To Protest against the Congress led UPA Government’s recent decision to Hike Prices of Petroleum Products, the Opposition parties led by BJP and even joined by some UPA parties ! had announced a Bharat Bandh today….Political leaders are courting arrest…there is disruption in Road,Rail and Air Transport across the Nation….In Mumbai,Autos and Taxis are off the road….schools are closed…banks have closed shutters as have many establishments….many offices have declared an off day

There is a demand for rollback of this price rise….yesterday,our FM,Pranab Mukherjee asserted that there would be no rollback   

So India is officially Open but practically ‘Bandh’ today but Stock Markets are ‘Chalu’ !…Pun fully intended !….though they were less ‘Chalu’ today as Sensex and the Nifty closed down just 20 points and 1 point respectively at 17441 and 5246 

Cheers !  

Sensex just closed down 460.03 points (2.72 %)  at 16415.76 and Nifty dropped to 4921.40,down 144.80 points (2.86%) reflecting Global Blues and cues…..Volumes were relatively high and this does not augur too well for the immediate short term…tomorrow’s opening may just be weak too

There was red ink all over,with just a few specific stocks in the green…of the Sensex 30,27 were in the red with Tata Motors dropping over 8%…three barely were able to hold on to yesterdays closing

Sell offs in India are echoing rest of Asia….Tightening in China is playing this out…with Europe and USA scenarios adding to uncertainties

Sensex is back down below 16500 from my predicted top end range of 18000 for the first half of 2010…Expect more falls…Expect Volatility to persist….Seek Opportunities for Entering or increasing Exposure to certain Stocks….Larsen & Toubro being one of them…It had reacted to below Rs 1550 a few days ago…It surged back to Rs 1670+ levels this morning and again is moving back towards Rs 1600…Rs 1400 to Rs 1500 would be good buying into range with a three year outlook

Don’t Panic and Liquidate Part or Full Long Term Equity Portfolios as long as your Selections are Sound…ride this Volatility holding a Long Term View…don’t try to play the ‘Exit and Re-enter’ Game…It would be a Tactical Strategy that may not work …..and confirm that your Asset Allocation matches your Risk Profile…you’ll sleep sounder    

I’ve no bias… but feel sad for Anil Ambani…. I’m with him on this one….. Supreme Court gave a split verdict today in the RIL v/s RNRL Gas Pricing embroglio in favour of RIL

So now 2.34 is out and 4.20 is in !… One perspective is that RIL and the Government have done a 4.20 on this one!

In 2005 when the Reliance Group was split between the Ambani Brothers a MOU was signed between the brothers and blessed by their Mother too… It prescribed that RNRL would be supplied 28 million mmbtu gas  daily by RIL at a price of US $ 2.34/mmbtu….. Anil agreed to the split valuations which included this arrangement too…. He went ahead and got his company RNRL to enter into an agreement with his ambitious baby, Reliance Power, to in turn supply this Gas from RIL for the upcoming 7.4 GW Dadri Power Plant which is slated to be the biggest Gas based Power Plant in Asia

RNRL went to court as RIL refused to honour this MOU citing that Gas was the National Property and they were merely Contractors and the Government owned the Gas and reserved the right to allocate this Gas and also approve the Pricing for this…. The New Pricing Benchmark became US $ 4.20/mmbtu

High Court ruled in favour of RNRL and said that the MOU should be honoured…. RIL went to the Apex Court, the Supreme Court….. Today the three judge bench gave a 2-1 Verdict in favour of RIL and the Government, overruling the High Court Order…. their view is that

• This Gas is a National Resource and the Government is the Owner
• The Production Sharing Contract (PSC) between RIL and the Government supersedes all other agreements, including the MOU between the brothers
• The MOU itself is not a legally binding document, but can be used for inspiration in future negotiations for gas supply between RIL and RNRL… These negotiations must be concluded inside six weeks and the Company law Board should be approached to approve the same

Feel Sad that RNRL and Anil lost out here…. simply because I feel strongly as below

