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The update is late by a
week as we were waiting for the effect of GM’s bankruptcy filing on the ^DJI as
of 1st June 2009. How is that for prediction that – GM will be
bankrupt by June 2009 ! ^DJI rallied post 1st June’09 GM bankruptcy.
Third largest
BSE SENSEX closed today
Friday 5th June 2009 at a very bullish level of 15103 up whopping 32.44 % from
the last reference close of 11404 level. The intra month (4th May to
5th June’09) low and high were 11621 and 15257 respectively. My prediction was correct that
UPA will form the next Government in
This 18th day of May 2009
will be remembered by “bulls” in the Indian equity markets as a golden
day – BSE SENSEX
locked in daily upper circuit limit of SEBI at 1155 hrs at 14284. From this day
on there was no looking back for the BSE SENSEX and it pierced my second pivot of 14463 with ease. FIIs
pumped in a whopping US $ 3.65 billion into Indian equities in May 2009. I had
predicted on 1st May’09 forecast that if UPA forms the next
Government in
The levels to watch for
BSE SENSEX for the month of June are:
R1 15300 R2 16000
R3 16500
S1 14463 S2 12500 S3
11300
I had recommended
investment in three stocks on 1st April 2009 as under :
I am recommending one
additional stock for investment for long term – KIRLOSKAR BROTHERS Ltd. It
closed today at Rs. 170.00. This company is an acknowledged leader in fluid
handling and
^DJI closed today at a
bullish level of 8763 up 6.71 % from the last reference close of 8212 level. The
intra month low and high were 8214 and 8839 respectively. ^DJI pierced R4 8670
but it remains to be seen if ^DJI can hold this important level of 8670. It has
closed above this level for five trading sessions and if it can manage to close
above the same for another ten consecutive trading sessions then ^DJI will zoom
to an all important level of 9000. There are mixed signals regarding revival in
the US Economy.
The levels to watch for
^DJI for June 2009 are :
R1 9000 R2 9150
S1 8760 S2 8670
S3 8500 S4
8270
The current rally in ^DJI
and in global equities is primarily liquidity driven. It remains to be seen how
much more liquidity is diverted to the equities as an asset class. I think at
9150+ levels for ^DJI – the equity markets in US could take a breather. Large
amounts of funds have entered emerging equity markets around the world with BRIC
and
Gold closed today at
Crude Oil futures tested
US $ 70.00 pbbl today ay NYMEX to settle at close at US $ 68.44 pbbl. Up 7.67 %
from the last reference price of US $ 53.20 pbbl. I have been saying for a long
time that fair price of Crude Oil is between US $ 60.00 to US $ 75.00+ pbbl. I
still stick to my prediction that Crude Oil prices in June 2010 will be in the
region of US $ 150.00+ pbbl.
Cheers to equity markets for June 2009!
BSE SENSEX closed today
Friday 1st May 2009 at a bullish level of 11404 up 15.18 % from the
last reference close of 9901 level. The intra month low and high were 10107 and
11492 respectively. I was correct in my prediction that BSE SENSEX will be
bullish in April 2009 on the back of global cues. I had predicted that BSE
SENSEX could test an important level of 11300 in April 2009. It went past this
level and then re-traced from an intra month high of 11492 to close today at
11404. SENSEX was bullish as FIIs pumped in a whopping Rs. 55.60 billion ( US $
1.10 billion ) into the Indian equities in the month of April 2009. DIIs were
however net sellers of equities to the tune of Rs. 7.82 billion ( US $ 153.34
million ) during the month.
There was hectic short
covering by operators as the SENSEX rallied beyond expectations as FIIs pumped
in funds again in the emerging markets during the month. During calendar Q1 2009
– FIIs were net sellers of Indian equities to the tune of Rs. 86.90 billion ( US $ 1.70 billion ) and DIIs
were net buyers for Rs. 104.45 billion ( US $ 2.05 billion ). This sudden “volte
face” by FIIs caught the bears “off guard” as FIIs were net sellers of Indian
equities for the first three months of calendar 2009 and then in April FIIs
pumped in a whopping US $ 1.10 billion. In addition India’s Central Bank – RBI
on 21st April 2009 cut its “Repo Rates” by 25 bpts to 4.75 % and
“Reverse Repo Rates” also by 25 bpts to 3.25 %. RBI left CRR unchanged at 5.00 %
and PLR at 6.00 %.
BSE SENSEX pierced R4
11300 ( 200 DMA ) but could not close above 11300 for ten consecutive trading days in April
2009. So as far as I am concerned – BSE SENSEX is an “intermediate uptrend” but
there is no indication as yet for a start of a secular long term “bull market”
for Indian equities. The current rally in BSE SENSEX which started from 8047
level as of 6th March 2009 to a high of 11492 translates to an
upswing of 42.82 %. This was a spectacular rally without any doubt but as per my
analysis BSE SENSEX has two important resistance levels, which are “pivots” –
11300 and 14463. I stick to my views as mentioned in last month’s update
– “ I will be convinced of the trend reversal if BSE SENSEX can close above
11300 for ten consecutive trading days.” Then the next level is 12500 – which
can be tested in May 2009. As per my analysis - BSE SENSEX will be in a “long
term” bull phase if it can close convincingly above 14463.
This can happen in June
2009 – provided UPA led alliance forms the new Government in New Delhi in May
2009. I predict that UPA will form the next Government with its allies in New
Delhi but there will be “major” uncertainty around 17th through
20th May 2009, after the election results are announced on
16th May 2009. BSE SENSEX will tank around these dates but the allies
of UPA will re-group swiftly to prevent BJP led NDA alliance to form the
Government. BSE SENSEX will then zoom to 12500 in a matter of a week or so by
end May 2009. We can then expect BSE SENSEX to be extremely bullish in June 2009
to see a level of 14500 as UPA Government will be credible and the Indian Met
Department has predicted a ‘near normal” SW Monsoon for 2009. Cheers !
I would like to highlight
one very important fundamental issue regarding this rally in BSE SENSEX in April
2009 which was primarily liquidity driven. The Q4 results of last fiscal year in
India i.e. January through March 2009 were not spectacular except for Cement
companies. The corporate India’s results start pouring in for the last quarter
of the preceding fiscal by around 10th April. In India fiscal year is
April to March. Some “Group A” Indian companies which posted substantial lower
profits and some even whopping losses in Q4 as per above also witnessed their
share prices zoom from a low as of 6th March 2009 to date defying
fundamentals. RELIANCE CAPITAL was up by 87.00 %, SUZLON 83.00 %, ICICI BANK 82.00 %, TATA
MOTORS 78.00 %, UNITECH 78.00 %,
STERLITE 68.00 % and DLF 66.00 % from 6th March to date. Anything that defies fundamentals gives me
‘jitters’ in the medium term. I fully understand – Markets discount the future
and a few analysts expect the Indian economy to bottom out by June 2009. But
these levels of share price appreciations ( 60.00 to 90.00 % ) in a matter of
six weeks on the back of weak fundamentals are difficult to digest. IMF expects
Indian GDP in the current fiscal year 2009-2010 to grow only by 4.50% whereas
RBI expects Indian GDP growth in the current fiscal at 5.60 %. India will only
be next to China in the world as regards GDP growth. China’s GDP growth is
expected to be about 6.0 % in calendar 2009.
UBS has predicted that
Indian economy will bottom out by June 2009. Complete recovery will be in the
fiscal 2010-2011. CLSA has similar views. UBS’s twelve-month view is that they
are “overweight” on Autos, Metals, Banks and Real Estate. Indian economy is
showing “firsts signs” of revival as Steel consumption has shown a marginal
increase in fiscal year ending 2009 versus 2008 – 53.5 million mt vs 52.60
million mt. Steel consumption in calendar 2008 in EU-27, Russia, USA, and Brazil
was sharply down between 28.80 % to 14.50 %. Indian “Core Sector” growth is back
on track. The index for six Core Industries – Crude Oil, Petroleum Refined
Products, Coal, Electricity, Cement and Finished Carbon Steel has turned in a
growth of 2.90 % in March 2009 over March 2008. This is the highest growth rate
of this index since the past six months. These are positive signals but only for
one month. Let us see the figures for another couple of months before jumping to
a conclusion. I would wait for end September 2009 to give my views on a
“confirmed economic recovery “ in India.
