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September 2008

On DOW Cue,SENSEX Set to Crash as Market Opens in the Morning

It’s just past 3.30 am in the morning here in Mumbai and I’ve just been witnessing Panic on Wall Street as the DOW reacted violently to record it’s worst Points Fall,closing 778 Points (7%) down at 10365 on the Bail-out Package of US $ 700 billion being rejected by the US House of Representatives

On Cue,Sensex surely is also set to crash over 6% to slip below 12000 when our markets open in the Morning

I’ve already emailed an urgent Communication “SCRIPTECH SCRAMBLE” within my network and I now reproduce it here on this Blog for Free and Wider Viewing…Pardon me for the Formatting ,Justification and Fonts going awry as this Emailer had to conform to the Restrictive Settings of this Blog

Scriptech Scramble™
Morning 2.30 am  Tue,Sept 30, 2008

PANIC ON WALL STREET
 
BUTCHERED,BLOODIED,BUSTED,BATTERED,BRUISED,BOMBED
 
AS USA HOUSE REJECTS THE US $ 700 BN BAIL-OUT PACKAGE
DOW PLUNGES  RECORD 7% AND 778 POINTS TO A  LOW OF 10365
 
WORST POINTS FALL AND THE HIGHEST SINCE 1987 CRASH
 
AMERICANS SEEK SAFETY IN HARD ASSETS OF CASH & GOLD
 
SENSEX SET TO TUMBLE BELOW 12000 AS MARKET OPENS  IN THE MORNING
 

 

 
The USA House of Representatives rejected by a 205 to 228 Vote  the US $ 700 Billion Rescue Package for Wall Street…The DOW JONES reacted violently in Panic to close with the Worst and Highest Points Fall of 778 and a record 7% down at 10365 while the Nasdaq Composite and the S & P 500 dived to close down by near record 9% each at 1984 and 1106 respectively
 
Brokerages and Financials simply collapsed further on Wall Street…some scrips by over 20% today and all by over 90% in the past Twelve Months…Wall Street Lost a record US $ 840 Billion today in Market Capitalisation
 
USA and it’s citizens are in a state of disbelief and panic and Americans are withdrawing Cash from Banks and some are buying into Gold
 
It’s a Classical George Orwell’s Catch 22 Situation in USA….you’re Doomed if you Did…you’re Doomed if you Don’t !…So even if the Bail-out Plan was passed,the credit crisis would not have gone away….Simply TINA (There is No Alternative)…but to live out the pain, the roots of which were injected into the Financial System years ago(Check out the blog today on www.gauravblog.com titled “USA has been building a House of Cards)
 
WATCH out For the SENSEX opening in the red in the Morning and slipping 6% atleast below 12000.It has already opened the week on Monday down 506 Points at 12596
 
As we conveyed to you last week…Look for Vulture Investments and Scavenger and Distress Prices as Buying Opportunities
 
We reproduce relevant extracts below from our SCRIPTECH SCRAMBLE of June 20,2008…The scenario is playing out to just as we had figured…and within the timeframe too 
______________________________________________________________________
  • The Financial Earthquake, with the Epi Centre in USA, continues to create after shock tremors with leading Finance Powerhouses like Bear Stearns needing a bailout and Citicorp seeking continuous Funding….the FED is in a crazy unreal position of having to cut rates to fund sub prime loss and provide liquidity despite rising Inflation……yet we follow reports and noises being generated from such powerhouses for their India Perspective when their own house is not in order! 
  •  Corporate Earnings that were growing smartly year on year will show rate decelerations,especially companies who lack pricing power and are unable to pass on rising input costs to the customers…the lower earnings growth rates and in many cases even lower profits in absolute terms would in turn  mean lower stock prices as earnings and cash flows form the basis for valuation
  • Sensex Earnings,which form the basis for a macro valuation,will be impacted and move towards 12% to 15% from 20% +
  • The Lower Sensex Earnings and the fact that the re-rating story is now being derated will mean lower multiples…may revert back to 2001 lows of 9….It’s 14571 today…clearly not yet attractive enough…..Really wish for a 2001 like scenario of 9 and 10 multiple…that would mean a move downwards to below 12000…that’s likely before October
 
There’s clearly some more pain before the recovery….It’s not really a tempting entry level yet even at these 14500 levels.
 