• This issue must be viewed with the mindset of ‘Substance over Form’… just like auditors are trained to do… also it should be viewed,like the Painter Hussain controversy, with a mindset of looking at the ‘intention’ behind creating this controversy
• The MOU was created in 2005 with this Price of US $ 2.34/mmbtu which was the benchmark then as it was a NTPC tender price….. Why was no noise created then ! ?…. Even if the MOU was secret, the price was not!…. Clearly as the Price of Gas began rising, RIL attempted to wriggle out of this committment to supply gas to RNRL at US $ 2.34/mmtu
• It was only in October 2007 that the Empowered Group of Ministers (EGOM) had arrived at a Formula for Gas Pricing
• Mukesh Ambani could easily have honoured this MOU committment… it was blessed by the Mother… and in Mother India, the word of Mother is that of God !.… apparently the boiling intensity of emotions with his brother, Anil Ambani, prompted him to decide not to supply the gas at all….. So RIL chose to default citing that Government was the authority on allocation and pricing of Gas…. clearly government machinery was being misused and the government merely became a front… moot question arises… was the Government playing favourites or truly had the National Interest in mind !?.… the answer will stare at you in the face when you search history and discover that a top RIL executive was arrested because he was caught with confidential government documents…. apparently he was drafting/suggesting/amending a Union Cabinet Meeting Agenda for a Meeting to be held!…. also the current Petroleum Minister and the late Dhirubhai Ambani were great friends from their youth…. read the banned ‘Prince of Polyester’ by Hamish Mcdonald to gauge how close!…. Anil Ambani has already emotionally made these accusations and had rightly questioned as to why the Government has not withdrawn the PSC with RIL if they felt that it has been violated by the MOU !

So what will happen now….. RNRL has already lost significant value on the Stock Exchanges today…dropping from Rs 70 levels towrds Rs 50…. RIL has regained lost ground and is up marginally at Rs 1040 levels

If Anil Ambani had agreed to the Reliance Group Split in 2005 based on the Valuations on supply of 28 million mmbtu/day at a Gas Pricing of US $ 2.34/mmbtu, he is entitled to now feel aggrreived like all his shareholders too….. Clearly he should seek adequate compensation from RIL on behalf of all his shareholders…. one way is that the brothers agree to sell RNRL to RIL at price levels near Rs 100…. because the split may have then been done at a more favourable and liberal ratio for ADAG Companies… in simple words, shareholders of RIL would have received more shares in ADAG Companies in the split than they actually did if this Gas Supply and Pricing was not to be considered

There clearly is a huge vacuum in Independent Thinking… Expert after Expert on all Channels today are simply parroting similar views…. in favour of RIL Share Price and sounding the death knell for ADAG Companies

Mark my word, Anil has his father’s courage and aggression in him…. he will rise again… just pray he creates a right set of people around him, than he has now, in all his business

As I end this Blog, just heard a very gracious Anil Ambani stating that he will abide by the Supreme Court Decision and not file a review petition… he was all praise for the SC for upholding the formation of the MOU and stating that the MOU can be an inspiration for looking at the scheme of arrangement and renegotiating…. he thanked his wife, Tina and both his sons, Anmol and Anshul, for the support… thanked his 11 million shareholder body, the largest in the world, his over 150000 employees and the media too

Anil Ambani looks forward to an expeditious renegotiation with RIL

However RIL is voicing doubts over the availability of gas itself to supply to RNRL…. creates doubts on whether any renegotiation will take place, as directed by the Supreme Court today, between RIL and RNRL…. What will RIL negotiate !? if they continue to assert that they don’t have any gas to supply to RNRL !… as Government is directing the allocation to specific companies in the priority sectors of Fertilisers and Power

Clearly RIL and Mukesh Ambani wants  to sever the umbilical cord with ADAG Companies and Anil Ambani permanently…. perhaps Anil and his Companies would be better off this way !