A few reputed global analysts have confirmed that BSE SENSEX has started its “bull market” journey, which will last for four to five years i.e. till 2013 to 2014. As per Mark Galasiewski of M/s. Elliot Wave International Inc. USA – “If the price and time proportions between the waves in the 2003-2008 rally continue, the BSE SENSEX should hit 1,00,000 in about 15 years”. Yes – a magical figure of ‘One hundred thousand” for BSE SENSEX by 2025. Nearly ten times from the current BSE SENSEX levels. Mark Galasiewski is EWI’s Asia-Pacific Editor. EWI has also classified Japan, Singapore, Hong Kong, China and Australia as long-term bear markets. I am not in a position to forecast over such a long period of time and hence would like to reserve my comments on EWI’s long-term forecasts as above.
I expect BSE SENSEX to
“tank” from between 18th through 20th May 2009 and then
recover by end of May 2009. Punters or
traders can buy ‘momentum trading’ stocks during this expected sharp dip and
sell in June 2009. The levels to watch for BSE SENSEX for the month of May 2009
are :
S1 11300 S2 11000 S3 10600 S4 10200 S4 10000
R1 11800 R2 12000
R3 12500
I am not
recommending any new Indian stocks to be bought in May 2009.
^DJI closed today at a
bullish level of 8212 up 5.80 % from the last reference close of 7762 level. The
intra month low and high were 7764 and 8308 respectively. ^DJI pierced R2 8270
but could not close above this level even for a single day in April 2009. This
is not a good sign for ^DJI. This is level of 8270 as per my analysis is
a “pivot” for ^DJI. ^DJI should close above this level for nine
consecutive trading days so that it can then zoom to a 9000 level. Looks very
difficult to me for this to happen in May 2009, as CHRYSLER’s Chapter 11
bankruptcy filing on 30th April 2009 will have serious repercussions
in the next two weeks in USA. By the way my prediction on 27th
February 2009 was Bingo !
I am re-printing a part of
the text from March 2009 forecast which was posted on 27th February 2009
:
"
The rally for ^DJI from a
low of 6th March 2009 at 6470 to a high of 8308 on 30th
April 2009 – an upswing of 28.40 %, is the best rally in this time period in the
history of ^DJI since 1933. I repeat for the rally to sustain – it should make a
‘higher top’ i.e. ^DJI should convincingly close above 9000. It looks difficult
in May 2009 as CHRYSLER’s bankruptcy will have far reaching effect on the US
economy as was projected by the analysts. The prime reason being that no one
projected that CHRYSLER will shut all its plants in North America for a period
of thirty to sixty days after filing for bankruptcy protection in order to
complete its reorganization and finalize a combination with FIAT SpA of Italy.
On top of this GM is planning to shut almost all its plants in North America in
June or July 2009 for a period of eleven weeks due to excessive vehicle
inventories. I am not sure if GM will exist in its present form by even June
2009.
Many failures are expected
in USA in the Auto Parts Sector in the coming two weeks. This will affect
production of cars at Ford, Toyota and Honda. Aftershocks are going to be huge.
American auto parts companies may file for bankruptcy protection in the next two
to three weeks. As per an American Auto analyst - John Henke, as mush as thirty
percent of auto supplier base in USA could end up in bankruptcy in the next few
weeks. CHRYSLER owes its auto parts suppliers about US $ 5.30 billion and the
figure for GM is much higher. John Henke feels that auto component companies viz
M/s. American Axle & Manufacturing Holdings ( AXL ) and M/s. Johnson
Controls (JCI ) are potential bankruptcy candidates in May through July 2009.
This is bad news.
American GDP contracted in Q1 2009 by 3.26 %. At this rate the annual GDP contraction in the American economy in calendar 2009 could be as high as 15.00%. Seven more banks failed in America in April 2009 taking the figure to 32 for failures in calendar 2009 till date. I am not bullish on ^DJI for May 2009 on account of the above parameters and also affect of “HIN1” Flu prospects. In addition the results of the “stress tests” on the nation’s nineteen banks are to be made public in a week or so. I expect that CITI, Bank of America and a couple of other banks may need additional capital. Also almost all the bank’s “Credit Card” divisions will show huge losses. Also there could be huge "mtm losses" on books of some banks due to their exposure to "commercial real estate sector" in America which is showing signs of cracking. There is evidence of substantial correction in commercial real estate price across America. I trust US Govt. is transparent in the results of the "stress tests". But there maybe surprises in store too ! There could be a fresh “stimulus package” announced by the US Govt. to assist the ailing banks. Anything can happen in America if GM can be nationalized.
S1 8000 S2 7500
S2 7390 S4 7000
R1 8270 R2 8400
R3 8500 R4 8670 R5 9000
I will post a “special
note” on Asian and Eurozone equity markets in two weeks as I am studying some
data as regards the trends for these markets in the long term. Eurozone looks
week but almost all Asian equity markets I track are giving signs of “trend
reversal”. I also track equity indices of Russia and Brazil and will cover these
markets in the said note as above.
Spot Gold closed today in
New York at US $ 885.80 pto down 4.34 % from the last reference level of US $
926.00 pto. US $ 880.00 pto level was breached but the prices recovered as
investors are now flocking to Gold as a safe haven.
Crude Oil futures at NYMEX
closed today at US $ 53.20 pbbl up 9.92 % from the last reference level of US $
48.40 pbbl. Crude looks bearish in May 2009 due to problems with the Auto
industry in USA.
Let us hope that US
economy does not go into a “tail spin” on account of problems in the Auto Sector
and the Banking Sector capitalization in May 2009. I am sure US Govt. can handle the "H1N1 Flu"
problem.
God bless America
!
BSE SENSEX closed today Wednesday 1st April 2009 at a bullish
level of 9901 up 11.35 % from the last reference close of 8892 level. The intra
month low and high were 8047 and 10127 respectively. SENSEX zoomed past R5 level
of 10000 and on the lower side breached S3 level of 8000. I had predicted that
Indian equity markets will be range bound in March’09 till the all important
level of 8100 for SENSEX holds. SENSEX breached 8100 level on an “intra-day”
basis and did not close convincingly below this level. My prediction was close
as I had predicted SENSEX to be in the range of 7700 to 10000 !
^DJI closed today at 7762 up 9.90 % from the last reference close of 7063
level. The intra month low and high were whopping 6470 and 7931 respectively.
^DJI breached all important level of S1 7000 in the month and closed six
consecutive days below this level but then smartly recovered but could not
pierce S3 8000 level. I had predicted last month :
“
My prediction was correct
was but the chronology was reverse. I had predicted the ‘sell off’ by FIIs would
be after a ‘brief technical rally’ in ^DJI. Actually the reverse happened -
there was a massive “sell off” by FIIs in Asia, Europe and
The predicted “sell off”
by FIIs in March’09 was very severe but BSE SENSEX and SSE COMPOSITE in
Global policymakers are
struggling to stimulate economic growth by cutting interest rates to near zero
levels now. This has not worked in
Indian banking system is
robust with PSU banks which are well regulated. In addition India’s Central Bank
on 4th March’09 cut “Repo Rate” by 50 bpts to 5.00% and cut “Reverse
Repo” rates also by 50 bpts to 3.50%. There is still some further scope of
cutting interest rates in
The current rally in the
global equity markets led by ^DJI will sustain in April 2009 as there is a
‘perception’ that Obama administration’s US $ 1.00 trillion “bank bail out plan”
will work in the coming few months till June 2009. I also feel that ^DJI will be
bullish in April 2009 and so will be global equity markets including BSE SENSEX.