It would be advisable to sit on existing Investible Surplus for some more time yet…Don’t be in any hurry to Invest
 
Look at it this way…you may have missed the last brilliant Five Year Investor Plan 2002-2007…but you’ll get to enter in yet another Five Year Plan 2008-2013 later this year after which you can retire rich and appear with some depth as a financial guru on media channels !…just stay true to your Risk Profile and you will recover loss or even loss of gains over the coming years…but you may yet have to bear out situations where your equity portfolio may decline further before it recovers  
 
In keeping with the  gaining Popularity of the T20 format in Cricket we too have created a basket of 20 scrips that we like…in fact getting to love as they fall further…we have not released them as yet as we want them to fall in an entry range that would beg for investment….Oh Yes! IFCI is one of these 20 scrips…we’re always looking for that margin of safety of True Value being much higher than the Share Price….of course we’re aware that scrips will fall even lower than what their Valuations indicate as Market Sentiment and Herd mentality rides the roost in Bearish times like these…..Even If you’re a sworn believer that only Insider Trading , and not Research,works…let me assure you that in Depressing Times it’s the Reverse !    

Cheers ( I dare say !)                                                                                                                  “

_____________________________________________________________________

We have yet not released our Deep Value Stock Selections with the Distress Price Levels at which to enter them…we will do so shortly as the Sensex dives below 12000…we expect this to happen first thing in the morning….In June 2008 we had said this would happen before October 2008…Uncannily Tomorrow is September 30,2008…so you can say we would be just about meeting our visualised Deadline!

Cheers,

Gaurav A Parikh
98201 62597
[email protected] or [email protected]

Do vist www.gauravblog.com for Inspiring Investment Insight on Indian Equities


A word of caution…

Investments and trading in securities carry inherent risks that rest solely with the investor or trader. We shall, therefore,not be responsible in any way for actions based on the contents herein. As per SEBI disclosure requirements, Scriptechgroup, its directors and employees may hold long or short positions in scrips recommended for investment ordisinvestment respectively.

 

  Scriptech Consultancy (I) Pvt Ltd, 50 RNA Hse, 1st Flr, Veer Nariman Rd, Mumbai 23 Tel: +91-22-28366679 © Scriptech Consultancy (I) Pvt Ltd – Private and Confidential – For Selective Circulation Only

Sensex closes down near 4% at 12596…”Allah Ke Bande “…Keep the Faith !

Thanks M Square for initiating this Song for me earlier today….Since then I’ve been Humming Kailash Kher’s ” Allah ke Bande “ whole of this afternoon watching the Sensex drop to close near 4% down losing 506 points at 12596…..Can’t help sharing these lyrics with allof you…so hum along with me and keep the Faith…just replaced “Parinda” with “Sensex”

Toota toota ek parinda  Sensex aise toota
Ke phir jud naa paaya
Loota loota kisne usko aise loota
Ke phir ud naa paaya
O o o o toota toota ek parinda Sensex aise toota
Ke phir jud naa paaya
Loota loota kisne usko aise loota
Ke phir ud naa paaya
Girta hua woh asma se
Aakar gira zameen par
Khwabon mein phir bhi badal hi the
Woh kehta raha magar
Ke allah ke bande hasde allah ke bande
Allah ke bande hasde jo bhi ho kal phir aayega
Allah ke bande hasde allah ke bande
Allah ke bande hasde jo bhi ho kal phir aayega

Kho ke aapne par hi to usne tha ud naa sikha
Kho ke aapne par hi to o o o
Kho ke aapne par hi to usne tha ud naa sikha
Gham ko aapne saath mein lele dard bhi tere kaam aayega
Allah ke bande hasde allah ke bande
Allah ke bande hasde jo bhi ho kal phir aayega
Allah ke bande hasde allah ke bande
Allah ke bande hasde jo bhi ho kal phir aayega

