Currently, We like our old favorite Agri Input (Fertilisers, Pesticides, Micro-Nutrient, Seed etc), Abrasive and Bearings stocks because of our expectation of super Q4 results. We also like Crude/Renewable Energy stocks due to strength in Crude prices. Starch and Cotton yarn companies may still remain in range bound consolidation as there seems to be margin pressure due to spike in raw commodities prices.

Crude and Indian Markets

Today's Updates:

1. In the begining of 2011 90% of Analysts told us Crude is going to be biggest worry for Indian Equity given India's high reliance on Crude import. However, Now when WTI Crude is around $113 we still do NOT see any major negative impact on Indian markets. Market discounts everything in advance which means if Crude were to act as strong headwind (negative) we would have seen Indian Equity 15-20% below current levels by now (BSE sensex now at 19,451).

We feel there are 3 factors we should check before jumping to conclusion if Crude is really important for Indian Market:

1. Oil imports during April-February FY2011 (11 months) were valued at US$ 88176 million which means approximately US$ 96192 for the full year. India GDP advance estimate for 10-11 as per Indian Budget 2011 was 7877947 Cr which is about $ 1.75 Trillion assuming dollar at 45 giving as Crude Import to GDP ratio of 5.5% against 7.5% in 2009 telling us that impact of crude import has been on slow decline in recent years.

2. The crude oil imports was 143.227 mt during April-February FY2011 (11 months) so approaximately import for the full year was about 156 mt. Domestic crude oil production was about 37.96 mt for the year 10-11 against 33.69 mt in 09-10. Rise of 12.67% in domestic production is due to RIL's KG-D6 block and Cairn's Rajasthan block.Current production rate is 1 mt by RIL and 6.25 mt by Cairn. With Crude above $100 we can expect increase in production of Crude from these 2 fields going forward giving a possibility of lower incremental crude import from current levels. Besides Crude, We have also seen gas output from KG-D6 helped natural gas production at 53.59 bcm in 2010-11 against 47.51 bcm in 2009-10 - jump of 12.8%.

3. Thirdly, Indian currency will be joker in the pack given slide in Dollar imminent in 2011 and threat of structural Inflation globally. RBI will gradually increase rates (which has been its policy till date) to fight inflation and thus making stronger rupee which in turn will attract huge inflow from debt and equity funds which borrow in low yielding weak currency like Yen and invest in high yielding EM currency like Rupee. We see Rupee at 44.17 (USDINR) today which is near high of 2010-2011 level. It is just matter of time that we see Rupee crossing 44 level and start its upward march first for 42 and then to 39.

If we agree to all 3 factors listed above Crude prices may NOT impact much to Indian Market as feared by most Analysts. Remember Market moves opposite of what majority thinks :-). We welcom comments and we could be 100% wrong.

NBS Update

Today's Updates:
1. We read Business Line report which says government may increase subsidy further on Non urea fertilisers.
Note: Above increase has been notified. Please read our NBS Notification post for latest updates.

CS Survey

Today's Updates:

1. We read Credit Suisse's survey of its 14th AIC participants. We read that participants (which also included long only funds' managers and hedge fund managers) expect India to be worst performer market in 2011 :-(. Participants expect China to be best performing market in 2011. They expect Energy to be best performing sector and Telecom and Utilities to be worst performing sector in 2011. We personally think Energy companies could be best performer in Global/Indian market in near short term to medium term.

2. We also read Moneycontrol interview of Sakthi Siva - Head of EM and Strategist whom we consider one of the top Analysts in Asia. While we agree with her view, We respectfully disagree with her rational - 'overcrowding' for expected under-performance of India.

Return of Yen Carry Trade?, Crude

Today's Updates:

1. We read good report in FT which says we could see return of yen carry trade because of recent G7 intervention to limit Yen appreciation, Yen 40,000bn asset purchase programme announced by the Bank of Japan on the supply side and Central banks outside Japan starting tightening monetary policy in near future on demand side.

We personally feel USD-JPY has made bottom around 80 which was level seen in 1995. This also means over medium term we could see rally in Commodities and EM Currencies/Equity.