But I have serious doubts if this US $ 1.00 trillion plan will actually work in
The levels to watch for
BSE SENSEX in April 2009 are :
R1 10200 R2 10600 R3 11000 R4 11300 ( 200 DMA )
S1 9630 S2 9400
S3 9160 S4
9000
The ‘long-term’ trend of
BSE SENSEX is bearish but the ‘intermediate trend’ now has turned bullish. Trend
reversal is possible if BSE SENSEX closes convincingly above its 200 DMA of
11300. I will be convinced of the trend reversal if BSE SENSEX can close above
11300 for ten consecutive trading days. We are then heading towards a BSE SENSEX
level of 12500 by June 2009. There is a “caveat” here as we have general
elections in
The levels to watch for
^DJI in April 2009 are :
R1 8000 R2 8270 R3 8400 R4 8670 R5 9000
S1 7500 S2 7390
S4 7000
The ‘bear market rally’
for ^DJI in October thru December 2008 started from the low of 7392 and lasted
till 8924 level – 20.73 %. The current rally for ^DJI has started from a ‘lower
bottom’ of 6470 and for the rally to sustain – it should make a ‘higher top’
i.e. ^DJI should zoom past 9000. This means a rally of about 39.10 % in ^DJI
from the lower bottom of 6470 level. This is possible in April 2009 but I feel
^DJI has a very major resistance at 8270. Generally ‘bear market rallies
last about 30.00%. Once R2 8270 is
pierced - ^DJI can test 9000 level by June 2009.
BSE SENSEX is showing a
much stronger recovery in this current rally. The ‘bear market rally’ for BSE
SENSEX in October thru December 2008 started from the low of 7697 and lasted
till 10189 level – 32.38 %. The current rally for BSE SENSEX has started from a
‘higher bottom’ of 8047 level. This current rally will sustain and BSE SENSEX could zoom to 10600
levels in April 2009. This means a rally of about 31.72 %. This is more or less
within the ‘bear market rally’ norms.
There are a few
‘macro-economic’ factors which are reaching alarming levels in
I am of the view that Obama Administration’s US $ 1.00 trillion “bank
bail out” plan will not work on the ground. One will witness this euphoria in
the
i)
Commercial Banks may not agree to sell “toxic assets” at a
discount.
ii)
The “write offs” by the banks may be so large that capital of the banks
maybe eroded. This will push the banks to ‘insolvency’. I feel that this amount
of US $ 1.00 trillion is ‘not sufficient’ to ‘bail out’ all the large commercial
banks in
Please mark my words – You
will see more American banks going burst in Q3 2009 as this “bail out” plan will
not work. Omni Bank of
American Express Bank and GE Capital will be ‘bankrupt’ latest by December 2009. GE Capital going burst will seriously affect the parent company GE. Jeff Immelt should right away “spin off” GE Capital and sell it to the US Government at 'book value' as of date.
GM is heading towards
“managed bankruptcy. My prediction was correct. Bingo !
Crude Oil tested US $
54.30+ pbbl on NYMEX for May’09 deliveries on 26th March 2009. It
however closed today at US $ 48.40 pbbl up 8.19 % from US $ 44.76 as of last
update. I still maintain that fair price of Crude Oil is in the region of US $
65.00 pbbl.
Gold spot closed today in
On popular demand from
small investors I have decided to give them ‘free advise’ for investment in
Indian Equities and Gold as was the protocol in the years prior to 2005. I have
been getting a lot of messages from small investors since the past one year+
that I should recommend which stocks to buy or sell as was the case in the years
prior to 2005. These small investors are not in a position to pay my consultancy
fee under PMS. It seems they have lost money over the eighteen months or so in
the Indian stock markets. So here come the free bees !
I am recommending three
Indian Equities for investment till June 2009 and maybe even for long term
investment till 2010.
Buy these stocks when the
SENSEX corrects to around 9600 levels with suitable stop losses for end May 2009
as BSE SENSEX may crash if a stable government is not formed in
Buy UTI’s ETF “GOLDSHARE”
on the NSE when the price of Gold in the international market is around US $
880.00+ pto in April 2009. Hold this investment in Gold ETF till 2011 thru 2012.
I recommend to sell fifty percent of the GOLDSHARE holding in the year 2011 and
the balance fifty percent in the year 2012. Triple your money by 2011 and
multiply your money by more than six times in the year
2012.
I trust small investors
are now happy and I wish them luck especially with Gold !
MARCH
BSE SENSEX closed today
Friday 27th February 2009 at 8892 down 5.64 % from close of 9424 as
of 30th January’09. The intra month low and high were 8619 and 9725
respectively. S3 8310 was not breached by BSE SENSEX although global equities
tanked in February 2009 led by ^DJI as predicted.
^DJI closed today at
a twelve year low of 7063 down
sharply 11.72 % from close of 8001 as of 30th January’09. The intra
month low and high for ^DJI were 7035 and 8281 respectively. ^DJI breached the
Nov’08 low of 7392 convincingly in February’09. ^DJI was very close to my
predicted S3 7000 level in February’09. Bingo ! These are not good
signs for ^DJI. The US Economy is slipping into ‘deeper recession’ by the day.
Economic data coming out of the US is ‘shocking’ by the week. There seems to be
no end to the negative data from the world’s largest economy. The broader - S
& P index tested a new low of 735.00 today at close which is a tad lower
than November’08 low of 741.00. Brief details on the US economy and my
predictions are given later in this update.
The economies in Europe
were also been hit hard in February’09 on account of crash of ^DJI to twelve
year lows. There is ‘gloom’ all over Europe. ^CAC in Paris tested 2669 and
^DAX in Frankfurt tested 3817 - fresh six year lows. These levels are lower
that those tested in October and November’08. Banks have been hit hard in
Germany with Deutsche Bank – the largest in Germany, posting an annual loss of
Euro 4.00 billion in calendar 2008. Banks in France and Switzerland are also
struggling. UBS posted its biggest ever-annual loss in the history of banking in
Switzerland at CHF 19.70 billion for calendar 2008.
The British economy is
also trying to rescue ailing Banks. British ‘budget deficit’ hit a record high
in 2008. The ‘banks bailout’ could raise the total Govt. Debt by a record Pound
Sterling 1.50 trillion. On 4th February’09 – Bank of England cut
‘short term’ interest rates by 50 bpts to 1.00 %. This is the lowest in the
history since BoE was set up.
Asian markets also
corrected on the back of a sharp cut in ^DJI but the indices have still not
tested the lows of October and November’08. ^HSI, ^KOSPI, ^N225, ^SSE COMP, ^STI
and ^TWII corrected sharply in February’09 but are still above their October and
November’08 lows. NIKKEI Index (^N225 ) in Japan saw a massive correction in
February’09 as the economy shrunk by a whopping 12.70 % in 2008 – highest since
1974, post the “Oil-Shock” in 1973. ^N225 tested a low of 7269 just shy of the
October’08 low of 6995. NIKKEI 225 was the worst performing index in Asia.
Japanese economy is an ‘export oriented’ economy with a large dependence on the
US consumers. Maybe it is a matter of
time that in the coming few months we see a massive ‘sell off’ by FIIs in Asia
as they need to raise cash for ‘redemption’ pressures back home in US and
Europe. I feel that there is this last leg of ‘unwinding’ by the US based Hedge
Funds which can drag the Asian markets including India and China to their
October and November’08 lows. This can happen anytime around and I feel that
this will happen after a ‘brief technical rally’ in global equity markets led by
^DJI. The said rally could be triggered in March’09. Looks difficult but not
ruled out.
FIIs
have been net sellers of Indian equities but the sales have been ‘sterilized’ by
aggressive buying by Indian DIIs led by LIC. The provisional figures from SEBI
indicate that FIIs till date have sold equities worth Rs. 6926.00 crores ( US $
1.39 billion ) in calendar 2009. DIIs have purchased equities worth Rs. 5000.00
Crores ( US $ 1.00 billion ) till date in calendar 2009 as per provisional data
from SEBI. My target for SENSEX at S4 8100 would have been hit if DIIs were not
aggressive buyers of Indian equities.