So where does all this leave us on the Share Price performance of RIL and ADAG Companies

RIL will register an EPS of over Rs 80 FY 12 on full Gas production … at 15 multiple that’s a Share Price at Rs 1200 levels… its’s currently at Rs 1040… so there appears little downside from here

Re Power is struggling to stay above Rs 140…. With a  question mark on Gas supplies from RIL and New Pricing, it would be advisable to reduce exposure

On RNRL at Rs 53 levels, I’m a bit of a contrarion here….. I don’t think it is, as joked, “Rahe Na Rahe Ltd”!…. It’s more than just a Trading Company in Gas… With ex Gujarat Ambuja Cement CFO, Ajit Singhvi,on board as Vice Chairman and diversification plans on the anvil, I would review it strongly to seek more clarity  on the business model and impact of changing dynamics…. in simple words, if you’re holding RNRL, defer a decision to sell out at current levels… unless you’re a conservative investor… in which case RNRL should never have been in your portfolio, unless you’re an original Allottee in the Reliance Group 2005 Demerger by lieu of your shareholding in RIL

Also, if you are not in sync with Anil Ambani’s business aggression, ambition, acumen, management coterie, risk assuming abilities and strategies he adopts to scale up and move ahead then it’s wise to not marry any ADAG Companies.. and if you have, then exit the marriage asap

On a Macro front,Sensex dropped @ 240 points to close @ 16750 levels and Nifty dropped below 5000, only to recover to barely close over it… Greece is bigger then Greece!

Sentiment is at work at the Stock Exchanges…more visible on days such as these…when the Union Budget is announced

In the Morning the Sensex and Nifty were up marginally…as the FM began his speech at 11 am,they remained positive…90 minutes into his speech,at around 12.30 pm and around the time the BJP decided to walkout,the Indices gathered fast momentum and he Sensex rushed towards 400 points rise and  16600 while the Nifty sought over 100 points and 5000

What’s my first reaction ?….so what’s New !?…simply continuing the Fiscal and Infrastructure Road Map

• You don’t need a Visionary…any FM or a layman can do this…. to sell yours assets to part fund your fiscal deficit…Rs 25000 crs is the Disinvestment for 2009/10 and Rs 40000 crs for 2010/11…..to reduce pressures on the Government Borrowings…Borrowings has already crossed Rs 4 lakh crs in 2009/10…Government plans a lower Rs 3.45 lakh crs in 2010/11 !….My sense is that this figure may be revised upwards if Oil again crosses US $ 100 or if  Disinvestment Figures don’t work out 
• Fiscal Deficit is pegged at Rs 381408 crs or a lower 5.5% of GDP for 2010/11…Inclusive of Oil and Fertiliser Bonds,In 2008/9 it was 7.8% of GDP and in 2009/10 it’s going to be 6.9% of GDP
• Total Expenditure for FY 2010/11 has been upped 8.6% at 1108749 crs of which Plan Expenditure is up by 15% to Rs 373092 crs  and Non Plan Expenditure is up b y 6% to Rs 735657 crs
• All Media Stock Channels are excited over the increase in the Direct tax Slabs Range…so what’s new..this was already announced much earlier what the New Slabs would be from April 1,2010…it’s already on wikipedia…check it out
• DTC and GST are already scheduled for being implemented by April 1,2011…The FM only hopes he can be able to do this
• GDP Growth rate is 7.2% this year,may be revised upwards…FM wants to return to the high 9% rates…This is expected  to help reduce the pressures of funding fiscal deficits through borrowing,asset sales and deficit financing…but depending on this can throw you for a Toss if twin challenges of Food Inflation amd Potential Oil Price Surges play up the squeeze…check out a few days old Blog on this

This Budget has come and gone….markets will soon return and be guided by prevailing Sentiment and Momentum in turn guided by Global Issues

In short,this Union Budget does not give you a Clear Signal to BUY Stocks immediately…take your time to make appropriate selections at appropriate prices….Markets are not going to simply run away up fast

Gives you enough time to Reflect and then Act

Cheers !