2. We expected Crude to decline below $100 in our recent posts. However, Looking at sustainability of Crude above $100, Our expectation that Dollar could slide in 2011, Possible return of Yen Carry Trade and strength in crude stocks in India we change our view from negative to positive on Crude. We suggest investors to buy Crude stocks in India.

Japan impact

Today's Updates:

Vikas,

1. Japan govt is second largest holder of US treasury (around $900 Billion) bonds. Japan govt is not selling these bonds now to get back money for re-construction as this will mean selling Dollar and buying Yen and adding fire to already appreciated Yen which is all time high. Rather, Currently BOJ is selling Yen to halt appreciation but our guess is Yen in next 2-3 months will make peak and then we will see slow and steady decline giving Japan govt opportunity to sell its US treasury holdings.
2. Dollar as usual will continue to slide against EM currencies and Commodities not because of Japan but due to heavy debt burden of US govt. Smart people tells us it may slide 12-15% some time in last quarter of 2011 which we find possibility.
3. Commodities being direct indicator of industrial activity will go down at least for next 3-4 months as Japan's GDP will go down 0.3% to 0.4%. We stick to our view that Crude can not sustain above $100 as long as chinese equity is not starting rally. However, Commodities will start breckneck rally once re-construction starts in Japan may be after 3-4 months plus that rally will be accentuated by rise in chinese demand as chinese equity (equity being leading indicator) seems to have made bottom recently. Nuclear energy globally will be replaced with gas, coal, crude and renewable energy wherever feasible.
5. Indian Equity: Large cap - sensex like SSE has remained more or less resilient after Japan incident may be because commodities correction expectations. Sensex may go up in short term from hereon for few sessions but over medium term we still expect final leg down wherein we may see capitulation which will mark bottom. On the other hand, in short and medium term we see range bound movement in Small cap Indices and will update as and when we turn bullish.We could be 100% wrong and we will change our view as and when we realise it :-).

We welcome comments.

US Equity correction due?

Today's Updates:
1. we read Bloomberg report which says probability of 10% US stock slide has tripled to 6% as per S & P 500 Index option contracts.

Just last month we read Shiller's cyclically adjusted PE for US Equity markets currently is 23.7 is about 45% above its historic average and close to the level of two of the 20th century’s four big peaks, in 1901 and 1966.

Majority of Analysts/Fund Managers seem to be bullish on US markets (Dow Jones now at around 12000) but we remain sceptical about further bull run in US market from hereon.

Revised NBS scheme for 2011-2012

Today's Updates:

1. Updated on May 5, 2011. We read government's notification today about revised rates of subsidy under NBS (Nutrient based subsidy) scheme for Non urea (Phosphatic and Potassic) fertilisers for the year 2011-2012.

Note that government had earlier notified in November 2010 lower subsidy rates and March 2011 lower susidy rates for the year 2011-2012 under NBS.

One who wants to check corresponding last year's (2010-2011) NBS rates can check March 2010 notification.

Interesting Discussion Part 2

Today's Updates:
1. We continue discussion with our brilliant Technical Analyst friend.

