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BSE
SENSEX closed today – Wednesday 5th March’08 at 16542 down 9.32 %
from 1st Feb’08 close of 18243. The intra month highs and lows were
18895 and 16165 respectively. I was bearish for the SENSEX for the month of Feb’08.
The
update is late by a couple of days on account the OPEC meet today wherein the
cartel decided not to increase the output of Crude Oil inspite of pressure from
Bush Administration. NYMEX Crude Futures are above $ 102 pbbl level. Tested
lifetime high of $ 103.76 pbbl on NYMEX on 3rd March’08. I had
predicted $ 90 pbbl would hold in Feb’08.
BSE
SENSEX breached S1 level of 16500 on an intra-day basis on 3rd
March’08 on account of economic worries in the US Market. ^DJI corrected sharply
in Feb’08 on account ‘recession’ confirmation in the US economy and hefty
increase of estimated losses from the ‘ Subprime Mortgage ‘ business from
earlier estimate of $ 400 billion to now about $ 800 to 900 billion. ^ DJI
tanked on 28th and 29th Feb’08 by around 3.5 %. Equity
markets corrected globally including India. FIIs were net buyers in the Indian
equities in Feb’08. SENSEX fell by 901 pts
on 3rd March’08 – second largest daily fall in history of
SENSEX
The
US economy is now in ‘recession’ as per Mr. Warren Buffet although Ben has still
not announced the ‘R-word’
officially. Bad economic news kept flowing out of the US in Feb’08 and hence
^DJI was bearish :
-
AIG
stock was hammered as its auditors rebuked the management for overvaluing its
CDO holdings.
-
Total
losses for UBS on account of exposure to ‘Subprime Mortgage’ business in US in
2007 were $ 18.40 billion. UBS reported that in 2008 there could be additional
‘write offs’ to the tune of $ 12.00 billion on account of ‘Subprime’
business.
-
One
of Citibank’s Hedge Fund had redemption pressure.
-
HSBC
Bank reported $ 17.20 billion losses from its US operations on account of
exposure to ‘Subprime Mortgage’ business.
-
US
Fed reduced the GDP growth estimate for 2008 to a lower level of 1.3 % to 2.0 %
against earlier estimate of 1.8 to 2.5 %. Ben Bernake did signal slowdown but no
‘R-word’
Indian Banks cut PLR between 25 to 50 bpts in Feb’08
although RBI did not cut any interest rates. This failed to have any positive
impact as the IIP figures were disappointing for the month of Dec’07 vis a vis
Dec’06. The Indian economy is showing signs of slight slowdown and the GDP
growth target of 9.0 % this fiscal may slip marginally to 8.7 %. GoI finally hiked prices of Gasoline and
Diesel marginally in Feb’08. This was anticipated but came too late due to the
pressure from the Left Front.
The
Union Budget announced on 29th Feb’08 by the Indian Finance Minister
for the next fiscal was completely over shadowed by the sharp correction in
global equity markets including India. The Budget was very populist and farmer
friendly. The Budget proposed increase in consumer spending by cutting taxes.
However there were no tax breaks for corporates. Minimum exemption limit for
income tax for salaried class was raised. In brief – a balanced Budget keeping
in view that it is the last Budget of the current FM. The GDP growth forecast
for the next fiscal is @ 9.0 % in the Budget. Fiscal Deficit is forecast at 3.2
% of GDP. These are encouraging signs for the Indian economy keeping in mind a
slowdown in the US economy. Complete details are available on the MoF
website.
The
Indian Stock Markets did not appreciate some of the proposals by the Indian FM.
The ‘short term capital gains tax’ was hiked from 10 % to 15 %. Secondly the
proposal of OTS ( one time settlement ) of agricultural loans of about US $ 15
billion to approx. four million Indian farmers was perceived as a bad news for
the PSU Banks. The PSU Banks will settle this loan of about US $ 15 billion.
Modus operandi of this OTS is still not clear. It is not mentioned in the ‘fine
print’ of the Budget document. How will the GoI re-imburse the PSU Banks as they
‘write off’ the loans to the farmers ? It is for sure that PSU Banks will not be
re-imbursed in cash. They might get Sovereign Bonds like the Bonds issued to the
Oil companies. This will leave the PSU Banks dry. PSU Banks were dumped by the
investors on the Budget day and there after. Operators also hammered these
Stocks.