Indian
economy is showing signs of a slow down with the Q3 GDP growth figure of only
5.30 %. At this rate the annual GDP growth for the current fiscal ending
31st March 2009 may slip below the revised estimated figure of 7.10
%. The silver lining for the economy was a lower inflation figure of 3.36 % for
the week ended 13th February’09. The fiscal situation in India is
worsening. Govt. of India announced a surprise third ‘Stimulus Package’
on 24th February’09 cutting ‘excise duty’ and ‘service tax’ by 2.00 %
on majority of bulk products and select services. Major beneficiaries of the
latter being ‘Financial Services’ sector and Crude Oil ‘Exploration and
Production’ sector. This ‘fiscal stimulus’ announced would lead to a shortfall
in ‘direct tax’ window of about Rs. 30,000.00 crores ( US $ 6.00 billion ) in
Govt. of India’s house. India’s fiscal deficit situation is already alarming. India’s total Fiscal
Deficit ( Central and States put together) will be about 11.00 %
of its GDP in FY2010. Sensing this M/s. Standard and Poors downgraded
India’s “Sovereign Debt” rating from ‘Stable’ to ‘Negative’. This level of
fiscal deficit as per this rating agency is not sustainable in the ‘short term’.
India is precariously poised with its ‘Debt’ situation too. For
the current fiscal year 2008-09 ( FY2009), the budgeted borrowing of Govt. of
India was at pegged at Rs. 1785.75 billion (US $ 35.71 billion). On
11th February’09 – this figure was revised by whopping 41.00 % to Rs.
2521.54 billion ( US $ 50.43 billion ). This increased borrowing by the Govt. of
India will put pressure on the Indian ‘Bond Markets’ as additional supply of
Bonds will depress prices. Yields shot up today in the Bond Markets as the
announcement was made for increased borrowing by the Govt. of India.
One
positive issue for the Indian equity markets is that – RBI may soon announce a
cut in its ‘Repo Rates’ by 100 to 150 bpts and a commensurate cut in the
‘Reverse Repo’ rates. I think this is already priced in the SENSEX at 8900.
I am of the opinion that the Indian equity markets will be range bound in March’09 till the all important level of 8100 for SENSEX holds. The charts suggest that a convincing breach of 8100 level for SENSEX will lead to a ‘sharp correction’ and SENSEX can test October’08 low of 7700.
The
levels to watch for SENSEX in March’09 are as follows :
R1 9000 R2 9160 R3 9300 R4 9600 R5 10000
S1
8670 S2 8400 S3 8100
S4 7700
In fact
convincing close of SENSEX below 8100 is a ‘sure sign’ of a protracted bear
phase in the SENSEX which could last as long as the next twelve to eighteen
months.
My
views are contrary to the views of many analysts who believe that ‘worst is
over’ for the Indian equity markets and one should start building portfolios for
the long-term. I repeat as per my views - There is nothing valid as investing
for ‘long-term’ in equities from now till 2012 except for investing in Gold
ETFs. This holds for good for global equities as well including Asian equities.
Invest in equities as pure ‘short-term’ trading calls. Please do not allocate
more than 30.00 % of your funds for investment in equities in 2009. Please
allocate 20.00 % of your funds in Debt – the best for global investors as per my
view is ‘Swiss Sovereign Debt”. Balance 50.00 % invest in Gold ETFs or physical
Gold through March’09, if one has no investments in Gold. I have been vocal
about investing in Gold since October 2005, when the prices were in the range of
US $ 450.00+ pto range.
In my
view - the only sector to invest for the ‘long-term’ is in physical Gold or Gold
ETFs for Indian and all global investors. One can lock-in around 50.00% of one’s
funds in Gold through 2009 for liquidation in 2012. In India - I only recommend
UTI’s Gold ETF called “GOLDSHARE” listed at NSE. Yes, Gold can correct from the
current US $ 940.00 pto levels to US $ 880.00 pto levels. But I do not agree
with analysts who are predicting that Gold ‘bubble’ will burst like the Crude
Oil ‘bubble’ from July’08 levels of US $ 147.00+ to US $ 32.50 pbbl levels in
December’08. There is no ‘bubble’ like scenario in Gold, as per my views. In
fact ‘delivery’ is short on the market. Yes now when every Tom, Dick and Harry
is buying Gold – Operators will dump the commodity in the ‘derivatives segment’
to scare the new Gold bulls.
I
repeat - Gold will outperform all asset classes from now to 2012. My price
targets for Gold for the year 2012 are well known to my associates, clients and
friends – US $ 2400.00 to 3000.00 pto.
The
American economy is showing signs of a deep malaise. The “US Auto Sector” bail
out could cost US $ 130.00 billion. President Obama has unveiled US $ 275.00
billion ‘Housing Rescue’ plan. Plus the US $ 787.00 billion ‘Stimulus Package’.
Many analysts feel that this ‘Stimulus Package’ will not ‘stimulate’ the US
economy, as the problem is ‘structural’. The overall leverage ratios are still
way above the norms in US. The current view among the policy makers in the US
Government is to end the downturn by intervention and by aggressive spending.
There is no realization of the fact that ‘excess debt in the system’ needs to
be liquidated. This would entail sacrificing growth in the short term for
long-term economic revival. This issue is missing from public domain in DC and
needs to be addressed on war footing.
I
predict that GM will be ‘bankrupt’ by June 2009 and so will be CHRYSLER. The US
Govt. will go in for a ‘managed bankruptcy’ under Chapter 11 protection. There
is no way these two auto giants can survive. They might be merged and some parts
sold under ‘re-structuring plan’. Japanese – HONDA and TOYOTA may buy these
units of GM and CHRYSLER.
The US
economy is expected to decline at a rate of 5.00 % in Q1 2009 – even sharper
than the 3.80 % drop in Q4 2008. There is a need to generate more jobs in the US
economy. Nearly half a million jobs are being lost per month for the past few
months. The banking system needs complete overhaul – maybe complete
nationalization of CITI and BoA etc till normalcy is restored.
Total
“Banks” bail out package may cost about US $ 2.00 trillion. This ‘too big to
fail doctrine’ is not going to work as per a few learned economists in the
US. I agree one hundred per cent with these economists. But Paulson and Bernake
still stick to this program.
Look
what is happening to AIG and CITIGROUP in US. They are again back with a
‘begging bowl’ in DC. US Govt. took 36.00 % equity stake in CITIGROUP today.
This is after CITI received US $ 45.00 billion under ‘TARP’. What to talk about
AIG – it has already received US $ 150.00 billion under ‘TARP’. It needs
additional US $ 30.00 billion to ‘stay afloat’. AIG will soon announce a Q4 2008
loss of US $ 60.00 billion – the largest in US Corporate history.
In
2008, twenty-five banks failed in the US.
In 1993, forty-two banks failed in US. Sixteen commercial banks have so
far have failed in calendar 2009 with FDIC shutting down two today – Security
Savings Bank of Henderson, Nevada and Heritage Community Bank of Glenwood,
Illinois. At the current rate nearly 100 institutions with a combined assets of
US $ 50.00 billion will collapse by end 2009. Mr. Gerard Cassidy – Managing
Director of bank equity research at M/s. RBC Capital Markets Inc. warned today
that he anticipates 1000 financial institutions in USA could fail in the next
three to five years i.e. 2012 to 2014. Another analyst in DC predicts that the
Bank failures in USA could cost FDIC fund US $ 65.00 billion by 2013. This is
something in-line what I predicted in November 2008 under the Special Note
“Timing is Everything in Investing”. I am reproducing some text from my
said note as follows :
“Quote
The banking system will collapse in America in
the year 2012, exactly the way it happened in 1930 after the Great Depression of
1929. Hyperinflation will cripple the American economy by 2012.
“Unquote
The
other bubble waiting to ‘burst’ is the “Bond Bubble” in USA. Yields at historic
lows already signal that the demand for further US Govt. Debt through Bonds is
going to be dismal in 2009-2010. Needless to mention the debacle of floating of
fresh Corporate Bonds by companies in USA ? A disaster waiting in the wings
!
Now let
us perceive the worst-case scenario for the US economy in the near future.