PART 2 – Sectors to Avoid/Enter
Q. You always tell avoid bubble sectors why?
A: We had leasing companies’ bubble in 1992. We had IT/TMT bubble in 2000. Most recently we saw infrastructure/property/power bubble in 2007. Highs made in bubble year never come back so easily. I would bet they would take at least for 4-5 more years to reach previous highs. We are seeing IT stocks making new highs almost after 11-12 years. Similarly, Finance companies got fancy almost after 12-14 years and so on. Also, Fundamentals will start deteriorating after peak is made in any sector. Same Investors who wanted to buy Infra companies in 2007 are now saying they cannot execute or has heavy debt. Investors who wanted to buy Transformer companies at 20 PE in 2007 now saying they make just switch nothing great technologically about them :-).
Q: What is rule of thumb to avoid this?
A: Difficult to avoid this. Most funny part and most tricky part is news flow in media and from every where is so positive investors keep buying/holding bubble sector stock on decline after they made peak which is actually biggest trap they are getting into. Since last so many years we have been hearing Infrastructure in India needs investment of 0.5 to 1 trillion dollars but see infrastructure stocks now.
It is no brainer that infrastructure stocks or some property stocks which multiplied 50-90 times between 2004 and 2007 can not go back to new high easily. So, one must avoid any sector or company where stock prices have multiplied 20-30 times from bottom in span of 2-3 years as finally anything will revert to mean. This is very subjective idea though.
Q: So you don’t recommend buy on decline or averaging?
A: I personally do not do that. Rather I personally feel one should get out of any stock/sector if it declines 20-25% from peak irrespective of whatever fundamentally strong reasons you have for buying or holding that stock. You can always enter even at higher price if you change your view.
Q: That sounds so funny as we have read money is made by ‘holding tight’ not through ‘Buy and Sell’, which you are suggesting?
A: As I said before I do not follow any one so might be whatever you read is right but my argument is buy and hold till that sector or stock is in up trend. Sell when you feel sector boom is over. This is because new Bull Run will give new sectors.
Q: What is advisable? Buy beaten down sector or unscathed ones?
A: Unscathed.
When stock or sector comes down 30-40% from peak it tells you that irrespective of all CURRENT fundamentals you are aware of market expects something negative from the stock or sector in “future performance” and accordingly will take longer for that stock to make new high. At every rise we will see selling coming.
Similarly, Some stocks or sectors hardly see any correction in spite of overall negative market sentiment. This tells you market expects solid fundamental upgrades from that stock or sector and will create new high soon and will go to new orbit. Moment previous high is crossed there is hardly going to be much selling.
Q: So this means one should buy a stock only after it crosses 52 week high?
No. Buy when price crosses multi year high :-). Off course, this should be supported by fundamentals of the stock and company. Plus, I will avoid any stock which multiplied 20-30 times in span of 2-3 years.
Q: Which is/are your current favorite sector(s)?
A: Your own favorite Agriculture sector and Abrasive companies. They are not going down with overall market which means they are getting ready for big run up when overall market turns up. Again, I am also looking at fundamentals. See that all the companies in these 2 sectors are coming out with good results and has visibility of growth in next few quarters.
Q: Will we ever see bubble like IT bubble of last decade?
A: Greed and Fear is permanent so why not :-). May be in Alternate Energy? Coal replaced wood in 1600s. Petroleum replaced Whale Oil in 1800s similarly we must see crude being replaced in 2000s which means big run in Crude and Alternate Energy stocks over next few years.
I do not have slightest doubt that next major invention in the world will be in Energy sector. Is it going to be shale gas or long life battery or thermal solar or cellulosic biofuel - I don’t know but it has to come from Energy sector. If you buy a basket of stocks from Renewable Energy sector and wait for 10 years I think you will get not 10 but 100 baggers.

Interesting Discussion Part - 1

Today's Updates:

1. We speak to lot of smart people in market. Some of them are extremely low-profile and shy of publicity but highly successful in this investment world. One investor friend turned million Rupees in to million Dollars in last 4-5 years genuinely from trading and investing which is commendable. He accurately called Bottom in March 2009. Surprisingly, He is not an MBA or CFA or Accountant but a Technical Analyst coming from Math background. Last year we discussed with him about Technical Analysis and below is our discussion in question-answer form. This is first part of our discussion. We will post next parts in next few days.

Q: Fundamental or Technical?
A: Technical for overall market trend. “Bhav Bhagwan hai” :-).
For stock picks again primarily technical but only if it gets support from fundamentals like Promoters, Sector growth prospects, EPS, PE etc.
Q: Why Technical ahead of fundamental?
A:Price discounts everything.

