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Markets looking Ominous…..beware the Ides of March !…Sensex down 2% and from 18000 can seek sub 16000 levels in 2011

Markets are looking increasingly ominous and  Sensex is likely to correct from 18000 + levels to be derated down to PE 14-16 range….sub 16000 possible in a few weeks…while I do remain bullish for the longer term I simply cannot ignore bearish macro indicators in the shorter term 

William Shakespeare penned this warning as a part of his play  ‘Julius Ceasar’…”Beware the Ides of March”…..today it is !…different RTC but I’m too issuing a caution ! 

This macro view is largely influenced by

  • Oil Prices likely to surge even further and cross US $ 150 a barrel as fears mount of ‘ No Fly Zone’ coming up in Libya,Saudi Arabia flares up even more ,Japan begins to count the tsunami losses and a growing voice against nuclear energy will increase the demand for Oil as Fuel worldwide
  • Inflation worries continue to challenge as prices of non oil commodities too show no sign of abating
  • Pressure on Interest Rates will remain and this year the rates in India will keep firming…they are kissing 10% levels already…so to take that extra risk to earn specific Equity Premium to return aggregates of 18% to 20% from Equities (anything lower is not worth it) may not be everyone’s cup of tea 
  • Geo Political Tensions mounts in the MENA Region
  • Sovereign Defaults again loom ahead in Europe 
  • FII Inflows are slowing down in 2011…on some days we actually see worrying outflows
  • 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

    Atlas Copco announces delisting and reverse book building process schedule…how to play this

    Atlas Copco had announced intentions of delisting the Shares from BSE and PSE in October 2010…the formalities are now complete and the mode and schedule has been announced

    http://www.bseindia.com/stockinfo/anndet.aspx?newsid=20eaa6da-d155-4a0e-b16b-ae6648f7516e¶m1=1

    Indicative Offer Price is Rs 2250…Floor Price is Rs 1426 in the Reverse Book-building Process…Bid opens on March 7,2011 and clses on March 11,2011….Discovered Price,if any,will be announced on March 23,2011 with payouts and shares not accepted being returned on March 25,2011  

    For some Tax efficiency and Planning if you hold the share consider selling it on BSE so that STT is applicable and you will get the benefit of Long Terms Gains being exempted from Tax…..Current Price is a shade below Rs 2100………this is below the Indicative Offer Price of Rs 2250….Therefore if you wish to participate in the bidding,you can repurchase these shares a day later from BSE and submit these in the Bidding Process in the March 7-11, 2011 period….However you may assume some price risk in doing so as there is a day’s lag time between your sale and repurchase…Moreover Liquidity in this counter is not too good….To eliminate this risk you can put through a simultaneous sale and purchase within your family and request your Broker to apply minimal brokerage….

    ……for example if you as the husband hold the shares,you can sell them to your wife on the Bolt at a price in between what is streaming on the screen…so if Rs 2095 and Rs 2098 are best buy and sell bids on screen you can input Rs 2096 as your sell order and her purchase order simulatenously on two different terminals…..the wife will now be the new Owner at Rs 2096 + brokerage etc and can participate in the reverse book-building bidding process….if her bid,which obviously should be over her purchase price is accepted,she will be subjected to tax on the capital gains made as no STT is involved…but her gains will be calculated from her purchase price  of Rs 2096+

    As the whole delisting Process may be completed in March 2011 itself you could even make another play

    Buy Atlas Copco at Rs 2100 on BSE and submit a bid of Rs 2250 or even above in the rbp….if the discovered price is Rs 2250 or above you will benefit 5% to 10%

    Your risk is that

    • the delisting process is unsuccessful as Promoter ,Atlas Copco,Sweden may not accept the tendered prices as they being too high
    • the delisting process is successfull but the Discovered Price is less than your Purchase Cost   

    To assess this risk review the following statistics

    Share Price Behaviour of Atlas Copco : Current Rs 2100….52 Week High/Low :2243/751….Monthly High/Low : 2243/1852….Weekly High/Low : 2159/2091 read more

    Equities continue Reeling…seek Counselling as appropriate…Contrarion Opportunity may again be beckoning soon

    I repeat what I blogged last evening

    …and Oh! the markets are correcting on cue towards a Sensex of 18000…don’t attempt to call the bottom…it may be in your Minds but it’s not in your Hands !….something’s brewing and it’s worrying…getting that strong negative vibe for Feb and March….sub 18000 levels could be on the cards…In November 2010 I had opined a Sensex range of 18000 to 22000 in the first half of 2011….However I fear 18000 will be breached in the short term…Traders and Speculators beware….Investors review your Portfolio selections to assess downside risk…don’t be in any hurry to invest fresh funds or reinvest sales proceeds   

    Cash is King….Those who are addicted to Trading and Speculating are strongly advised to switch from Brokers and Stock Channel Counselling to Psychological Counselling first and then to some serious and rational and professional Investment Counselling ! 

    Investors are well advised to seek Good Professional Investment Counselling….stop being penny wise and pound foolish !….atleast ,as stated last evening and repeated above,review your Selections to assess the downside…and tune your mindsets to a longer perspective,preferably three years…The Discipline of Asset Allocation first and then Equity Portfolio Construction to match your Risk Profile will now be more easily accepted to adhere to ….You will need to ‘Bear’ this Fall and be wisened that when the ‘Bull’  snorts,everybody ‘Bulls’ around and believe it’s their skills and not just luck or the trend that is making them the Monies….succumbing to irrational exuberance is oh! so easy…but when the tide turns you’ll see, as Warren Buffett asserts, that most are swimming ‘naked’

    It’s a pointless exercise inquiring of your Broker on past but fairly recent  2010 recommendations that have gone terribly sour and south…he’s not lost the monies…you have if you had acted on them as you were guided,coaxed and urged to….for example IVRCL Infrastructure…End September 2010 a host of Broking Houses released strong ‘Buy’ reports at Rs 170 with targets of Rs 201 and Rs 238 and beyond …this was probably after being wooed by the Company in Analyst Meets….It became their Darling Stock….Inside four months IVRCL Infra is quoting at 52 Week Lows today of Rs 83 !…that’s an erosion of over 50% !….I wonder how many of these Broking Houses will now issue a follow up Report on IVRCL Infra….and how many of their Clients will trust them and act on any such report !         read more

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