Aa aa aaa
Tukde tuke ho gaya tha har sapna jab woh toota
Tukde tuke ho gaya tha aa aaa aa
Tukde tuke ho gaya tha har sapna jab woh toota
Bhikre tukdon mein allah ki marzi ka manzar paayega
Allah ke bande hasde allah ke bande
Allah ke bande hasde jo bhi ho kal phir aayega
Allah ke bande hasde allah ke bande
Allah ke bande hasde jo bhi ho kal phir aayega
Toota toota ek parinda  Sensex aise toota
Ke phir jud naa paaya
Loota loota kisne usko aise loota
Ke phir ud naa paaya
Girta hua woh asma se
Aakar gira zameen par
Khwabon mein phir bhi badal hi the
Woh kehta raha magar
Ke allah ke bande hasde allah ke bande
Allah ke bande hasde jo bhi ho kal phir aayega
Allah ke bande hasde allah ke bande
Allah ke bande hasde jo bhi ho kal phir aayega
Allah ke bande hasde allah ke bande
Allah ke bande hasde jo bhi ho kal phir aayega
Allah ke bande hasde allah ke bande
Allah ke bande hasde jo bhi ho kal phir aayega

USA was building a House of Cards last ten years !

Hindsight it’s easy to point fingers of Blame at just about everybody but yourself !

But just review this historical evidence in USA of the excessive and irrational liberalisation in the Financial Sector by the Regulators and make your own judgement

1996: The US Fed Chairman at the Time,Alan Greenspan warns of “Irrational Exuberance”

1998 : Long Term Capital Management,headed by Nobel Laureate Economists and a Board of Who’s Who in the the Finance Sector ,lost billions of dollars in Derivative Plays…betting more than House Capital in Complex Derivative Products in which their Financial Model showed there could be just 1% chance of an unfavourable scenario unfolding…It did…  LTCM,with Fed support, had to be bailed out by Fresh Private Infusement of Funds….It should have been allowed to collapse…..Fund Managers would have been suitably warned and would not so easily have been inclined to excessive and irrational overleverage in chasing high profits

1999 : The Glass -Steagall Act was repealed by the Financial Services Modernisation Act.This set into Motion a scenario where the Operating Walls of Commercial Banking,Investment Banking and even Insurance became blurred….Financial Powerhouses began playing multiple roles and assuming higher Risks  

2000 : The Commodities Futures Modernisation Act created a category of “excluded commodities” to include Financial Commodities like Interest Rates,Currencies and Stock Indices.These were allowed to trade off Futures Exchanges with very little supervision by the Commodity Futures Trading Commission.Other Regulators,like the SEC and the FDIC not monitoring the writing of the credit default swaps trades by Hedge Funds,Insurance Companies and Investment Banks 

2001-2003 : FDIC reduced the Fed rate to just 1 %…and it remained so for more than a year,flooding the market with liquidity and forcing Bond managers to take higher Risks in searching for Higher Yields.Alan Greenspan forgot his own doctrine of “Irrational Exuberance”…Asset Prices began inflating,especially Houses…Greenspan even declared to the Influential Finance Committee of the Senate in 2003 that the mortgage default risk was very low and Surging House Prices should not cause any worries ! How wrong was he !?…This was disclosed last week by the Committee Member, the Republican Senator,Richard Shelby during a Debate to recommend the controversial US $ 700 billion bail-out Plan of the Government for the Financial Sector. Shelby opposes this plan. read more

Ab Kya Kare ! ? Should You Buy,Hold or Sell ?

Washington Mutual (WaMu) ,one of USA’s biggest Banks was forcibly taken over by the regulator,FDIC yesterday and sold off for US $ 1.9 Billion to J P Morgan even while the Chairman and CEO of the Bank was on a flight in Mid Air…The quick move was to prevent a collapse as Depositors had already began a run on WaMu and withdrawn over US $ 16 billion in the last ten days

As we move towards Panic,Capitulation and Despondency in Equities with the Scenario in USA turning scarier than ever a lot of friends,family, clients,associates and even my Pay and Park Attendant are asking me “Ab Kya Hoga ?…Ab Kya Kare ?”

This is what I strongly advise…..

