Last week was certainly forgettable for the investors in Indian
financial markets. Currency, equities and bonds all plunged, inflicting serious
losses to investors.
The worst part was that the government still appeared to be
under the impression that the current economic conditions are part of a routine
downtrend that could be managed by taking some incremental steps like
increasing interest subvention on export credit by 1%; hiking import duty on
gold by 2%, or tweaking FDI rules etc.
Current account deficit is consequence of some long standing
structural problems in the country. But various measures announced by RBI and
the government appear to suggest that CAD is a problem in itself that could be
resolved simply by kneeling in front of foreign investors. The fact however is
that the more they see Indian government genuflecting, more they are turning
skeptical about the India story.
RBI took some steps to curb the volatility in currency. But the
statement of the governor was so guilt laden that market chose to completely
ignore the effort and the message, taking both the INR/USD and bond yields to
new closing highs.
Continuing with the tradition set in past few months, few more
stocks lost over 50% of their market value in a week. IRB Infra, Financial
Technologies and MCX met the same fate as Gitanjali Gems, Wockhardt, Strides
Arcolab, etc.
NSEL (National Spot Exchange) fiasco suggested that after
21years, couple of JPCs and humongous losses to investors we have not learned
anything from Harshad Mehta and Ketan Parekh episodes. As the popular fear
suggests, we might see encore of Bank Receipt scam of Harshad Mehta in this
episode. The response of official machinery appeared slow and inadequate thus
exacerbating the confusion and jitteriness.
On corporate performance front, there were numerous forgettable
results. All PSU banks reported serious deterioration in asset quality and
stagnant credit growth. Siemens, Cummins, JPA, Suzlon etc. all highlighted that
(a) 5% GDP growth may be too difficult to achieve, at least in first half of
the current fiscal and (b) stress on asset quality is only going to rise in
coming quarters.
The most noteworthy however was BHEL – once touted as synonym of
India’s famous growth story. The results are a serious setback to the argument
of value investors.
The question for the week – Will BHEL be the star loser for the
week?
On our part, we continue with our strategy of NIL to serious
underweight on financials, industrials and commodities (other than cement).
Despite recent gains in telecom stocks, we continue to believe
that regulatory interference in the sector shall remain high. Besides,
competitive intensity is only going to rise, so is the capital intensity. We
are pleased to let this opportunity pass.
Thought for the day
“There are risks and costs to action. But they are far less than the long range risks of comfortable inaction.”
- John F. Kennedy(1917-1968)
Word of the day
Lam (v):
To beat; thrash
(Source: Dictionary.com)
Shri Nārada Uvāca
Ms. Sonia Gandhi takes up the cause of Durga Shakti.
What about Ashok Khemkha?
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