Firstly the Govt. Bonds do not find enough buyers and secondly US $ 787.00
billion ‘Stimulus Package’ proves ineffective. US economy will continue to
contract through 2009 at the pace witnessed in 1929 during the ‘Great
Depression’ and with this choking the world’s economies with it. S & P broader index will head towards 500
to 600 levels. ^DJI will head towards 6000 to 5350. In the panic bottom stage -
^DJI can test 5025 level too.
The
only silver lining for the US economy so far there is still a strong demand for
US “Treasury-Bills” by the Central Banks all over the world. There is no
currency in sight for the years to come, which can replace the US Dollar. Come
2013 – and the world will see a ‘New Economic Order’. The US Dollar will not be
the reserve currency for the world’s Central Bankers. It will be Gold and only
Gold. In addition CHF.
For the
month of March 2009 the levels to watch for ^DJI are as follows :
R1
7390 R2 7500 R3 8000
R4 8270 R5
8400
S1
7000
If in
March 2009 - ^DJI cannot hold a level of 7000, then exit from all your equity
holdings completely and switch to Gold and CHF Sovereign Debt. For Indian
investors – if the above ^DJI level des not hold, jettison the “Equity Ship” and
keep an eye on SENSEX 8100. If SENSEX 8100 holds – I will put a ‘Special
Update’ on which stocks to buy as ‘pure trading calls’.
Crude Oil
closed today at NYMEX at US $ 44.76 up 7.21 % from the close of US $ 41.75 pbbl
as of 30th January’09. Short term Crude looks bullish with a target
of US $ 48.00 pbbl for April’09 delivery at NYMEX.
Gold Spot NY closed today at US $ 940.00 pto up nominal 1.40 % from the close of US $ 927.00 pto as of 30th January’09. It tested Spot NY price of US $ 1007.50 pto on 23rd February’09 on an ‘intra-day’ high basis. Gold can correct to US $ 880.00 pto in March’09. A good level to buy for ‘fresh’ investors who have no exposure to Gold in their portfolio.
March 2009 is a very ‘tricky’ month for American Equity Markets. If ^DJI does not hold 7000 level – then God help America !
FEBRUARY 2009
BSE SENEX closed today Friday 30th
January'09 at 9424 down 2.31% from close of 9647 as of 31st
December’08. The intra month low and high were 8632 and 10470 respectively. I
was bearish for the SENSEX for the month of January’09 but SENSEX did not breach
S3 8310 level. India’s fourth largest IT company – SATYAM COMPUTER’s Chairman,
wrote a letter to the SEBI on 7th Jan’09 morning that it had
‘siphoned off’ Rs. 7000.00 Crores ( US $ 1.43 billion ) in cash over the past
few years. This was a ‘bomb shell’ for corporate
Q3 results for the current fiscal were
dismal from corporate
LIC is the largest life insurance
company in
^DJI closed today at 8001 down 8.83%
from close of 8776 as of 31st December’08. The intra month low and
high were 7909 and 9035. SENSEX outperformed ^DJI in Jan’09 as Govt. of India
thru LIC was directly involved in buying of equities.
There are all kinds of predictions in
the world markets regarding ^DJI testing 7000 to 6000 to even 4000 in calendar
2009. Same is true for the SENSEX. Analysts are predicting levels of 8100 to
7000 to 6000 to even 5000 in 2009. But now this news regarding LIC is in public
domain and hence I am revising my ‘extra bearish’ views on the SENSEX for
February 2009.
Global markets are also gloomy on the
back of ^DJI.
Economic indicators are weak from
On 8th Jan’09 – Bank of
England lowered its ‘short term’ key interest rate by 50 bpts to only 1.50%,
lowest rate since the Bank was set up in the late 17th century. On
15th Jan’09 – ECB cut its ‘short term’ key interest rate by 50 bpts
to 2.00 % in response to the global economic crisis which is casting a fresh
doubt on the ability of the top Banks to survive. There is a very strong rumour
going around in Wall Street that one big Bank in
I am bearish for the SENSEX for the
month of February 2009. But I am revising my support levels on the back of LIC’s
investment plans. The levels to watch are :
R1 9860 R2 10200 R3 10600 R4 11000
S1 9160 S2 9000 S3 8310 S4
8100
If BSE SENSEX closes for six
consecutive trading days below the critical level of 8100 then I will post a
‘Special Update’ as then SENSEX can test my original levels of 7500 to 7210.
This can happen but looks difficult as LIC is a buyer of Indian equities as
mentioned above.
^DJI looks weak as mentioned in the
last month’s update. The levels to watch for ^DJI for Feb’09 are
:
R1 8270 R2 8400 R3 8670 R4 9000
S1 7500 S2 7390 S3 7000
I feel ^DJI will test a level of 7000
in Feb’09 and this for the time being will be the low for this Index for 2009.
On the back of this global markets will also test their yearly lows in
Feb’09.
Crude Oil closed today at NYMEX at US $
41.75 pbbl down 6.40% from the close of US $ 44.60 pbbl as of 31st
Dec’08. As I have mentioned in the last month’s update that Crude will only be
bullish above US $ 57.00 pbbl. Below this Crude can test any level as low as US
$ 30.00 pbbl. Global analysts predict an average price of Crude Oil to be in the
range of US $ 50.00 to 75.00 pbbl for 2009. I still hold my view that the fair
price of Crude Oil is US $ 60.00 to 75.00 pbbl. I still stick to my long term
target price of Crude to be US $ 180.00 to 300.00 pbbl in 2010 and 2012
respectively.
At prices below US $ 55.00 to 60.00
pbbl the Russian economy ‘goes for a toss’. Hence the crash of their benchmark
Stock Market Index ^RTSI in
Gold Spot NY closed today at US $
927.00 pto up 5.34% from the close of US $ 880.80 pto as of 31st
Dec’08. I expect Gold to correct in Feb’09 when ^DJI corrects as predicted
above. Gold might test US $ 820.00 pto in Feb’09. This is a golden opportunity
for an investor who so far has no Gold holdings. Buy physical Gold when the
prices correct in Feb’09.
February will be the toughest month in
2009 for the global equity markets. Stay away from the equity markets in
February !
Special Update : India’s Economic Stimuli - Friday 2nd January 2009
Government of India announced it’s first economic stimulus package on 5th December 2008 but I did not cover this on my January 2009 forecast as I was waiting for the second bigger stimulus package. I wanted to cover the combined impact of both the stimulus packages on the Indian financial markets – especially the Equity Markets. The second stimulus package was announced by Government of India on Friday 2nd January 2009. As the investors are aware – almost all the economies in the world have announced fiscal and monetary stimuli packages in the month of December 2008 to fight ‘slowing down’ of their respective economies as a result of the onset of a ‘deep recession’ in the biggest economy of the world – United States of America. I am not listing the details of the specific stimuli packages announced by various countries in the world as the details are now in public domain. So are the details of Indian stimulus but I am getting a lot of e mails from my associates, friends and a few clients regarding my opinion and views on the impact of the various policy measures announced. As if my opinion matters !
I am covering brief details of the Indian stimuli packages with a very brief reference to the Uncle Sam’s stimulus package.
