A Lion’s eye on the Bulls and Bears

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

Gaurav's Blog


Union Budget 2011/12

Saturday…..time out is time in !…..IFEN address,parrots,squirrels and sparrows,Reliance and Insider Trading,Oil Subsidies,RBI Warning on Fiscal Deficit,Iron Ore Bubble, High Frequency Algorithimic Trading,Morgan Stanley an a Sensex of 30000 in 18 months……enough to ponder over this weekend

Been an interesting week that finished off last evening with my address on ‘ Equity Research & Portfolio Management’ for IFEN (ICFAI Univ) at Indian Merchants Chambers…well received and have already received some interesting feedback from participants…one of which is from the promoter of www.attainix.com …..he is into advising on Intellectual Capital (IC) and has created,based on algorithims, an IC tracker that signals if scrips are under or overvalued  

…and now it’s a Saturday…and am taking some time out by time in at home……warmed by an interesting tussle between parrots,squirrels and sparrows for a share of the peanuts in their shell and rice grains on their feeding platform among my plants….finally agreeing to Q up and live in harmony….soothing sight

….read the past few days papers leisurely…some coverage that triggered my interest i’ve bulleted below with links….. and my comments in blue italics

  • Reliance Industries to approach SEBI for the third time to settle Insider Trading Investigation through a Consent Order….in the first two approaches,RIL had offered merely token amounts to SEBI…one paper feels this time around the figure could be a record Rs 500 crs…… want to refresh what actually happened then click below on two earlier blogs by me on this in August 2008…am wondering if I should make this a TAP GAP Equity Poser as to what you think is the way RIL should be penalised for this….they earned over Rs 1000 crs in RPL insider deals in November 2007   

Mukesh Ambani coterie accused by Samajwadi Party for Insider Trading in RPL and Jai Corp

Tuesday, August 5th, 2008

Proof Of Insider Trading in RPL…Yet Blind Eye Turned by SEBI

Wednesday, August 6th, 2008



  • A Bloomberg article quoting Baosteel,China’s second largest Steel Mill,on the possibility of an Iron Ore Price Bubble developing…..may happen after a few years though and current FOB Prices of US $ 175/T may drop to US $ 80/T so my thoughts revolved around the impact on Sesa Goa….it is already facing an Investigation from the Serious Frauds Investigation Office (SFIO) for under invoicing exports by Rs 1002 crs between 2001 and 2007 and paying higher agent commissions of Rs 50 crs when it was under Mitsui control….plus the draining out of all Cash by it’s new Owners,Anil Agarwal’s Vedanta Group for acquiring a 20% stake in Cairns India+ Higher Royalties and tax now payable to the Government….should one therefore exit Sesa Goa at Rs 290/Rs 300 ?


  • The Oil Under recoveries and the additional subsidy burden on upstream majors ONGC,Oil India and GAIL ….when I debated in my workshops in BSE and elsewhere in 2005/6 that Oil will cross US $ 100/barrel in a few years…it was at US $ 30 -40 levels at the time,people felt I was stretching it…It crossed US $140 in 2008 !…before receding in 2009 to under US $ 50…and has again enetered three digits…..am wondering what will happen if Oil moves towards US $ 200 in the next year or two !…..India will have a refining capacity of 230 million tonnes by 2012….but domestic crude from ONGC,Oil India revolves around 30 million with Cairns adding a few million more….and our demand is at 150 Million and climbing as GDP grows at 7%-8% +….so our Oil Imports will be over 110 million tonnes annually and we can get into a very tight situation like we did in 2008….it will reflect in a higher fiscal deficit and therefore higher government borrowings to fund this deficit…..Look for Higher Indirect and Direct Tax Rates and Higher Petroleum Prices in such scenarios …..As long as High Fuel Subsidies are borne by and Oil under recoveries dominate the operations of the PSUs, is there any merit in investing in upstream PSU Oil Companies like ONGC,Oil India and Gail or even in the PSU Refining and Marketing Giants Indian Oil,BPCL or HPCL ? 