On top of this ICICI, State Bank of India and Bank
of Baroda reported losses on account of their exposure to overseas financial
derivative instruments – CDS ( Credit Debt Swap ) and CLN ( Credit Link Notes )
primarily in the US market. Due to the turmoil in the US financial system the
market value of these financial instruments declined and hence provision for
losses has to be made by the said Indian Banks on their books. This turmoil was
triggered by the ‘Subprime Mortgage’ business. ICICI and other Indian banks
through their overseas offices sell these CDS and CLN to foreign banks who lend
money to Indian corporates for overseas acquisitions. ICICI took a hit of US $
265 million on its exposure to CDS in the US Market. The losses incurred by
other Indian banks with offices in New York are still not known. This was
another blow to the banking stocks. ICICI was hammered and so were banking
stocks, which have operations in the US. We must note that as we liberalize our
economy and open up our Banking Sector – Indian banks will take more exposure to
overseas risks and we must be prepared for such losses. ICICI and other banks
need to improve internal risk management systems and regulatory oversight. We do
not want another Societe General story !
I
expect SENSEX to be bearish in the month of March’08 as ^ DJI would be bearish.
The so-called ‘De-coupling’
of the emerging markets from US equity markets will take time. How much time ? I
am not able to comment on this issue. I wish I could. ^ DJI will be in an
intermediate downtrend if it trades below the 12000 level for three consecutive
days.
I
expect SENSEX to test its low of Jan’08 in the coming weeks. The levels to watch
for the SENSEX are :
S1 16400 S2 16000 S3
15500 S3 15330
If
the SENSEX cannot hold 15330 then expect can crash to 15000 – 14700 levels.
Elliot’s Wave theory indicates these levels. I feel this can happen if the
global equity markets crash.
The SENSEX has been in a ‘bull phase’ from March
2003 till January 2008. The recent correction has brought valuations to
attractive levels but investors should be careful. If SENSEX trades below 16500
level for a couple of weeks – Indian equity markets will enter a ‘short term
bear cycle’. Some renowned Indian analysts feel India cannot deliver on
Infrastructure, Airports, Ports, and Power Generation etc. They feel India is
not on par with China and South Korea and will slip on the said sectors. SENSEX
could take five to six months to recover from the said ‘bear cycle’. I agree
with these analysts. Smart money will soon move to ‘Debt Instruments’ as equity
markets look shaky in India on back of weak global markets.
There could be a ‘stand off’ between the Congress
and the Left Front on the Indo-US Nuke Deal in March’08. There could be
political uncertainty in India. Markets do not like political turmoil.
Gold
tested a new lifetime high of $ 990.40 Spot on 3rd March’08 in NY.
Dollar slumped to a new low against the Euro at 1.50. There is news that Russian
and Qatari Governments are buying physical Gold as a hedge against their US
Dollar assets.
I
am bullish on Crude Oil and the next level is $ 105+ pbbl, which will be tested
in coming weeks. I am of the view that Crude Oil will test $ 120 level by H1
2008 and not $ 80 pbbl by H1 2008.
BSE
SENSEX closed today – Friday 1st Feb’08 at 18243 down 11.80 % from
4th Jan’08 close of 20687. SENSEX tested a new lifetime high of 21207
and a low of 15332 during Jan’08. Indian investors were very highly leveraged on
their ‘long positions’ in Jan’08. I had predicted that SENSEX would test a level
of R1 21000 during Jan’08 but the SENSEX breezed past and tested a high of 21207
as mentioned above.
My
comments on the ‘ Decoupling
Theory
‘ were correct. ^ DJI corrected in Jan’08 and in fact crashed to a new 52 week
low of 11509 on 22nd Jan’08 over concerns of an economic recession
looming large over the US Economy. Asian equity markets crashed on
22nd and 28th Jan’08. BSE SENSEX crashed on
21st and 22nd Jan’08. FIIs pressed the ‘exit button’ in
Asian and other emerging economies around the globe. This was the day I was
dreading since Oct’07. I mentioned in Oct’07 that if
FIIs
press the ‘exit’ button
– SENSEX could crash to 15000 level. Although the context in Oct’07 was
‘political instability’. On Monday
21st Jan’08, BSE
SENSEX fell 1409 pts – single largest daily fall in the history of SENSEX.
