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

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A Rhetoric Question ~Will Petrol In India go back to 1963 Rates !?

Petrol Bill of 1963

🙂 Will Petrol go back to 1963 Rates in India as on this old bill from then  ! ? ~ Question is of course rhetoric !

Read that again ! It’s just Rs 3.60 for a full 5 liters !=> that’s 72 paise a litre  nearly 53 years ago on February 2,1963 !…it’s surged   to current @ Rs 70 a litre which is in absolute terms 9600+% and in CAGR Terms just 9%

You can dramatically of course say that 72 paise has become 72 rupees in just over half a century ! 

Today everyone has an Opinion on Oil Rates !

Of Course very Few ,if at all any, had predicted in  mid 2014 that they would halve from US $ 100/barrel

Now many are predicting they will halve even from current US $ 41.65 (WTI) & US $ 44.61 (Brent) ! .Here’s an interesting article of October 2015 on Oil & the Syrian War

Great for India if it does halve from the halve already in on year !…it’s cushioned our FY 15 & FY 16 significantly as we import 3/4 ths of our growing requirements and we are growing at 7.4% GDP  on last count 

Oil’s Well that ends Well !

India is in a sweet spot !…for now…will it get sweeter?

Hoping for A Merciless Market for Higher Gains at Lower Risk !

As a Concerning Week comes to a close,the Sensex again has chopped off a few hundred points and gone sub 25500

I’m Hoping for A Merciless Market !  ….that’s when you can get into serious wealth creation opportunities at lower risk for higher gain !

Have held from December 2014 that 2015 will be volatile and vulnerable and had repeatedly voiced cautions on SCRIP STANDPOINT Module on my company website

which would serve you well to visit and revisit  to understand why we thought so

 

 

This is the latest note emailed by me to clients and associates  earlier this week

Hi,

We have been quiet for a few months now for a good reason. Those who are on our fundamental wavelength know what we stand for. We had cut down drastically on our ‘Buy’ recommendations  in all Modules in FY 16 till date.Too frequent communications then would have served little purpose other than the danger of generating ‘Noise’ from the exchanges !

A Communication is Now Due as to why on Indian Equities we had preferred to take the risk on Erring on the Side of Caution

Sensex closed down 2.23% or 587 points down today to close sub 25700 triggered by declaration of  Shortfall in Rain & lower that expected GDP for the last quarter 

While we are not into Equity Fundamental Advisory for Bragging Rights we must raise this issue to revalidate our cautious view held in 2015

We have held a view of Sensex Range of 25000 to 27000 for most part of this year 2015,especially after it touched 30000 on March 4,2015 after closing 2014 at 27500 levels.

We had opined in December 2014 itself and in January 2015 that the Sensex will record an all time high of 30000 early in 2015 as the three legs of the Equity Table ~Momentum,Sentiment and Liquidity ~ were all in favour although the fourth leg Valuation was beginning to raise an alert on the Corporate Earnings Front 

Early in 2015 we were unable to assess with the required degree of conviction on four domestic factors and three overseas factors that would play out in 2015.Of course everyone had a strong view or opinion on these !…these were :

Domestic Front

  • Significant Rate Cuts demanded by the Corporate Sector to revive Manufacturing Sector  ~ Yet awaited 
  • Corporate Earnings in FY 16 after a bad Q 4 FY 15 ~ Q1 & Q 2 FY 16 seem to carry forward from Q 4 FY 15 ~ Sensex FY 16 EPS projections lowering inevitable 
  • Normal Monsoon ~ After a promising June,it’s been downhill in July and August 2015 and Monsoon Shortfall is now a given
  • Pace of Economic Reforms especially on the GST ,Land and Make in India Initiatives ~ Not much Headway given the Political Opposition that has disrupted and washed out whole Parliament Sessions

Overseas Front

  • Was the record surge of Chinese Stocks backed by fundamentals 
  • Will Greece be bailed out or allowed to default and exit the Eurozone
  • When will the US Fed raise rate 

What we did assess with conviction was that FPI Inflows will ebb or even reverse in 2015 from the record inflows in 2014…another reason that should mute markets…as this was played out it was ignored by a frenzied midcap space market that justified it being balanced out by increased retail participation and absorption by increased Mutual Funds Investments  read more

What A Shame!~LIC bails out Government with US $ 1.2 b in IOC Disinvestment

Just a few days ago I had blogged that the IOC Disnvestment on Monday will be just a formality….But Monday’s Global Stocks Chinese Contagion Capitulation saw a very very poor response to the IOC  Disinvestment

It’s a real shame that the Government yet again  had to direct/order LIC to bail it out yet again…it would have been a wise idea to defer the issue rather than order LIC to invest in 86% of  Issue of Rs 9379 crs  bat Floor Price of Rs 387 !…. shoots up  LIC holding in IOC by a whopping 8.59% from 2.52% to 11.11%….it’s another issue that IOC is past Rs 400 today on signing a refinery deal with Nepal

This then sadly was not a real disnvestment just as it was not for a similar 10% last year too when Oil India & ONGC were ordered to pick up 5% each at Rs 220 .,,,just another continuing story of government selling from one PSU to another !

