A Lion’s eye on the Bulls and Bears

“In India, companies may fall sick, but promoters rarely do!”

Gaurav's Blog


Month: March 2009

BBC broadcasts two Interesting Talks with Two Interesting Women…Sherron Watkins and Anousheh Ansari

Sherron Watkins and Anousheh Ansari…Two very Enterprising and Courageous Women

Yesterday,BBC had them on their Channel…and I was a keen viewer

Sherron Watkins was on HardTalk…She was the Vice President of Enron and in 2001/2 had sent a very detailed email to her Boss, Kenneth Lay,detailing the Accounting Frauds in Enron and warned that Enron would implode…Time Magazine made her the Person of the Week in one of their January 2002 issues

She lives in Houston and made a few very candid points yesterday…She feels there is no Shame in America,like there is in Japan.Shame is a great Motivator.In America,those who commit frauds are not ostracised and people accept them because they are moneyed…”Oh ! he has US $ 700 million…Wow !”…On being asked did she yet believe in the American Dream,she said it stood on three pillars…Economic Freedom,Political Freedom and Moral Responsibility…the problem is lack of moral responsibility…did she yet believe in Democratic Capitalism ? Well, she says,the Chinese have been telling her lately that “Watch it ! Communist Capitalism will be a greater success !”   

Later BBC interviewed another very interesting lady…Anousheh Ansari….This Iranian-American is the first woman tourist to go into space to the International Space Station


Ansari flew into space on September 18,2006 travelling in a Soyuz TMA 9 Spaceship that took off from the Baikonur Cosmodrome in Kazakhstan…Oh ! and she’s the first to blog from Space !

Yesterday,she again regaled the thrilling experience…Was she scared ?…Even If the ticket to travel into space was her “Life”,she would willingly have paid it !…Earth is beautiful from space and she wishes that Space Travel be made more affordable so that many can fly into space…Once they see Earth from Space,the beautiful image leaves a lasting Impact and they would not do anything here on Earth to harm their Planet !…In lighter Vein, she says,it should be mandatory for Presidential Candidtates to travel into Space first to view Earth  

Sensex moves smartly near 25% from just above 8k to near 10k in March 2009..Is this sustainable ?

In thirteen trading days from an intraday low of 8047 on March 6,2009,the Sensex is once again kissing 10000….moving up near 25%

Getting a lot of calls…basically to make some sense of this rally

Is this the beginning of the recovery and have we seen the Bottom of 8000 for the Sensex and the October 27,2008 low of 7697 will not be tested ?


Is this just a Pullback rally and we shall see the Sensex breach 8000 again in 2009 ?  

I hold the view that the macro pains have yet to unfold in their entirety…This rally is a strong counter- trend and a powerful one at that…. we shall see such bounces on oversold markets…Maybe the Bottoms may not  be tested for a while…but they will

In fact even on October 27,2008 when the Sensex touched a intraday low of 7697,it swung back sharply within just three days to close at 9788 on October 31,2008 !…and it had begun October at levels of 13000 !

If you think the WORST MUST BE OVER ,then think again !…Sensex at 11 and 12 multiples may appear cheap against the 25 + Multiples we had in January 2008….With Earnings slowing down,we’ll probably see single digit P/E,trailing and forward, on the Sensex in 2009 and that would sustain for some time

The Dow took 25 years to regain it’s 1929 High…It did so in 1954 !…Our wait for the Sensex to regain 21000 should not be so long !…Right Now I see Stressed Prices but not Distressed Prices on our Bourses…..These will come in 2009 itself and give you some great buying opportunities.    

Ask an Investor who got into Unitech at Rs 500 in January 2008,whether he’s excited with this rally !…he may be too shell shocked anyway to respond !

The poor Bloke saw a 95% erosion to Rs 25 in just over a year….he now needs to get a 1900 % surge to recover his loss of Rs 475…so if Unitech has gone up 40% from Rs 25 to Rs 35 how does this matter to him !….so don’t live under delusions and the phony excitement being generated by experts and TV Anchors on the Stock Channels of this “big” 40% gain in Unitech

These swings require you to have a Traders Mentality to capture opportunities…and that’s a tough ask….I thought Investment was about Investment !…not Trading or Speculating ! 

So what do you do to recover from being Hit last Year in Equity ? Some Thoughts….