In Oct 2007 when Dow made top analysts were highly optimistic saying sub-prime loss was of only few millions but Dow still continued to fall no one understood why and then came big subprime failure and recession. Market was right, rest all who were optimist proved wrong.
In Jan 2008 we had great euphoria in India and we saw every broker revising sensex earning upwards and still sensex fell 27% in just 5-6 sessions. No one knew then why market fell but finally in Sep 2008 we knew about collapse of Lehman Bros and recession in world so in the hindsight market was correct.
Crude went up to $147 in July 2008 and we heard Analysts predicting $250 and we peak oil theories etc what happened afterwards we all know. There are hundreds of such examples if you check history of finance spanning over last 200 years.
Q: It sounds so weird because every day we read reports, analysis and views from different brokers discussing GDP, Inflation, IIP, earnings, upgrades, downgrades etc.
A: That is their job. But you should actually also note how many times they revise/change their view if market goes up or down. In India highest Buy calls and upgrades were made in Dec 2007. Also, Don’t forget Brokers have vested interest so you see reports regularly. If they say Buy so and so stock and hold for 2-3 years who is going to give them brokerage for next 2-3 years ? :-).
Q: Why then Tech Analysis is not popular among investors?
A: If Brokers start giving calls based on Technical Analysis how many clients are going to listen? Will you go long if I say invest just because Wave count tells me market has bottomed?.

Also to start with how many good Tech Analysts we have? If someone in early twenties start giving technical calls, god save his investors :-).
Q: But do you think you can explain market behavior, which is actually collective mentality and behavior of participants, which is subjective thing in mathematical terms?
A: Micheal Faraday said there is nothing in this world, which cannot be described in mathematical terms. I fully believe this statement is true.
Q: Every day we hear in media Indian market fell today due to so and so reason or Indian market went up today due to so and so reason what do we understand as reasons keep changing on daily basis?
A: Actually, reasons are immaterial. When market is overbought any small reason will take it down and vice versa. We need some reason to convince ourselves why market went up or down rather than accept that’s how market works and it doesn’t go up or down in straight line.
When I see sensex going down by 500+ points today I take that as input for my study rather than asking WHY it went down.
Q: Do you believe conspiracy theories saying some market players control market movement and give us rise and fall?
A: No. While I agree that there are big players in markets what they do is they follow the trend CORRECTLY nothing else. No one can go against the market trend and be a successful trader/investor.
Q: Then how big player always get the trend correctly?
A: May be they having their own method to know that. Remember some FIIs have very long history of existence giving them edge in analysis and research.
If we talk of tools there are so many advance and complex math like Genetic Algorithm or Neural Network or some Geometric sequence - I don’t know exactly what they might be using but I guess there must be some technical tool/method with them which puts them ahead of all else how come world market made bottom in March 2009 when 99% of investors had lost all hopes on fundamental basis. Someone must have bought then which started up trend.
Q: Will you buy a stock or act on market view/strategy of one guru or Broking house?
A: NO. You should listen to every one and figure out if that stock can give good returns based on your own Technical and Fundamental criteria.
Similarly, Majority cannot predict the market accurately so just don’t accept any one’s view on market. Just because someone is fund manger or veteran or market guru doesn’t mean he knows it all. We regularly see round table like discussion from so called experts, just note down what they are saying and compare actuals after 6 months you would realise all such talks were useless. You enjoyed listening but it rarely helps you make money :-). How many people accurately said in March 2009 that world market has bottomed? Very few.
Q: But not all investors have time to read and study. They have to rely on such reports or his broker or guru etc.
A: Unfortunately, That is reality. That is the reason we have very few successful traders/investors in Market. But what is possible for them is invest in ETF tracking index :-). They will never under-perform like most fund managers.

Crude shock of 2011

Today's Updates:

1. We read Economist report on recent crude spike and its implications on world economy.

Feeding the world

Today's Updates:

1. We read Economist's special report series on food crises.

We have been writting since 2009 Agriculture is biggest theme for investors over the next 4-5 years. Anything which helps improve crop productivity and 'time to market' will see tremendous interest. Like us every investor should have some weightage of direct Agriculture related stock in portfolio.

NBS - Subsidy Update

Today's Updates:
1. We read Business Line report which gives important update on NBS scheme for Non-Urea Fertilisers.
This report mentions government may notify increase in subsidy as opposed to decrease notified on 19 Nov 2010 - http://fert.nic.in/docs/IMP_19112010.pdf

US Equity

Today's updates:
1. We read Economist report on US equity markets.

Report says Shiller's cyclically adjusted PE for US Equity markets currently is 23.7 is about 45% above its historic average and close to the level of two of the 20th century’s four big peaks, in 1901 and 1966.