There
was blood on Dalal Street but worse was to follow. On 22nd Jan’08 -
fourth time in the history of SENSEX, trading was suspended at BSE and NSE for
one hour
(
cooling period ) as the SENSEX fell by 10.0 % from the close of the previous
day. After the trading resumed, the SENSEX recovered from an intra-day low of
15332 on 22nd Jan’08 to close at 16730, a
fall of 875 pts – second highest daily fall in the history of
SENSEX.
This
savage fall in SENSEX and NIFTY in a matter of three trading sessions –
18th, 21st and 22nd Jan’08 took the
‘speculators’ by surprise in the Indian equity markets. The fall was so steep
that said operators could not ‘square off’ their long positions in time. There
were some ‘systemic’ shortcomings in the Indian equity markets which lead to
this situation wherein the brokers ‘squared off’ the client’s long positions as
the ‘margin calls’ got triggered in the fall. In brief – the operators lost so
much money in a day that they could not pay up the brokers in 24 hrs. as per
rules of ‘mark to margin’. Some Brokers in turn could not pay up BSE and NSE and
had their ‘terminals’ shut off, till the dues were paid. As per media reports, some brokers still have
dues to recover from clients. Remember SENSEX tested its lifetime high only
about ten days back. There were huge ‘long positions’ in the derivatives
segment. Some of the liquid frontline and mid-cap stocks corrected between 25.0
to 60.0 %. Retail level sentiment is cautious in India.
SEBI
is looking into this sharp crack in the SENSEX and NIFTY. RBI is probing if
large amount of funds from a few ‘Cooperative Banks’ were siphoned off by Bond
Traders to fund the stock market losses ? There could be a ‘scam’ in the wings.
We must keep in mind the stock market scams of 1992 and 2001, wherein two
operators siphoned out large amount of funds from the Indian banking system in
order to rig the stock prices and indices.
I
had predicted a level of 19000 for the SENSEX - if the global equity markets
corrected but the SENSEX crashed below its 200 DMA of 16500. The economic data
trickling from US was the culprit. MERRILL LYNCH, AMEX, CITI and UBS reported
huge losses from their operations in US in Q4 2007 on account of losses from
‘Sub-prime Mortgage’ business. US GDP growth was at 0.6 % during Q4 2007 – lower
than estimates. ^DJI corrected on account of the above news.
US
Fed moved in on 22nd Jan’08 with an aggressive ‘Fed Funds’ interest
rate cut of 75 bps to 3.50 % in order to arrest the further fall of ^ DJI. This
is the biggest interest cut in more than 23 years by US Fed. Ben also cut the
‘Discount Rate’ by 75 bps to 4.0 %. The ^DJI recovered and so did global equity
markets.
In fact SENSEX recorded its single highest daily gain of 1140 pts on
25th Jan’08.
FIIs have pulled out approx. US $ 4.50 billion from the Indian equities in Jan’08. Exact figures are awaited from SEBI. SENSEX has corrected from its lifetime high of 21207 to a recent low of 15332 i.e. by 27.7 %. NIFTY has corrected by 30.0 %. SHANGHAI COMP has corrected from its life time high of 6124 to a low of 4196 ( of date ) i.e. by 31.5 %.
China and India are the two fastest
growing economies in the world. China’s GDP grew by 11.4 % in 2007 – highest in
the last 14 yrs. Infrastructure is growing too fast in China. Bank of China has
raised interest rates six times in 2007 – still the dragon fails to slow down.
Indian annual GDP will grow at approx. 9.0 % this fiscal year i.e. April'07 to
March’08. Chinese GDP growth may slow down in 2008, as its economy is ‘export
oriented’ with focus on exports to USA. Chinese annual GDP growth may fall by
1.0 % or so on account of US recession. Indian GDP growth may fall by 0.5
%.
On
30th Jan’08 – Ben further cut ‘Fed Funds’ interest rates by another
50 bps. This rates now stands at 3.0 %. This step was again a surprise as the
Wall Street expected a cut by 25 bps. I
feel it is a matter of time and Ben will declare the
R-Word
!