Its no wonder LIC does not want to go public ! and neither is the Government inclined to make it public !

Raises Huge Corporate Governance Issues on Investment Decision Making,Accountability and Tranparency

It’s happening for decades now….UTI was first the Big Market Daddy in the 1970’s to 1990’s before India opened out to FIIs and Other Mutual Funds that saw UTI losing it’s war of words with SEBI to be brought under it’s regulations….in the late 1980’s the UTI Chairman then had opened out to me in a candid interview on UTI’s Investment & Disinvestment Decisions Process,sometimes buying a company’s shares through one broker and selling the same company’s share on the same day through another !, and Competition emerging from other Mutual Funds sponsored by PSU Banks that were allowed to be set up .It was to be carried in a leading Magazine…it was explosive and so I send him the transcript to confirm he was not being misquoted….Phew! he panicked and  asked me not to carry the Interview….had told him it would be the Editor’s call….it was not carried finally !

LIC  yet stays out of SEBI regulation though its the Biggest Shareholder in Indian Equities and functions like a Government Proxy

Who’s to Question LIC !…or for that matter the Government ?…and the Disinvestment Secretary boasts of how with this Disinvestment it’s a been the best first half of the year in the last many years for Disinvestment Proceeds !

It’s the Cash Cow for the Government to lead and order the flow wherever it conveniently wants Investments ! read more

India Bullied by Foreign Portfolio Investors ~ What is New !?

India Bullied by Foreign Portfolio Investors ~ What’s New !?

In 1913, US President Woodrow Wilson expressed his concern over a secret movement toward world government in his book, The New Freedom:

 “Some of the biggest men in the U.S., in the field of commerce and manufacturing, are afraid of somebody, are afraid of something. They know that there is a power somewhere so organized, so subtle, so watchful, so interlocked, so complete, so pervasive, that they had better not speak above their breath when they speak in condemnation of it…. We have been dreading all along the time when the combined power of high finance would be greater than the power of government….”

Far Fetched ,you think,when viewing India’s Financial & Capital Markets in this context !?

Sensex is now below 27000 and FPI Withdrawals continue  and approach a billion US Dollars in May 2015  after  a second fortnight April 2015 sell off of @ two billion  US Dollars

2014 saw record FPI Inflows of  Rs 256213 crs or over US $ 40 billion (US $ =Rs 64) of which Equity Inflows @ US $ 15.2 b were the prime catalyst to take Markets to record heights

FY 14/15 that just closed the Inflows were also a record US $ 43.4 b that includes Equity Inflows of US $ 17.4 b !

Now in 2015 till date May 6,2015 FPI Outflows have been evident from mid April 2015.In this second fortnight of April they pulled out @ Rs 13000 crs or two Billion Dollars!.The Whole Month shows pull out of US $ 1.5 billion if you remove the Sun Pharma Block Deal as below

If it was not for the Daiichi Sankyo sale of it’s stake for @ US $ 3.35 b in Sun Pharmaceuticals on April 21,2015 that was purchased by FPI and thus showed Gross FPI Purchases of Rs 21344 crs for the day then April 2015 would have shown a Net Outflow instead of Rs 11721 crs Equity inflows.Infact even on April 21,2015 when FPI did the Block Deal Purchases in Sun Pharma,they also sold other Stocks for Gross Sales of Rs 4986 crs

The FPI Selling has continued in May too and in just three trading days they have sold Equities exceeding half a billion dollars    

Calendar Year 

INR crores

US $ Mn

Average Daily Equity Flow

No Of Trading Days

2015

Equity

Debt

Total

Equity

Debt

Total

US $ Mn

January

12919

20769

33688

2018

3245

5263

96

21

February

11476

13088

24564

1793

2045

3838

94

19

March

12078

8645

20723

1887

1351

3238

90

21

April

11721

3612

15333

1831

564

2395

-506

19

(Sun Pharma Block Deal Inflow 21344  Net April Outflows 9623)

May( till 6/5)

-3467

65

-3403

-542

10

-532

-182

3

Total – 2015

44727

46179

90905

6989

7215

14204

Why  are FPIs selling off ?