We read daily that fund flow is going out of EMs to DMs. Personally, We see this trend reversing in next 2-3 months.

Agriculture theme, EM currencies

Today's Updates:

1. We read FT report wherein fund managers advice where to invest to get benefit of coming Agri boom.

We have been bullish on Agriculture stocks in India since 2009 and see secular boom in the sector for next 4-5 years. we have recommended Complex and SSP Fertilisers, Pesticides/Agro-chemicals, Tractors, Seeds and Micro-Nutrient stocks.

We currently do not see pure-play Agri-Retail (Logistics) and Cold storage chain stocks listed but will continue to watch and update.

2. We read another FT report wherein author gives reasons for strength in EM currencies inspite of huge outflow by foreign investors.

2004 - flashback

Today's updates:
1. Investors in every markets have always wondered if 'Technical Analysis' works. We have seen lot of arguements in favor of and against using technicals in Investment decisions. Someone reading this may not agree to what we are saying but we see current phase of Indian market similar to phase we saw in first half of 2004 wherein we saw sensex after making double top at 6250 in Jan 2004 went to touch 4227 in may 2004. Similar to current phase sensex had breckneck rally starting from level of 2900 in may 2003 to Jan 2004 (just 8 months) to a high of 6250.
If we accept that both phases are similar and history rhyme if not repeat we might see correction over next 2 months and sensex (today at 18449) may make THE bottom - We don't know it will be at 17000 or 16000 in Index but we will watch for signs of capitulation. Note that after may 2004 low of 4227 sensex started world famous EM bull run up to Jan 2008 so once we see expected correction we will remember NOT to become bearish like most of analysts :-). We will continue to update. As usual we could be 100% wrong in whatever we are thinking so please do not go by what we are saying but make your own judgement.

Oil spike

Today's Updates:

1. We read Bloomberg report related to different options contract for crude oil.

We expect Dollar to continue to weaken and crude demand to continue to rise in EMs and thus giving us possibility of Crude crossing last high of $ 147 and go substantially high in next 3-4 years. However, for any uptrend in Crude above $ 100 we must first see uptrend in Chinese Equity market.

Q3 FY11 results so far

Today's Updates:

We continue to read all quarterly results for Q3 FY11 declared so far. We also check all sectors where we expected good results in calendar year 2011.

1. Complex Fertilisers and Agriculture:

Because of prolonged monsoon farmers did not get enough time for sowing and thus we saw lower sales of complex fertiliser companies and lackluster results. Nevertheless, We expect Q1 FY12 to re-start momentum in the sector. Outlook is bright for agriculture for next 3-4 years accross different segments be it Fertiliser, Agrochemicals, Seeds, Tractors etc.

2. Abrasives:

Results declared so far are excellent and we see good growth not only YoY but also QoQ. We continue to remain bullish on Abrasive companies due to momentum in Auto sales and huge auto capex plans to be implemented over next 2-3 years.

3. Starch Derivatives:

We have seen excellent Q3 FY11 results so far from Starch Derivative companies. We are willing to bet that this sector will be multibagger sector for next 1-2 year(s) looking at fact that most of stocks are quoting at FY11 PE of 4-5 inspite of bumper sales/op and EPS growth not only YoY but also QoQ. We suggest avoiding companies where there is corporate governance issue and focus on companies from reputed management.

4. Auto Parts:

We saw solid YoY growth in Q3 FY11 results of Auto parts companies but they have given flat QoQ performance which should pick up from next quarter.

5. Midcap IT:

We are actually disappointed with the results of Midcap IT firms inspite of lot of hype in media about their valuation and prospects. We are seeing cost pressure plus projects are not being acquired against competition from large IT firms. We will wait for next quarter results before jumping on any stock from this sector.

Food Prices

Today's Updates:
1. Rising food prices is global phenomenon. We read Bloomberg report on the same.

Commodity prices

Today's Updates:
1. We read Economist report on rising commodity prices.

Coromandel Int - Q3FY11 Result

Today's Updates:
1. We read 3 different reports/analysis for Coromandel International's Q3 FY11 results.