We are surely moving towards Distress Prices on the Bombay Stock Exchange and the National Stock Exchange…With the continuing disturbing scenario unfolding scarily in USA,there is clearly more Pain ahead in India as Dalal Street gets Wall”ed in

Critical Valuation Basis remains on Assessing the  Sustainable Growth in Earnings…Here is the Problem….Clearly we are seeing a rapid deceleration in the Earnings Growth

The Sensex’ earnings grew by nearly 17% in the first Quarter ending June 30,2008 in the current FY 09 supported by a 33% yoy growth in Earnings in Capital Goods Companies and a near 30% growth in earnings in Telecom Companies and a strong 44% growth in Earnings in ONGC. However, the Sensex (excluding the oil companies) saw an earnings growth of only 12.5% yoy during the quarter…..the lowest in the last fifteen quarters…compare this with the peak 40% growth in the December 31,2006 third quarter of FY 07  

EBIDTA Margins contracted by 1.8 % and are expected to contract yet further.Metals and Pharma were the saving graces and saw some margin expansion

The Earnings Momentum  going forward will continue to be impacted by hardening Interest rates and double digit Inflation and an economy slowdown,notwithstanding the Minister of Finance yet assuring of 8% GDP Growth this year assuming strong domestic consumption and Investments

From a closing Peak of Sensex of 20873 in January 2008,the correction has been a mighty near 40%…With Wall Street resembling Ghost Town,the Sensex Slide should continue to distress Levels of a P/E Multiple of 9 and 10 ( Last seen in 2001)…With the remaining quarters in FY 2009 expected to reflect continuing slowdown in the  earnings growth  I expect the FY 2009 Sensex EPS to be around 950 levels…This gives a macro Sensex Valuation of 9500 thereabouts on a derating P/E Multiple of 10…that’s another 25% to 30% drop from current Sensex levels of 13000 to 13500…yesterday it declined sharply by 445 points to close at 13102 read more

US Financial Advisor Louis Navellier…The Worst is Yet to Come

US Financial Advisor,Louis Navellier warns of further trauma and pain and bankruptcies.

The US $ 700 billion Government bail-out plan for the USA Financial System scarily reveals that there’s no other alternative ! 

The hole according to  US Advisor,Louis Navellier is US $ 41 Trillion…This is how he compiles this figure

“Here’s The Truth

  1. Fannie and Freddie are not out of the woods. They’re still on the hook for $5.4 trillion.
  2. Residential mortgages get the headlines but private-sector debt (auto loans, business loans, student loans, credit card debt etc) is the other, bigger side of the problem. Add $20 trillion.
  3. Commercial mortgages are another untold story. Add $2.6 trillion.
  4. The bailout plan ignores life insurance companies, credit unions, local governments (nearly $3 trillion in shaky munis alone!) finance companies and investment banks. Figure $7 trillion.
  5. And then of course there are the banks. The FDIC’s list of 117 troubled banks is a whistle in the dark. Navellier Research grades over 500 FDIC member banks and 100 S&L as financially troubled. That’s $3 trillion.

Add It Up: $41 Trillion “

And Paulson’s $700 billion is just enough to lull investors back to sleep.

Make no mistake: Wall Street has become the Love Canal of toxic money! It will take years, and in some cases a decade, to clean it up.

Truth is, in my 23 years as a financial advisor, I’ve never seen such a frightening global scenario:

  •  
    • Where bankers have given up on the banking system
    • The world has finally said “thanks but no thanks” to the almighty dollar
    • Inflation is out of control
    • Money market funds are failing, and
    • Investors are fleeing to the “safety” of gold and commodities en masse…
    • Truth is, my friend, Paulson’s $700 billion bailout plan is simply hiding the fact that our financial system is broken.

      If you believe that Bernanke and Paulson’s plan will ultimately save U.S. investors, you’re going to get cut from the falling knife.

      And while I can’t tell you which big financial institution will fall next, I can tell you this:

      •  
        • We’re at the beginning of more banking failures and not at the end
        • The government doesn’t have any more money to rescue any more banks, and
        • The fallout will send the dollar crashing, raise inflation, panic investors and crush stocks againworse than the 504-point, 450-point, and 372-point declines we’ve seen over the past 7 days.  “
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