  • Just Holding on to your Equity Portfolio may not work as some scrips may have seen permanent erosion…so review and reposition…believe me taking a real loss than sleeping everyday with a notional one is a big relief !
  • Save/Hold/Generate Cash to capture greater opportunities ahead 
  • Hedge your Portfolios against declines…the volatility is just too unnerving
  • If you must Trade then do so with strict stoploss
  • Use upswings to exit some holdings to create cash to later capture scrips at distress prices to reposition your Equity Portfolio 
  • Be prepared to adopt a tactical,rather than strategic, approach to capture great opportunities
  • Get some significant Gold exposure in your Portfolio…Physical or through ETFs
  • Ensure proper Asset Allocation to suit your Risk Profile and be disciplined in the rebalancing exercise when predetermined allocation ranges are breached

You’ll be deafened and confused by the divergent views and the cacophany being generated on the channels and the print media by a host of Experts and TV anchors read more

Jai Ho ! Tata….Rs One Lakh People’s Car…. NANO Car Booking Announced

Jai Ho ! Tatas !

The eagerly awaited booking for the Tata NANO Car…the Rs One Lakh Car…The People’s car…has just been announced this late afternoon…..Booking opens on April 9,2009 and will close on April 25,2009

You can access their website for more details

Ratan Tata appeared greatly relieved at the Press Conference….gave several light hearted comments…on answering how soon can an applicant/allottee expect the car delivery,Tata commented that it was like a Pretty Girl…the quicker you get her the better,otherwise she will age and get fat and lose her prettiness !…he will try to meet the demand fast…..

Ratan Tata used the words ‘Facetious’ and ‘Serendipitous’

“Facetious” means treating serious issues with inappropriate humour and Tata stated he was not sounding “facetious” when he made a ligh hearted comment

When a Foreign Correspondent asked how he could explain to those overseas this fantastic Interest that has been generated for NANO,Tata spoke humbly stating that the NANO Project actually began with the aim to transport Indian Families safely at an affordable cost and in a robust Car….Everything else,the Engineering etc…..was “Serendipitous”……..it  means the fortunate occurrence of events by chance 

Ratan Tata said the NANO will be a profitable Venture without revealing margins. 

Some Interesting NANO facts

  • Three Variants to be launched
  • 23.6 Km/Litre Fuel Efficiency
  • Rear Engine 624 cc
  • Wide Colour Range
  • Initial Annual Production 50000 from Pantnagar Plant
  • Real Scale when Sanand Plant in Gujarat rolls out Production end 2009/early 2010….Annual Capacity is 250000 that can be ramped up to 500000
  • Tatas moved out the NANO Project from Singur in West Bengal due to the violence and hostilities unleashed by one political party with Ratan Tata in a TV Interview,bluntly accusing and blaming a business rival without naming them
  • Emission Norms ahead of Euro Legislations
  • Top Speed 105 kms/hour
  • Delivery Begins in July 2009
  • Fuel Tank is 15 Litres
  • Luggage Capacity ranging from 135 litres to 500 litres
  • Project Cost is Rs 2000 crs so far
  • Acceleration 0-60 kmph in 8.6 seconds
  • Warranty 18 Months/24000 km
  • read more

    Ongoing Akruti Squeeze Fiasco reflects all that’s wrong in our Stock Markets !

    The Folly of allowing a Real Estate Company like Akruti trade in the F & O Segment despite a low floating stock of under 2% is now being realised….The Share Price has crossed Rs 2200 !….Nothing to do with Fundamentals though !

     I have covered Akruti in earlier Blogs on August 27,2008 and November 8,2008 warning of Increasing Company Debt and how easy it is for the Company to manipulate the share price when floating stock is so low

    90% of the Equity is held by the Promoters and most of the rest by PAC….The company was borrowing unabashedly at high Interest rates recently….A group of speculators shorted this Company big time expecting loan payment defaults….This naked short is now being squeezed badly….Serves you right ,Bears !…you knew the risk when you shorted ! and so must face the consequences…..however the Bigger Issue remains ! How can you allow  F & O Trading in a Scrip which has a poor floating stock…..easy to manipulate the share price

    In just days the Share Price has doubled as the bears got squeezed….NSE has put the Scrip in ‘Trade to Trade’ and removed it from the F & O Segment…All Open Positions,not squared off  will now compulsorily close out on March 26,2009…there will be no rollover…From January,Market Positions Limits had been reached and no new F & O position was allowed…only square-offs

    SEBI Teams,two of them,have begun investigating Mumbai and Kolkata Brokers involved in this ongoing Drama

    Just a last thought….hope Promoters have not masterminded all of this just to justify creation of this high price deliberately…to provide  comfortable cushion and no requirement to top up[ on loans taken or proposed to be taken against pledged shares

    Those who have Akruti Shares must begin offloading at Rs 2200 +….The Squeeze will be tightened as March 26,2009 approaches…Offload your stock at every rise….There will come a day soon when the Game will be Over…The Share Price rise too will then be Over and reversal will set in !