• Livemint
• Emkay
• Pinc

US markets, Coal

Today's Updates:

1. We read a report in FT by Jim ONeill arguing case for strrong dollar and rally in US markets.

2. We read another report in FT on thermal coal.

Sectors for 2011

Today's Updates:
We have been getting lot of emails and queries from readers and our friends asking us to pick sectors of 2011. We give herewith sectors and short reasons for our bullishness for 2011.
1. Complex Fertilisers:
This is evergreen sector which can give multibagger returns over next 4-5 years on the back of rising demand for food items and falling productivity in world's second largest fertiliser market - India. Over next 4 years we see whole Agriculture sector (Agrochemicals, Seeds, Tractrors etc) going through same phase like construction sector boom of 2003-2008. Stocks may consolidate for first half of calendar year 2011 but will continue their upward march post consolidation.
2. Abrasives:
Abrasive is generic term. It has 3 forms. First as a Raw Material which is commonly known as Electrominerals and are mined from mines. Example is 'silicon carbide grit'. Second, as a Consumable item. Example is 'sand paper' or 'coated abrasives'. Thirdly, as Capex item which is also known as SuperAbrasives. Example is 'cutting saw' used in marble cutting tool.
With strong revival of Auto sector, upcoming Industrial Capex recovery and upcoming mega auto capex from auto companies this sector will give great returns in 2011.
3. Starch Derivatives:
This is actually an indirect play on FMCG boom India is experiencing. Starch sector stocks are currently under consolidation mode but will start its upward journey after consolidation phase is over in the first half of calendar year 2011.
4. Auto Parts:
Auto sector boom will benefit Auto parts stocks from now onwards as we saw supply contraints due to non availability of Auto parts in 2010. Lot of Auto parts companies have expanded capacities in fast few months and solid demand by Vehicle companies this sector may give good returns in 2011. We will watch Q3 results of Bearings and sheet metal companies and will buy if we see good growth.
5. Midcap IT:
Valuation gap between Largecap IT and Midcap IT stocks have expanded and we see narrowing of the same in 2011. Rupee will appreciate by about 10% by the end 2011 but we have noticed in last 2 years IT stocks are indirect play on world economy than currency moves. We will watch Q3 results to make decision of buy.
6. Power Capex:
11th 5 year plan had planned additional capacity of 78,700 MW, of which 26,000 MW has commissioned till Aug 2010 as per CEA. Majority of power generation capacities are coming up in second half of FY 2012-2013.These projects have reached financial closure and the capex cycle on them has began so we will see T & D sector getting good inflow of orders in next few months. We will watch Q3 and Q4 results of power cable and select power sector BOP companies before buy.

7. Commodities:

This is an indirect dual play on EMs like China/India and weak dollar phenomenon. With demand going up in EMs for all commodities AND Dollar slide imminent commodities should do well in 2011. Lot of our friends laugh at us when we say Dollar may go down 10-15% minimum sometime in 2011 against EM currencies and hard commodities like Copper/Gold etc :-) but we feel that may happen in 2011.

We will watch select Steel and Renewable Energy stocks. We will also keenly watch results of EPC companies working for Metal/Steel sector.

Year End review

Today's Updates:

1. We are at the end of year 2010. Like every year we look at 2 parameters (Market View and Sector) to figure where we went wrong in last year and our outlook for coming year.

At the starting of the year 2010 we were bullish on markets up to Apr 2010. We expected correction between Apr 2010 and Nov 2010. We were wrong on the second part as BSE Sensex went up from 16,000 in June 2010 to 21,000.

About sector picks we made correct call on Complex Fertilisers, Abrasives, Starch and Cotton yarn sector in 2010. If we notice all the stocks from these sectors are giving us handsome profit even today after Novemeber 2010's sharp correction of small cap Index. We remain optimistic and continue to hold on to Complex Fertilisers, Abrasives and Starch sector stocks.

We feel we were bit late in buying SSP Fertiliser sector stocks looking at their correction of more than 20% from peak. We are neutral currently on SSP sector so we will hold them for next few month(s) and take a call on hold/exit based on results they announce over next 1-2 quarters.