Imagine you’re aboard a Plane in Flight and hit turbulence…the Plane drops altitude…sometimes very sudden…..Sensex is akin to this situation…dropping 2.1% on Jan 21 and then near 3% today…Suddenly from reaching up for 18000 recently it is now poised to dive below 16000!…It closed at 16290 today…..and those who were proclaiming glory are quickly reversing opinions to predict a sharper fall ahead…some even to 12000 !…Remember the Nursey Rhyme “Ring a Ring a Roses….Pocket full of ……Hush ah Bush ah we all fall Down !…you gonna hold hands with those who are singing this,you will fall down !

Despite continuing World Economic and Political Turbulence, and intense FII selling past few days,Indian Equities remains in the best position to move up…20-X is going to see  a Sensex range that could extend down to 14000,maybe 13000, and up to 20000…so we are at 16000 right now…we are not going to test 8000 again,like we did in March 2009 and October 2008…so macro situations and large caps trends are going to be harder to read in 2010….It’s a bottom up low and mid cap approach that’s going to get you the Winners in 2010….So playing the Sensex or the Nifty or the Large Caps,either in Cash or Derivatives may cause you tense moments…like today

Concentrate and Focus on Specific Stocks in the Low and Mid Cap Range…..Most of Our Clients Portfolios over Rs Ten Lakhs are in 25% Cash at this time….New Clients have been advised to hold Cash and not be in any hurry to invest…..and at any given time we have @ 15 stock selections…..portfolios have from 3 to 10 scrips from this selection……one scrip was on upper circuit this morning and we reckon atleast three of our selections would be clear and minimum money doublers in 2010  

So we enjoy such falls in the Markets….gives us opportunities at lower prices

But if you’re a die hard macro and large cap player because of high volumes and liquidity,then do a simple exercise…Make a list of your Top Ten Sensex Scrips from the 30….Rewind to 2009 when the Sensex was 13000 and 14000 and 15000 and record what were the prices of these Ten scrips at those levels……will give you some sense of where these scrips can yet correct to !…and save you the agony of jumping in impulsively

Cheers !

Don’t lose sleep over today’s correction

Sensex closed 2.42 % lower at 17051 today from yesterday’s close of 17474…The Nifty dropped 2.44% to close 5094 today from 5222 yesterday’s close

This was enough to spook the low cap and mid cap scrips that have risen smartly in the recent month….Most of them reacted strongly by even 5%…some even by more….causing agony to Short term,intra day and even tick traders…They had a rough and tough day today as did most brokers too…expect them to collect even the smallest debit cheque too from clients today or tomorrow !

As I reiterate…don’t lose sleep over this fall as long as your stock selections are sound…but if you’re playing this High Beta game this past  month then you just may get restless…..just stay true to your risk profile…don’t get aggressive if you’re going to sweat on such a fall as today’s and create High Risk High Beta Short term Equity Portfolio….It might just become unnerving!   

Think Long Term…Think Rational….Think Sound Scrips for most part of your Equity Portfolio…..That’s really the only way to grow Wealth in Equity

Cheers !

I reiterate what I blogged last week…don’t be in any hurry to transfer Available Cash to Equity in your Networth

The Heat is on !

        Market is Melting !

                Winter is approaching !

                           Equity is shivering !

Aha !…what a Contrasting Play of Words !

It’s just around  1.20  pm on this post Manic Monday, Tuesday

NSE has seen a record Spot Cash Market Volume of near Rs 24000 crs…so has BSE where the Spot Volume is near a record Rs 7300 crs….With F & O,the Total Volume is already over Rs One Lakh crore with over two hours yet to go

Sensex is up over 4% to 14888,up 604 points…Nifty is up near 4% to 4489,up 165 points

And Wonder of Wonders ! Reliance Industries which has a 15% +Sensex weightage has not moved up…One of those rare days where the surge in the Indices are lead by Scrips other than Reliance….like Larsen & Toubro,ICICI Bank and BHEL

It’s been a glorious run for Banks,Real Estate and Capital Goods Sectors these past two days…while The IT and Pharma Sectors have reversed today as the Rupee strengthens to Rs 47.50 to the US Dollar

So you don’t really have to rely on Reliance all the time !