    By Allowing F & O Trading in Akruti,the regulators and exchanges showed lack of foresight and allowed this Squeeze Manipulation Drama to unfold,vitiating in no small measure the credibility of F & O Markets Operations.Clearly those that control the actual Stock are flexing their muscle here…their numbers are few…and that’s the problem…no floating stock…no trading depth…fewer players…easy to manipulate share prices and create abnormal movements quickly…facilitates Insider Trading read more

    A Yellow Broking House Screams Yellow on using P/E and P/BV Valuation Metrics to make Macro Valuation Calls !..Absurd and Rubbish they say ! Not really, we say !

    There’s this Yellow Coloured Broking House,that’s been screaming Yellow ! for some time Now…Last Week they used Slumdog Millionaire Analogy and Two days ago they have slammed Valuation Metrics of P/E and P/BV to value our Stock Markets !…This House continues to court controversies and it’s head SS continues to confront SEBI !…. Atleast I have to concede that his reports are entertaining…I asume they are his,as they are written in first person ,but no credits have been given !…one need not agree….but even to disagree,you need to know what he’s playing the Devils Advovate about !

    They’re rough on Living Investment Legend and Value Investor,Warren Buffett and   expect the S & P 500 to correct yet further to 450 from current 650-700 levels !…In short they continue to spew stark yellow,yellow,dirty fellow Bearisms all over their Yellow Reports

    They are entitled to their Views….I’m not saying I’m Bullish ,but I can’t help but strongly disagree with their ‘analytical and conceptual rigors’,as they put it!

    They thrash P/E and P/BV,asserting strongly that it is foolish to compare these metrics between different years….as skewness in individual constitutents earnings,ROE,COC,Inflation etc influence performance…and factors for skewness and replacing constitutents in the Index are not considered….Relative Valuations Comparisons over Different Periods are therefore not Apple to Apple,and to make them so,is really an improbable task.

    Darlings,Comparisons do tell a story…all your arguments are already build into the Pricing,sometimes laggardly as Eugene Fama’s Hypothesis of Strong,Semi-Strong and Weak Markets would decide …moreover Suitability and Selection of Constituents is an ongoing process so that these represent best proxies and the best mix and therefore ,with a few exceptions,the aggregate EPS can be used as a denominator to Index level and this Multiple can be compared between periods to make macro valuation calls…This should answer your argument on skewness of Earnings and the hypothetical illustration you give where in three Seperate scenarios the P/E wll be 10 as Market Cap of all constituents is 500 and aggregate earnings is 50….but the skewness in earnings  of the individual constituents varies from stable to extreme.

    You have tried to obfuscate,what really is a simple comparative issue,by putting up a P/E Formula…use Graham & Dodd (1934)or even the perfected Gordon’s (1962) model to incorporate Growth…..Simply P/E =Market Price /EPS….so when Market Price begins to runaway ahead of fundamentals,the P/E too goes berserk…..Check out History…In 1992,at the peak of Harshad Mehta’s reign and his frenzied Market Buying ( Remember ACC crossing Rs 10000 and Crackers on Dalal Street ! based on Harshad Mehta expounding the Replacement Cost Theory !)the Sensex P/E was an absurd 70….Even in the mid 1990s, when CCI was abolished and IPOs were like white ants coming out of the woodwork at obscene premiums,the Sensex P/E was 30+…Then in Ketan Parekh’s ICE age in 1999/2000,the Sensex P/E again crossed 30 as Panic Buying set in and Prices tried to reach the Moon !….These were times of excess and Markets were clearly overvalued…In 2001-2003 the P/E slumped to below 10 as Share Prices seemed to revolt against man made excesses !…clearly moving markets back towards sanity read more

    Inflation at Record Low of just 0.44%….Good or Bad !?

    The Common Man should be happy that Inflation is just announced at a record low of just 0.44%….but he’s not !….Where have consumer retail prices come down really ?…Food Costs are yet high

    It’s the base effect working…We’re coming from High Inflation rates of over 10%  in the second half of 2008 when Oil had rushed to cross US $ 140/b…but has now receded sharply to below US $ 50/b

    So what will such a low Inflation rate lead to?…..Clearly Interest rates and GDP Growth rates too will ease out…… Staring at us and growing stronger in focus are the danger signals of deflation and ebbing demand,atleast in the short term

    You’d have to be godly optimistic to believe that stock market rallies will sustain   

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