Immediate Two Triggers are being cited as below:

  1. Indian Government’s insistence on imposing the Minimum Alternate Tax of 20% on FPI Past Gains.It has already send out notices to 68 FPIs claiming Rs 602.83 crs.One of them,Aberdeen has succeeded in obtaining a stay order from the Mumbai High Court.Such Taxes amount to billions of US Dollars and after the IT Tribunal upheld the IT Department’s contention for MAT ,our FM,Mr Arun Jaitley asserted that such would be collected as India was not a Tax Haven.However those FPI who function from jurisdictions that have a double taxation treaty with India can examine if they can take refuge under such a Treaty.    
  2. Huge IPOs coming up in the near term in China that present prospects of quick gains.Alibaba’s Global IPO of a record over US $ 25 b in September 2014 was a raging success with the US $ 68 issued Share listing with gains of 36%

However I  had held as 2015 set in that FPI Flows will taper in 2015 for the following reasons

  1. Speculation will intensify as to WHEN the US Fed would raise the Fed Rate….could be as early as June 2015 but probably later in the year or early next year.As rates were set to rise in USA there would be a reverse flow back from Emerging Markets to take advantage.US Unemployment must continue dropping  while Average Wages must show a good rise.
  2. I also hold a view that The Eurozone will attract Equity Investments from USA after introduction of Quantitative Easing Measures in an attempt to revive the economies of the countries that constitute it and save the Euro from weakening further…they are citing USA success in doing so post Lehman Collapse in 2008.We now all know how the QE in USA pumped in additional liquidity into the markets rather than the Economy and pushed the Dow to a record of 18000.With near Zero Fed Rate some of this liquidity was attracted to emerging markets like India in search of higher gains and thus taking even our Sensex & Nifty to record heights
India has being insisting that FPIs  pay up the billions of dollars of Tax Arrears after they lost their Appeal in the Income Tax Tribunal India is now alarmed with  just a few US $ billions of FPI sell off and have  been bullied into  pulling back by : 
  1. Instituting the Shah Committee to look into the MAT Matter 
  2. Instructing the IT Department not to send any further Notices to the FPIs for paying up

We are conceding how dependent we are on FPI Inflows to prop up our Stock Markets ! and worried that this will also impact FDI Flows into India ~ It’s been like this right for the past 25 years since 1991/92 when they were allowed to invest in Indian Equity  read more

Freeloading Promoters ~ Loved this Address by the RBI Governor Raghuram Rajan

Freeloading Promoters ~ Love the RBI Governor,Raghuram Rajan’s Strong Speech at the Third Verghese Kurien Lecture at the Institute of Rural Development Anand yesterday

resonates with the tagline of my blog “In India, Companies may fall sick but Promoters rarely do !”

Here are some superb extracts from the Address as linked above

” The Promoter enjoys riskless capitalism -even in these times of very slow growth,how many large promoters have lost their homes or have had to curb their lifestyles despite offering personal guarantee to lenders?” 

“We need a change in mindset, where the wilful or non-cooperative defaulter is not lionized as a captain of industry, but justly chastised as a freeloader on the hardworking people of this country,”

“In India, too many large borrowers insist on their divine right to stay in control…”

“…the promoter threatens to run the enterprise into the ground unless the government, banks, and regulators make the concessions that are necessary to keep it alive. And if the enterprise regains health, the promoter retains all the upside….!

“No wonder government ministers worry about a country where we have many sick companies but no “sick” promoters.”

“I also don’t want to argue against risk taking in business. If business does not take risks, we will not get architectural marvels like our new international airports, the “developed-for-India” low cost business model in the telecom sector, or our world class refineries. Risk taking inevitably means the possibility of default. An economy where there is no default is an economy where promoters and banks are taking too little risk. What I am warning against is the uneven sharing of risk and returns in enterprise, against all contractual norms established the world over – where promoters have a class of “super” equity which retains all the upside in good times and very little of the downside in bad times, while creditors, typically public sector banks, hold “junior” debt and get none of the fat returns in good times while absorbing much of the losses in bad times.

“The public believes the large promoter makes merry because of sweet deals between him and the banker. While these views have gained currency because of recent revelations of possible corruption in banks, my sense is that Occam’s Razor suggests a more relevant explanation – the system renders the banker helpless vis-a-vis the large and influential promoter.” read more

Bull Run is born in Pessimism & grows in Skepticism and matures in Optimism

😆 Bull Run is born in Pessimism & grows in Skepticism and matures in Optimism

😯 We are past Pessimism…so which stage are we now as the Sensex approaches 27000 !

🙄 Skepticism!?…Optimism!?

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