For 2011, We remain positive on Indian Equity in second half of calendar year. We expect consolidation in first half of 2011 in broader market (small caps) where we personally invest.

About sectors in 2011 apart from our current holds - Complex Fertilisers, Abrasives and Starch we will keenly watch Q3 results of Bearings, Sheet Metal, Midcap IT and Power Cable companies.

At some point in 2011 - may be in mid 2011 we expect strong re-bound in Commodity stocks. This time instead of Oil Drilling/Capex stocks we will focus on Renewable Energy sector. We will also watch Process EPC companies as they have been getting huge order inflow and that should get reflected in next 2 quarter results.

We have seen in November 2010 correction how important 'Corporate Governance' factor is in picking a stock and this will remain important factor even in 2011. We request all investors to invest in companies where promoter is considered reputed and has solid corporate governance record.

Lastly, Even in 2011 we will never invest in a stock just because some big operator or so called expert is holding or buying or recommending. All mistakes should be original mistakes :-).

EMs to under-perform - FT Report

Today's Updates:
1. We read First FT Report in the series on EMs wherein Author argues EMs will under-perform Developed Markets due to their relatively high risk premium and improving prospects for the US economy.

Murugppa - Business Standard link

Today's Updates:

1. Just last week we wrote a post on this Blog which said investors should track Murugappa group closely in coming years as its giant in making.

Today, We read comprehensive report in Business Standard on Murugappa group companies which is MUST READ for any one who tracks the group.

Crude and Indian Markets

Today's Updates:

1. We have been hearing a lot about Crude ready to cross $100 in near future from current $88. This also means negative headwinds for Indian Equity Markets as Crude was 28.70% of total Imports of India between Apr-Aug 2010. There is an opposite view that globally EMs and Commodity move together up or down so Indian Market will continue to move up when Crude crosses $100.

We study chart (courtsey stockcharts.com) which plots BSE Sensex and WTI Crude together for the calendar years 2007 to 2009. We produce that chart below (click on it to see larger image):

If we check above chart we notice that BSE Sensex had already made peak at 21206 in Jan 2008 which is 2 months before Crude crossed $100 in Mar 2010. In other words in 2008 when Market was certain that Crude is ready for breakout from $87-$100 range Indian Equity market made peak.

If we check current chart for Crude prices we see that Crude is consolidating in broad range of $70-$90 since last 1 year. There are lot of reports that Crude will cross $100 in near future based on demand supply reasons etc.

However, We personally feel we are minimun 5-6 months away from a point where Crude is $100. Our fundamental arguement for this view is Chinese markets. China being main driver of global crude demand as long as Chinese Equity (SSE) which is at 2898 today do not cross Aug 2009 high of 3471 we find it hard to believe possibility of $100 price for Crude.Global Crude Stocks also support this view. They are not showing breckneck rally at least for next 2-3 months. Crude stocks generally make new highs before Crude itself if we go by past history.

One should re-think about immediately buying Crude/Oil Drilling/Alternative Energy stocks in Indian markets.

As usual this is our view and our view is not based on what we read in media but based on what we think after reading those news and we could be 100% wrong in above view so reader should take own view on Crude and Markets.

Murugappa group - giant in making

Today's Updates:

1. We feel investors should track chennai based Murugappa group closely in the years to come. Recently, when major Mid/Smallcap stocks were down 30-50% all Murugappa stocks showed solid strength. Good Corporate governance record has emerged as biggest positive in current market meltdown and we feel now groups like Murugappa will command premium on bourses due to their clean image and reputation for corporate governance.Apart from being investor friendly group's all businesses are entering boom times.

Group's Agri Input/Fertiliser business will see growth over next few years as world needs more agriculture production due to higher consumption by rising middleclass in EMs against falling crop yields.

Sugar business being agri-commodity business will see higher growth in coming years for similar reasons.

Electrominerals/Abrasives/Refractory business will see growth due to boom in Auto sales globally and up-coming strong capex cycle for steel and general engineering industry.

SuperAbrasives/Machines business will see higher volumes given Indian Auto companies are planning Multi Billion Dollar capex over next 4-5 years and group is significant player in this niche segment.