In
the past year or so – I have not been recommending individual stocks on my web
page. I have been providing PMS to my clients for a ‘fee’. A large number of
small investors have requested me to provide the service on my web page as
earlier. I will review and post accordingly.
The
technicals and the volatility in the Indian Equity market suggests that we are
in for further correction in the SENSEX. Lower volumes and unwinding of ‘long
positions’ in the derivatives segment indicates weak participation from
investors. SENSEX breached the all important 200 DMA level of 16500 in Jan’08.
We will re-test the recent lows and maybe even drift lower. The relief rally,
which SENSEX is in at present, will not last for long. The levels to watch for
the SENSEX in Feb’08 are :
Any
decisive closing above R4 20000, on rising volumes, will lead to a fresh
uptrend. Looks difficult in Feb’08.
I am also very vary if the Bond Traders do not keep their financial commitments with the ‘Cooperative Banks’ for delivery of
“G-Secs”.
Any failure will expose the scam and above support levels could be
tested.
Crude
Oil tested US $ 86.50 pbbl but re-bounded to $ 90.00+ levels. I still feel that
$ 90.00 level should hold.
Gold
tested new lifetime high of US $ 933.10 pto Spot NY on 29th Jan’08.
The next level is US $ 960.00 pto. I feel we will see this level before June’08.
By Sept’08 – Gold will test US $ 1000 pto.
Please
conserve your capital and invest in Gold for long-term gains
The
update is delayed as I was waiting for some important data from the US Market.
Economic indicators from US are not encouraging. Job data, housing market and
manufacturing show signs of distress and slow down respectively.
BSE
SENSEX closed today – Friday 4th January 2008 at a new life time high
level of 20687 up 1.53 % from 12th
Dec’07 close of 20376 as per last update. The intra-period high and low for the
SENSEX were 20763 and 19009. SENSEX convincingly breached S2 level of 20000 on
account of weak US equity markets as there were further losses announced by
financial institutions on account of ‘sub-prime’ issue.
SENSEX
recovered all its losses from 19000 level on account of buying from domestic
institutions and investors. FIIs were sellers in the Indian equity markets from
12th Dec through 31st Dec’07. On 17th Dec’07 –
SENSEX fell by 769 pts, second largest daily fall in its history. NIFTY had
its largest daily fall in its history – 271 pts.
On a net basis FIIs have invested US $ 17.00 billion in Indian equities in calendar 2007 – highest so far on an annual basis. Previous high was $ 10.70 billion in calendar 2005.
FIIs
have been active buyers in the Indian Equity markets since start of 2008. Their
annual allocations are still to be announced but it is felt by leading analysts
that India will be a major destination for FIIs in 2008 ahead of other emerging
economies in the world. The SENSEX levels predicted by the pundits is in the
region of 22000 to 25000 for calendar 2008. I have my doubts on these levels.
The world’s largest economy is showing signs of entering into a ‘recession’. The
benchmark ^DJI is showing signs of weakness. I do not believe in the much
discussed ‘Decoupling’ theory.
Global
equity markets will correct in case ^DJI and NASDAQ correct in USA. I am sure
SENSEX will also correct in India. The level to watch for SENSEX in Jan 2008 are
:
S1
20500 S2 20250 S3 20000
R1
21000
If 20000 is breached then be prepared to see a level of 19000 in Jan or Feb’08 – It all depends on the global equity markets led by ^DJI. I am of the opinion that SENSEX is not ‘decoupled’ from global equity indices - ^DJI, ^N225, ^HSI, KS11 etc.
On
2nd Jan’08 – Crude Oil at NYMEX tested a record US $ 100 pbbl. In the
short term Crude should hold $ 90 pbbl level. If Crude Oil closes for three
consecutive days above US $ 100 pbbl at NYMEX – the next level would be $ 105
pbbl. Hectic short covering could push Crude from $ 105 level to $ 110+ level in
a matter of days. Expect a global sell off in equities if Crude tests $ 110+
levels.
On
3rd Jan’08 – Spot Gold tested a life time high of US $ 868
pto.This is the highest level since 17th Jan 1980 when in
the futures market Gold tested $ 871 pto. My prediction of US $ 870 pto was by
Mid 2008. BINGO ! I am revising my target for Gold to US $ 900 pto latest
by end 2009.
Buy Gold and have joy ride!
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