1. Govt. of India on 5th December 2008 announced the ‘First Stimulus’ Package. Brief details are as under along with the impact of the same on the economy and financial markets :
i) India’s Central Bank – Reserve Bank of India ( RBI ) cut “Repo Rates” by 100 bpts to 6.50 %. This is RBI’s key interest rates on lines of the American economy’s ‘ Federal Funds ’ interest rate. This is the window for the Indian banks to borrow ‘short term’ funds from RBI. The cut in “ Repo Rates ” signals commercial banks in India to lower their PLR for corporate and individual customers. A direction to the economy – Interest rates are going to be lowered by the commercial banks. Indian is today one of the highest interest rates economies in the world.
ii) RBI announced a 100 bpts cut “ Reverse Repo Rates ” to 5.00 %. This is the interest rate the commercial banks get from RBI when they park their ‘surplus funds ’ with the Central Bank. A cut in this interest rate ‘discourages’ the commercial banks to park their ‘surplus funds’ with RBI and rather lend to corporates at a better interest rate. This enhances the liquidity with the banks to ensure that the corporates get access to bank financing to run their businesses smoothly.
iii) Home Loans – National Housing Bank can now ‘refinance’ home loans for customers upto Rs. 40.00 billion. Thi entails Indian housing finance companies to provide additional funds to the buyers of homes in the tight financial conditions. Banks were not very keen to lend money to actual property buyers due to liquidity crunch and risk profiling of home buyers.
iv) Loans for Small and Medium Enterprises ( SMEs ) – SIDBI can now ‘refinance’ loans for Indian Small and Medium size companies upto Rs. 70.00 billion. This is a very important stimulus. In the chain of economic activity in India these SMEs provide back-end work to large companies by way of ‘sub-contracts’ and ‘providing other services which are niche’. These SMEs were not getting bank finance due to the size of their ‘balance sheets’ or ‘lack of capital’ with the promoters of these SMEs. This was having a massive effect on operations of especially the large infrastructure companies in India . These handful of large infrastructure companies engaged in construction of Roads, Highways, Bridges, Ports, Power Plants, Steel Plants etc were facing delays as their ‘sub-contractors’ i.e. SMEs were not able to meet the deadlines on account of working capital constraints. Very positive policy announcement by RBI but in India for SMEs to get loans from their bankers is not an easy job. Too much of paper work and delays. Plus ‘palm greasing’ ! We have to salute the spirit of the Indian engineering entrepreneurs that they are still able to run the show inspite of a ‘deep red tape’ in the entire system and provide support to these large infrastructure companies in India . RBI has worked in the right direction to provide additional funds to SIDBI to ‘refinance’ the PSU Banks to lend to SMEs.
v) FCCB buyback – RBI announced that companies which had raised forex loans in 2006 and 2007 by was of issuing Foreign Currency Convertible Bonds (FCCBs) to FIIs can now ‘buyback’ these Bonds provided they are at a discount of at least 25.00 % of their book value. Maximum value of ‘repayment’ prior to maturity was fixed by RBI at US $ 50.00 million per company. Balance to be paid by the Indian companies in forex on maturity as per terms of the loan. When the going was good – Indian corporates raised forex loans at cheaper rates through the FCCB route. Let us assume an Indian company issued US $ 400.00 million worth of FCCBs to a FII in December 2007 with a maturity date of December 2009. Each FCCB was of face value of US $ 1,00,00.00 ( United States Dollars One hundred thousand only ). So 4000 such US Dollars denominated ‘Convertible Bonds’ were issued by the Indian Company to the FII. The pricing of the said Bond was on the basis of a ‘premium’ over the market price of the Indian company’s share price in December 2007. Say – the market price of the share of the Indian company in December 2007 was Rs. 100.00 per share. FCCB was issued to the FII at Rs. 35.00 premium at Rs.135.00. At maturity in year December 2009 the FI lender has two options – Either he gets ‘Converted Equity’ in the borrower’s company at the 'premium' at explained above or can ask for ‘Cash back’ with a nominal coupon interest. No one could ever predict that in the year 2008 – stock prices of Indian companies will correct to 50.00 % or more of their value in 2007. Hence the FI lender would not like to have a substantial ‘Converted Equity’ stake in the Indian company in December 2009 as the market price of the share maybe still is 50.00 % lower or more in December 2009. The FI lender will for sure ask for ‘Cash back’ with nominated coupon interest in December 2009. Hence RBI made this important announcement regarding ‘Pre-payment of FCCBs’ with a cap at US $ 50.00 million per company. Buyback has to be funded in Indian Rupees by the Indian Company to the RBI who in turn will pay in US Dollars to the FIIs. This was a welcome move as it ‘reduces’ the forex debt of the Indian company. Indian corporates quickly latched on to this opportunity as ‘share prices’ across the sectors have slumped due to market meltdown in 2008. The companies which paid back their part FCCBs to the tune of US $ 50.00 million equivalent were – RCOM, AMTEK AUTO, MAN INDS, ORCHID CHEM, BHART FORGE and UNITED PHOPHORUS. As per SEBI estimates Indian corporate's total exposure to the FFCB is approx. US $ 20.00 billion with maturity dates ranging from end 2009 to end 2011.
vi) Government of India has allowed State owned M/s. Indian Infrastructure Finance Company Ltd. ( IIFCL ) to raise Rs. 100.00 billion thru ‘Tax Free Bonds’ to ‘refinance’ commercial banks for Infrastructure Projects. A positive move to push funding for the cash starved sector. These were the important ‘monetary stimuli’ announced by RBI in the first Stimulus Package on the 5th December 2008.
vii ) On the ‘Fiscal Stimulus’ - The first Package announced a cut of 4.00 % in Central Value Added Tax ( CentVat ) on almost all the industrial products. The products which affect the consumer directly were - Consumer durables, Building materials, White goods, Two wheelers and Cars etc. This was done to bring down the price of the said products to ‘boost’ consumer demand. A welcome step but all manufacturers did not pass thru this 4.00 % cut to the consumers.
Indian equity markets welcomed the stimuli as above and the stocks were bullish from 8th Dec thru 12th Dec’08. There was some disappointment as ‘no sops’ were announced for the beleaguered ‘Export and Textile Sector’. Also no ‘Special Interest Rate’ cuts for the Auto and Real Estate Sector.
2. The ‘Second Stimulus’ Package was announced by RBI on Friday 2nd January 2009. Brief details of the ‘monetary stimuli’ are as under :
a) RBI cut key “ Repo Rate ” further by an aggressive 100 bpts to 5.50 %. An eight year low and a surprise move by the RBI. This clearly indicates that RBI realizes that India is a ‘high interest’ economy and that commercial banks should cut their PLRs with immediate effect. The commercial banks cut PLR by 50 to 75 bpts in the week starting 5th January 2009. Also th is interest rate cut gives room to the banks to lower lending rates for Housing and Auto Financing Sector but there was no ‘Special Directive’ from RBI on the same. Thisdisappointed the Housing and the Auto Industry. The cut in the 'Repo Rate' lead to a crash in the Bond yields. The yield of the ‘10Y 2018 Govt. of India Bond’ fell to the near record low of 4.80 % as witnessed in October 2003. The yield tested an intra-day low of 4.86 % on Monday 5th January 2009 and closed at 5.16 % level. The ‘Price’ of the Bonds follows an ‘inverse ratio’ with the percentage ‘Yields’ of the same. If the Yield of a Bond goes down - then the Price of the Bond goes up. The ‘Gilt Funds’ are one hundred percent Debt Mutual Funds which only invest in Government Securities also called ‘G–Secs’. These are basically Central and Sate Govt. Bonds with a fixed maturity which are backed by a Sovereign Guarantees. There is still some steam left in investment in ‘Gilt Funds’ in India as advised on 31st December 2008, as the interest rates can fall further by another 50 to 150 pts basis over the next six to nine months in 2009. In USA the yields on the ‘10Y Benchmark Bond’ are as low as 2.00 to 2.50 % as the “ Federal Funds” interest rates are in the region of 0.00 % to 0.25 %. Similar is the case in Japan where the similar key short term interest rate is as low as 0.16 %.