At 11.55 am,The BSE and NSE reopened after a two hour cooling period after hitting circuits on opening at 9.55 am

I’m not even in Mumbai…in Ahmedabad and feeling the Heat in more ways than One !

At 11.55 am the Sensex hit it’s second Upper Circuit at 14272.63,up 2099.21 points from Friday’s closing….up 17.24%

The Nifty hit 4308.05,up 636.40 from Friday…up 17.33%

As is the Policy ,the Markets have been now halted for Trading for the Day…This is unprecedented in our Market History

In seconds the Volumes had hit Rs 3000 crs…..My Heart goes out to all of those who had shorted the Nifty or  stocks in Futures…They have not yet been able to cover and are facing massive losses and therefore serious margin issues…They may need to sell part of their portfolios to pay off brokers…Short Sellers have been Shorted !..and How !

Tomorrow Sell at these Strong Sensex Levels….15000 +?…so quick…so soon…so much of euphoria !…it’s like the Markets were drying with the drought of 2008 and had began to recover…now the recovery is with such wet vengence on election results and  with the onset of monsoons now !…There is a GOD above…..but he’s now beginning to tell us to “Sell” !  

What a salute to the Congress and the UPA win in the General Elections !

Sensex saluted with a straight Upper Circuit 10.73% surge on opening…It’s just a shade below 13500….The Nifty had done even better…hitting the second upper circuit of 15% on opening and is over 4200….Markets are to reopen at 11.55 am

I must concede that the chances of a Sub 10000 Sensex level again have receded considerably…but caution must be exercised in this crazy but totally expected bull opening….Let the Shorts cover…Don’t buy in unless you see Value…You never got in at 8000 and you are planning to at 14000!?…In fact makes sense to liquidate some part at 14000+ Sensex levels

I’ve just seen the Bulls on TV come roaring back with optimistic comments of a new High in Nifty coming up…though they did not care about the time frame and that US $ 50 Billion should be FII Inflows in the next year or Two and that PE derating will stop and in fact reverse as will the Declines in the Growth Rates of  Corporate Earnings 

While Stability at the Centre is virtually assured,it remains to be seen how the Congress tackles the rising Fiscal Deficit and the Reforms Process and the need for aggressive Capital Formation…all in light of an ongoing Global Economic Crisis

It is premature to be even optimistic about a Strong recovery in Corporate Earnings

However there is over Rs 20000 crores in Cash with Domestic Mutual Funds waiting to be deployed in Equity….This Domestic liquidity coupled with expectations of better FII Inflow will cap the down side and with this Sensational Overnight Optimism created by the Sensational Election Results will result in a higher trading range for the Sensex…12500 to 16000 is a logical guesstimate…Many are already exclaiming ” There is a God!”

Yet,It would be prudent to sell off some part of the portfolio at a Sensex Level of 14000+…Fear (read Sell)  when everybody is Greedy !…Isn’t that what Buffett advises…There will be a correction,albeit from a higher base 

So what should you sell ?…Remove first the deadweights,even at a Loss…Take advantage of this rally in disposing them….Then reduce exposure in even some selections,where there may be yet some loss,or even some profit….My advice is to stay Heavy with the Heavy weights like Reliance and Larsen for the time being…I love both..The risk with mid caps and low caps and Themes is going to be that much higher with this surge and expect increased Volatility in them…Don’t yet again fall for or be sucked into over optimistic assumptions of Earnings Growth in such companies when you hear Experts on TV or read Research Reports…You can bet there will be a Growth Rate surge in Both ! You’re running the risk of buying into at stretched Valuations

Cautious Optimism is the best recourse so you can also responsibly enjoy this party