Average price of crude
(Indian basket) per barrel ($)




Total underrecoveries
of OMCs (Rs crore)




contribution (Rs crore)




Upstream companies’
contribution (Rs crore)




Upstream firms’ share




Absorbed by OMCs
(Rs crore)




#for May 1-15, 2011;  
*Assuming no further price hike at the retail level and current crude oil prices
Source: Ministry of Petroleum. OMCs: Oil marketing companies
  • RBI Governor D Subbarao warning that the government will have a hard time meeting it’s fiscal deficit target….I highlighted this situation in my presentation at my IFEN address yesterday and showed how the fiscal deficit is being funded by high government borrowings…the Governor fears spark off the possibility that these may be even higher than projected


  • NSE changes algorithim approval process


My thoughts turned to the rapid growth of High Frequency Trading (HFT) in recent years….HFT is one way of  algorithmic trading…in USA,over 50% of trading is now high frequency trading….Data shows that a HFT trader on an average does not hold any position longer than 22 seconds !…..HFT Trader throws in a number of high speed trades for round trip execution in micro seconds….it has been found that over 80% of such orders return cancelled….such orders,though small in size,but through a high recurrence rate, try to capture price imbalances available for just milliseconds to generate huge profits…the trade is decided automatically by algorithimic computer models that analyse real time data to capture these price inefficiencies and imbalances…..HFT has sparked off the need for a strong regulatory and supervisory and monitoring system in place,especially after the flash crash in US markets on May 6,2010 read more

Muted Expectations from the Union Budget….and the FM delivered on cue…..Sensex rally of 500 + Points had to reverse

Immediate Take on the Union Budget


Nothing much was expected from this Budget and our FM met these expectations…..I had not expected any Amnesty Scheme or bold vision or dramatic reform announcements….too many pressures and pulls and compulsions being faced by this UPA Government currently


Markets were however buoyant from Morning and post budget speech Sensex surged over 500 points at one time reaching 18297 prompting me to alert clients that these gains will reverse….they did by over 400 points in the last hour or so,although Sensex closed up 122 points….more a relief rally really + some short covering


Macro Concerns are yet intense…Interest rates…Inflation…Oil Prices….global tensions in MENA…..FM really had his hands tied

…with inflation high he had to put monies into the hands of the People…his Direct taxes sops will lose Rs 11500 crs for the Government….he is recovering these from Indirect Taxes

…..he seems to have misunderstood what we wanted for our Infants and Women !…he has reduced the Excise Duty on Diapers and Sanitary Napkins from 10% to 1% !


He also seems to have worked backward to put a lid on the fiscal deficit….gave a % & number to it…4.6% of GDP at 4.12 lakh crs,lower in % terms but slightly higher in absolute terms than this year, and then adjusted other heads !…for example subsidies ,especially fuel look too low at Rs 23000 + crs

….he has targeted 9% GDP Growth rate for 2011-12….looks challenging as in 2010-11 we have seen 8% + every quarter…and Corporate Earnings may be impacted next fiscal year as Interest Rates remain high

….and the Deficit will continue to be funded by strong Government Borrowings of Rs 3.43 lakh crores…with this pressure and high Inflation  expect Interest Rates to firm up some more !…they are already at 10% levels


Markets got an unexpected  positive in that FM announced that Foreign Nationals that meet KYC norms will be allowed to invest in Equity Schemes of SEBI registers Mutual Funds….this opens out a whole new class of investors to tap…..KYC norms would mean these Foreign nationals would require PAN numbers 


Direct cash Subsidies to Below Poverty Lines Indians for LPG,Kerosene and Fertilisers in a good first step to eliminate malpractices in subsidy distribution….UID is yet a year away to use as an efficient platform for financial inclusion and distribution of resources   read more

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