The Bond prices are at their life time highs in USA . Some analysts are predicting that the next bubble to burst in USA is the ‘Bond Bubble’. They expect the biggest "Bond Bubble" in the history of America to go burst in 2010. On the same lines as the crash of the ‘Housing Bubble’ in USA in 2007 and crash of ‘Equity Markets’ in 2008. I am not a ‘fixed income’ or a ‘debt instruments’ or a ‘Bond investment’ specialist. I have seriously started tracking Debt Instruments in India only in the past one year or so. My core area is investment in Equities. On the basis of logic – it seems that there should be a correction in Bond prices in USA as interest rates cannot be ‘negative’ and hence yields are at their historic lows. With Uncle Sam’s stimulus package now touching about US $ 8.00 trillion – the US Govt. will have to raise this kind of money from the financial markets and substantial amount could be thru Bonds worth trillions of Dollars. Please exit from your investments in US Bonds – advice for an American Bond investor !
b) RBI announced a further 100 bpts cut in “ Reverse Repo ” rates to only 4.00 % now. An eight year low. This is a sure signal from RBI that commercial banks should not park their ‘surplus funds’ with it @ mere 4.00 % and rather lend it to corporates at higher interest rates to boost the economy. Large infrastructure projects need funding at low interest rates as the gestation period of all these projects – Highways, Roads, Ports, Power Plants etc. is long. Capital is scarce in the world markets but the interest rates are lower.
c) RBI in a surprise move slashed "CRR" by another 50 bpts to now at 5.00 % - a twoyear low. This adds further liquidity to the financial markets. RBI is worried that due to liquidity crunch the Indian GDP growth should not suffer in this fiscal.
d) The ECB norms have now been relaxed to allow 'Real Estate Developers of Integrated Townships' and 'NBFCs' to raise funds from overseas. The policy announcement also removed the ‘interest rate’ cap for the said ECB by the Developers and NBFCs. As of now there is a ‘cap’ on the interest rate for ECBs by both ‘Automatic’ and by 'FIPB Approval' route. The interest ‘cap’ for an ECB for a maximum of five years is @ 6.0 months LIBOR + 300 bpts and for a period beyond five years the cap is @ 6.0 months LIBOR + 500 bpts. Both these ‘caps’ have been abolished till 30th June 2009. This will give a fillip to Housing Sector which is facing an acute shortage of funds. A large numbers of developers will raise funds from the international markets directly at very low interest rates.
e) The Government of India has allowed NBFCs to raise funds thru the ECB window for lending directly to the ‘Infrastructure Sector’ under the ‘FIPB Approval’ route. NBFCs will lend to the infrastructure companies in India in INR. At present , NBFCs are only permitted to avail ECB for a minimum maturity of five years, to finance import of ‘Infrastructure Equipment’ in US Dollars for leasing the same to the companies engaged in infrastructure projects in India . This also is a positive monetary stimulus but the NBFC will have to professionally hedge their forex exposure.
f) Government of India has increased the ceiling of FIIs investment in the ‘Corporate Debt’ from the earlier cap at US $ 6.00 billion to now US $ 15.00 billion. This is also called the Corporate Bond (CB) investment. The yields are generally higher in case of CBs vis a vis GoI’s Bonds. The spreads are higher FIIs flows will increase into Corporate Bonds as the Indian interest rates are still higher than interest rates in USA , UK and EC. This is also a welcome move. Indian corporates can now ra is e funds at lower interest rates. There is a little advantage here for the Indian corporates – the forex fluctuation risk lies overseas as the FIIs will invest in CBs in INR. My apprehension is – globally there is a liquidity crunch. Will FIIs invest in Indian Corporate Bonds in INR ? What happens if the INR depreciates against the US Dollar substantially till the maturity period of the Bonds ? I presume that the FIIs for sure hedge their US Dollar investment in India in INR. But the insurance or premium on this ‘hedge’ will go up which can marginally negate the higher interest rates the FIIs get on their investments in CBs in India.
g) The Government of India has allowed various State Governments to raise ‘additional funds’ thru market borrowings ( State Bonds ) to the tune of Rs. 300.00 billion ( US $ 6.10 billion ) in the current fiscal to boost ‘public expenditure’. This has been done to meet shortfall in the ‘State’s Revenue’ collection on account of economic slowdown. My view is – will the State Government’s be able to raise this sum of Rs. 300.00 billion thru Bond auctions in this tight liquidity scenario with the investors in India ?
h ) The State Govts. Will be
encouraged to release land for ‘Low and Middle Income Housing’ schemes. Real
estate companies will be encouraged to increase construction activities for this
Sector in housing industry. Real estate companies will get ‘liquidity support’
from the NBFCs, who will get Rs. 250.00 billion ( US $ 5.14 billion ) funding
from a ‘Central Govt. SPV’ specially to be set up for this purpose. NBFCs will
give ‘Investment Grade Paper’ ( CBs or GoI Bonds ) as collateral to the said
SPV. My view is that on paper this proposal is fine, but in India there is too
much of ‘red tape’ to get ‘actual funds d is bursal’ in hand plus ‘palm
greasing’ at every level. Another apprehension is that do these NBFCs have the
funds to buy CBs and/or GoI Bonds ? In addition there is a real problem of
implementation of projects on the ground due to various operational
bottlenecks.
i) Govt. of India has increased the limit for M/s. IIFCL to raise additional Rs. 300.00 billion ( US $ 6.10 billion ) thru ‘Tax Free’ Bonds. In the ‘First Stimulus’ Package – IIFCL was allowed to ra is e Rs. 100.00 billion. Now in total – IIFCL is allowed to ra is e Rs. 400.00 in total to ‘refinance’ the banks for lending to ‘Infrastructure Sector’. After Rs. 100.00 billion has been ra is ed by IIFCL and d is bursed then only it can raise the additional Rs. 300.00 billion and then disburse in tranches of Rs. 100.00 billion. I have two is sues. Firstly my view is that large infrastructure projects need funding at low interest rates as the gestation period of all these projects – Highways, Roads, Ports, Power Plants etc. is long. Financial closure of many of the large infrastructure projects in India is a handicap. Only a very few five star companies viz L & T, TATA Group, ADAG RELIANCE Group, GAMMON, IVRCL, SIMPLEX etc are capable of arranging the requisite funds from various sources including ECBs for the said financial closure for large projects. The total amount of funds required for the infrastructure projects is only Rs. 400.00 billion from the ‘Refinance’ window of IIFCL. This quantum of funds is far too less to meet the Govt. of India’s targets for Infrastructure development by ‘Private’ companies and/or in ‘Private + Public Partnership’ model. JFI - For Roads and Highways Indian Private companies require approx. Rs. 500.00 billion for the NHAI Tendered Contracts. In addition it is estimated that Rs. 2000.00 to 2500.00 billion is required for the Ports, Power Plants etc under the Public+Private Partnership model. This kind of money can only be accessed by FDI window. In India our FDI is not even a fraction of the FDI into China for the past ten years. China has attracted FDI to the tune of US $ 60.00 billion i.e. Rs. 3000.00 billion per year on average for the past ten years. Plus in China – funds disbursal is much much faster after ‘financial closure’ of the said Project. Unfortunately India ’s FDI for the past ten years on an average is around US $ 15.00 billion i.e. Rs. 750.00 billion/year. That is the reason that China ’s humongous infrastructure is in place since the past ten years. Just note that China has added 1,00,000 Mw of Power ( Coal, LNG, Naptha and Hydel ) every year 'on the trot for the past five successive years' to its ‘National Power Grid’. In India in the last five years we have only added merely 74,000 Mw of Power ( Coal and Hydel ) to our National Grid against a target of aprox. 2,00,000 Mw. The same is applicable to China in the Roads and Highways, Ports, and Housing Sectors. We need to put our house in order if we have to meet the budgeted figures for the next five years. I have my serious doubts. Secondly - the SMEs form a very important part of this ‘infrastructure projects’ chain. These companies do not have the requisite funds to do jobs on the sites for prime contractors for the infrastructure projects. These companies get funds at much higher interest rates from the Banks. For expansion of their working capital limits and capex limits the promoters of these SMEs have little capital and collateral to pledge to the banks. Plus the equity option to raise money is a difficult issue in today’s turbulent times in the Stock markets. How do these SMEs raise money to service the prime contractors ? This is an important is sue which Indian policy makers need to address.
j) ECB norms have been relaxed for the ‘Services Sector’ by the Govt. of India. At present Hotels, Hospitals and ITES/Software companies are allowed to avail ECB upto US $ 100.00 million per fiscal year to import ‘Capital Goods’ under the ‘FIPB’ approval route. Now this amount can be raised under ‘Automatic’ route for both Forex and INR expenditure. This is a welcome move as now, no FIPB approval is required. The ‘monetary stimuli’ have been welcomed by one and all in the industry. Equity markets were extremely bullish on Monday and Tuesday 5th and 6th January 2009 on account of these aggressive 'monetary stimuli'.
k) The 'fiscal stimuli' were not that attractive. Import duties were cut on Cement, TMT Bars, Ferro-Alloys to protect the domestic industries in this sector. Fine print is available at the MoF’s website. The 'fiscal stimuli' was a disappointment as perceived by the industry. The problem is that "Indians Fiscal" situation is not at all healthy and hence the GoI could do little on this front. India's Fiscal Deficit for FY09 will be around 5.00 % of the GDP as against the budgeted figure of 2.50 %.