Finance business saw setback because of losses in personal loans business in 2008. However, Group revived the business when every one had written it off and now it is all set to grow Auto and Housing loan segment.

Steel Tubes/Parts business will get benefit from Insurance subsidiary growth apart from core business (Auto) revival.

Other reputed groups like Shriram, Sundaram, Amalgamation, Apar,Kalyani, IGSEC (Saraswati), Rane, JBML, Bannari Amman etc. will also benefit from increased focus on corporate governance we feel.

Disc: We have vested interest in Murugappa group as We personally/clients/firm hold shares in the group companies.

Q2 Results

Today's Updates:

1. Our Analyst friends seems to be divided on nature of current upmove in Small-cap Index (Today at 10,050) after recent fall from high of 11366 on 11-Nov-2010. Some friends are saying this is new upmove which will take Small-cap index above 11-Nov-2010 high.

However, We disagree. We personally feel current upmove in small cap index is actually a pull back (dead cat bounce) and we feel one should cash out on every rise for sectors/scrips which has fallen more than 20% as these scrips will go through few months of consolidation phase before they start new up move to cross recent highs.

We can clearly see that post Q2 results Complex/SSP Fertiliser sector is showing signs of long consolidation for next few months. On the other hand Auto related sector stocks (Vehicles, Parts, Capex etc) have shown great results. They showed solid resilience in recent meltdown and have not corrected more than 20% which tells us solid strength of the sector and possible out-performance vis-a-vis Small-cap Index in coming weeks. We suggest reducing weight of Complex/SSP Fertiliser sector and increasing weight of Auto.

This is our view and as usual we could be 100% wrong in our view. We also feel if in case we realise after few weeks that our above view is wrong we will act accordingly. Readers should not go by what we say. One should take own view in market as always.

Current Account Deficit

Today's Updates:
1. We read report in Economist about India's current account deficit and policy response by the government on foreign inflows.

Axis - Enam Deal

Today's Updates:

1. We read about Axis - Enam deal in media everywhere. We do not want to comment on the deal as such but we read after long time in media about India's great investor Nemish Shah in today's ET.

NS was like virtual guru for us and our friends during our college/studying times and we used to track even then what is he buying and why :-). Such a low profile he is we have not seen his public picture since last 14-15 years. Best part we learned from his Investment style and what we continue to follow even now is - importance of Management while investing in a company. Pick any stock where he is investor and you will see India's top management in that sector :-).

Diwali Wishes, QE2 and bubbles

Today's Updates:
1. We wish all our readers happy diwali and a prosperous new year.

2. We read in Economist latest report on QE2.
Since we wrote first time in March 18, 2009 post about QE, FED has been pumping liquidity without any reversal. We have been writting that FED has no option but to devalue the dollar so that they can service their debt by paying less in real terms to creditors AND inflation is better than debt deflation. Now we give one very brilliant view which we subscribe to.

Current US market cap is about $15 Trillion and US Public debt is about $13 trillion Normally average ratio of new public debt to new private investment is 10:1. Government debt gets 10 times NEW investment compared to stocks globally. However, What may have started from 2009 is due to soverign debt bubble (which may even lead to default), 0% interest rate, threat of currency devaluation/inflation that government debt investors in developed markets MAY have slowly and gradually started switching to world Equity and other private Investment avenues like commodity/gold etc. If this continues which we feel is likely we may see world equity double or triple with varying degrees among developed/EMs over next 5-7 years off course, with corrections. This view could be 100% wrong so do not go by what we write but we ask readers to study and think about this.

Coromandel International Q2 2010-2011

Today's Updates:

1. We read Q2 result of our favorite scrip Coromandel International in BSE. Since we recommended first time @ 107 (see relevant post) company has exceeded all our expectations and has given multibagger returns. Now, with Q2 2011 EPS of 24.71 scrip is set to touch new highs. It is well on its way to become largecap from midcap. Company has hidden value in FOSKOR stake and Agri Retail Business apart from growing core Complex Fertilser business.

Disc: We have vested interest in above-mentioned stock. Our firm/we personally/our clients hold this stock as on day of writing and our firm and/or we personally and/or our clients may trade (buy or sell) in it in future.