3 ) Uncle Sam's stimulus package
is now worth US $ 8.00 trillion ! Just imagine the amount of US Dollars
circulating in the American economy in 2010 thru 2011. God save America !
Special Note - Hyperinflation in
I have been getting a lot
of messages from my associates, friends and clients since the past few months
regarding the removal of the “Peg of Gold from the US Dollar in
1971” and its impact on the global
Crude Oil market. I am briefly explaining the so called biggest ‘Petro-Dollar
Scam’ in the history which will nearly
cripple the American economy by 2012. Some astrologers even predict that the
American economy will be ‘bankrupt’ in 2012 like
I mentioned on my website in November 2008 under a Special Update – “ TIMING IS EVERYTHING IN INVESTING ” that the US Federal Reserve in 1971 recommended to President Richard Nixon to remove the ‘Peg of Gold from the US Dollar’. President Nixon signed the proposal and in my view made the biggest blunder in the history of American politics.
i)
People do not realize the
reason of the
ii)
Post 1971 –
iii) In the Mid 1970s – these four countries in
iv) So
v) From that point – every Nation that needed to buy Crude
Oil had to firstly hold US Dollar. This meant that all countries exchanged their
goods and services for US Dollar – which the American just happily
printed.
vi) American bought Crude Oil for their consumption almost
‘free of cost’ by printing those Dollars. Cost of security paper, green and
black ink, metal etc was minimal.
vii) However the problem started when Saddam Hussein started
selling Iraqi Crude Oil directly ‘on the sly’ in Euros, abrogating the cozy
amongst the Americans had with OPEC. Thus Saddam had to be stopped. How
???
viii) The Americans concocted up a pretext to wage a war and
invade
ix) But Hugo Chavez –
x) Iranian President (Mohd. Ahmedinejad) watching all this
decided to kick the US Dollar and do the same thing – sell Iranian Crude Oil for
every currency except the US Dollar. He has been partially
successful.
xi) The game is coming to an end for the Americans – as
Nations of the world find that they can buy Crude Oil for their own currencies
instead of holding paper US Dollars. More OPEC nations will abandon the US
Dollar and even the Non-OPEC Crude Oil exporting countries will follow
suit.
xii) The worst thing for the Americans is that eventually
they will also have to buy Crude Oil for themselves in Euros, GBP or Rubles
instead of just printing paper money ( US $ ) to import Crude
Oil.
xiii) That will be
the end of the American Empire, the end of funding for the
xiv) Wait and watch – 2012 !
xv) There will be a new ‘World
Economic Order’ after the year 2012. I
will provide details of the same in the year 2012, if I am around !
JANUARY
I wish a happy and a prosperous 2009 to all my
clients, associates and investors !
The year 2008 will be remembered for a long
time by equity investors as a terrible year as most of the investors have not
seen this kind of carnage in their life time. This type of global correction in
equities and commodities was only witnessed in 1929 to 1931 in
BSE SENSEX closed today Wednesday 31st
Dec’08 at 9647 up 6.09 % from 28th Nov’08 close of 9093. The
intra-month low and high for BSE SENSEX for Dec’08 were 8601 and 10189
respectively. I was bullish for the SENSEX for Nov’08. SENSEX and ^DJI were both
in ‘oversold territory’ in Nov’08 and a ‘bear rally’ was expected in Dec’08.
Bear market rallies can be very severe and punters put ‘stop losses’ or hedge
their ‘shorts’ by buying respective ‘calls’. The rally in BSE SENSEX from the
low of 7697 as of 27th Oct’08 to 10189 as of 19th Dec’08 was very
sharp – up by 32.38 % from the 7697 level.
^DJI closed today at 8776 down marginally
0.60 % from 28th Nov’08 close of 8829. The intra month low and high for ^DJI for the
month of Dec’08 were 8149 and 8924. The bear rally for ^DJI was equally severe –
20.73 % up from low of 7392 till 8924.
I have mentioned in my last update that for the
year 2009 – BSE SENSEX will take cues from ^DJI. Hence the details for ^DJI are
being posted. I have no choice till BSE SENSEX is ‘decoupled’ from ^DJI. Both ^DJI and BSE SENSEX are still in a ‘long
term’ bear phase. For the ‘short term’ both ^DJI and SENSEX are in an ‘uptrend’
but they will find a very stiff resistance at 10000 and 11000 levels
respectively. The support level for ^DJI is 8270. If ^DJI closes for three
consecutive days below 8270 – then the journey towards its 52 week low of 7392
will resume. The support level for BSE SENSEX is 9630. It will start its journey
towards its 52 week low of 7697 if BSE SENSEX closes below 9630 for three
consecutive days. I predict this may not happen in the month of January 2009 but
can happen within Q1 2009. I am bearish on Indian equities for January
2009.
The levels to watch for ^DJI for Jan’09 are
:
R1 9000 R2 9300 R3 9600 R4 10000 R5 10500
S1 8670 S2 8400 S3 8270 S4 8000 S5 7390 S6 7000
The levels to watch for BSE SENSEX for Jan’09 are
:
R1 9860 R2 10200 R3 10600 R4 11000 R5 11800
S1 9630 S2 9000 S3 8310 S4 7650 S5 7500 S6
7000
I am not giving
details of what is happening around the world in the field of equities and
commodities. Also I am not giving details of what individual countries are doing
to fight this financial crisis as the whole data is available in the print and
electronic media.
I am advocating
investment in the Debt instruments for the first time seriously since the year
2000. The reason being that by the Grace of God – I am able to generate much
better returns in the equity markets as compared to debt. Debt instruments give
very little returns. But now are no ordinary times. Very difficult year ahead of
us – 2009.
I do not know how
much funds FIIs will allocate to
M/s. Barclays
Capital Plc.
I recommend
Indian investors to invest 25.00 % of their ‘investible funds’ in Gilt Funds
with immediate effect. Invest 50.00 % in physical Gold. Keep 25.00 % as cash to
invest in equities. I will advise when to buy and what stocks to buy. The calls
for equity investment will be pure ‘trading
calls’.
Gold – It closed
today in New York Spot @ US $ 880.80 pto up 7.90 % from 28th Nov’08
closing of US $ 816.30 pto. I stick to my target of US $ 3000.00 pto latest by
December 2012. CITIGROUP in a report to its investors dated 17th
Dec’08 has forecast a price of US $ 2000.00 pto for Gold in the coming years.
They do not specify the time frame. CLSA in a report to its investors have
forecast a price of US $ 3360.00 pto by December 2010 ?
Crude Oil – It closed today at NYMEX for February 2009 Futures @ US $ 44.60 pbbl down 18.06 % from 28th Nov’08 close of US $ 54.43 pbbl. In fact Crude Oil tested a whopping low of US $ 33.17 pbbl at NYMEX on 19th Dec’08. My prediction that Crude Oil will hold US $ 50.00 pbbl in Dec’08 was again incorrect. In fact I have made a ‘grave error’ on Crude Oil. I regret this ‘technical error’. I do not know how did I make this blunder on Crude Oil price forecast ? Crude Oil has a major resistance at US $ 56.26 pbbl. Below this price Crude Oil can go to any level. Some analysts are predicting a price for Crude at US $ 15.00 pbbl in 2009. Merrill Lynch is forecasting an average price of US $ 25.00 pbbl for 2009. I again repeat Crude Oil below US $ 56.26 pbbl can go to any level. I will buy Crude Oil futures only when Crude Oil Futures trade at US $ 57.00+ pbbl at NYMEX.
I am again
advising investors to be cautious in January 2009. There could be sharp cuts in
^DJI and BSE SENSEX if the levels as above are breached. Gold will outperform
all asset classes in 2009.
Only Gold and Gold for 2009 to 2012 !
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