Nifty: still a long way to go

Thought for the day

"I like trying to get pregnant. I'm not so sure about childbirth."

—George Eliot (British, 1819-1880)

Word for the day

Woolgathering (n)

Indulgence in idle fancies and in daydreaming; absentmindedness

Malice towards none

Considering the stature of the main two Presidential candidates in the US, should the Congress consider allowing NOTA vote in the November elections.

First random thought this morning

The recent flooding of major Indian cities and consequent traffic snarls have led to severe criticism of public authorities. Indubitably, the public authorities in India are less sensitive, apathetic and mostly callous - so nothing new here.

After trekking social media for three hours, I could not find a single criticism of citizens - who refuse to follow lanes while driving; do not hesitate in jumping to opposite lanes in case of delay at traffic or railway signals etc.

In my experience of driving over half a million kms in India, 70% of jams and traffic delays are caused due to this intolerance of citizens.

Nifty: still a long way to go

The derivative expire of July series last Thursday must have enthused most bulls. The derivative expiry today is very encouraging for the bulls.

At 8666, it was the third highest Nifty expiry ever; marginally below the second highest expiry of ~8684 in Feb 2015.

After the highest expiry of 8952 in January 2015, it took 13 expiries for the Nifty to record the cycle low expiry of ~6971 in Feb 2016.

In a typical bull market it normally takes half the time to retrace all the losses. From that view point, it will be no surprise if we see an expiry of 8952 or more in September 2016.

In the process to recoup losses, Nifty may appear to be running too fast and too far from the average. But from historical perspective, it still has a long way to cover.

On past many occasions, the cycle top has between 2x to 3.41x of 200EMA on monthly charts. At present Nifty is just 1.8x of 200EMA of 4708 on monthly charts. Therefore on strict technical parameters the cycle top may occur between 9400-15500 in next 3-38months.

 

 

 

"EASE" vs. "ease" of doing business - 2

Thought for the day

"The time will come when it will disgust you to look in the mirror."

—Rose Kennedy (American, 1890-1995)

Word for the day

Zoosemiotics (n)

The study of the sounds and signals used in animal communication, as song in birds or tail-wagging in dogs.

Malice towards none

PM Modi once said on floor of the Lok Sabha, that his political acumen should not be doubted.

AK obviously did not buy his claim.

It would be interesting to watch who returns triumphant at the end of the day!

First random thought this morning

US$265bn stimulus by Japanese government and yet "no hike" by US Fed, hardly moved the global markets.

Is it simply the law of diminishing marginal returns working or the markets are losing faith in governments and central bankers?

"EASE" vs. "ease" of doing business - 2

I have been saying this rather persistently and repeatedly. I do not mind reiterating it once again - if India needs to become a middle income economy by 2050, her people would need to contribute a lot. It is almost impossible to make India grow faster through fiscal profligacy, crony socialism, and nationalism by convenience.

Almost everyone I meet in the cities of this vast country, is complaining about shrinking cash economy and improving incidence of taxation.

Those who are complaining the most include - Traders whose whole business model is build around tax avoidance; industrialist and large farmers who profited from free (or stolen) electricity & bank loans which they earnestly believed are not repayable; businesses who were conceived and setup as beneficiaries of tax arbitrage; real estate developers who obliged people by taking their hard earned money in consideration of promise of a dream house and not delivering anything for years; brokers and professionals who helped all these people in laundering money and/or providing legitimacy to this ill gotten money through complex deals at stock exchanges or through round tripping from tax havens.

In my firm view, India cannot become a middle income economy by 2050 if we fail to -

(a)   Bridge the multitude of deficits prevalent in the country, especially trust deficit, governance deficit, compliance deficit, skill deficit, social and physical infrastructure deficit, and capital deficit; and

(b)   Bring India into a state of equilibrium by removing social, and regional, economic imbalances.

It is therefore of utmost importance that-

§  Industries and businesses who have thrived historical on government largesse and not necessarily on the enterprising abilities of promoters would be willing to give back to society by way higher taxes, higher voluntary CSR spending, technology upgrade for better resource utilization, etc.;

§  Regions like Gujarat and Maharashtra, which are economically more developed despite not being endowed richly with natural resources, would like to acknowledge that a part of their development is due to imperial designs of British regime and share their wealth with exploited regions like Jharkhand and Odisha.

§  Caste and communities which command ownership of the major part of economic resources and occupy most of the social space, would like to voluntarily vacate some space for the historically oppressed and downtrodden.

§  Populace which has grown to be non-compliant by habit, not necessarily by intention, would like to change habits like spitting on roads, violating traffic rules, encroaching on pavements in front of their house/shops, exploiting domestic helps and child labor etc.

"EASE" vs. "ease" of doing business

Thought for the day

"Birds sing after a storm; why shouldn't people feel as free to delight in whatever sunlight remains to them?."

—Rose Kennedy (American, 1890-1995)

Word for the day

Arrears (Plural noun)

The state of being behind or late, especially in the fulfillment of a duty, promise, obligation, or the like, e.g., Many homeowners have fallen into arrears.

Malice towards none

16years and two bypass surgeries later Bill Clinton may again get a chance to enter the White House. But this time nothing else to do!

First random thought this morning

Yesterday evening got an opportunity to attend a meeting of traders' body as special invitee. The topic of discussion was the evolving policy framework under the incumbent government. Everyone appeared perturbed. Everyone appeared antagonized. No one is liking the change.

The participants wondered why the government is prejudicial to the interests of  - Businessmen, Government Employees, Muslims, Dalits, and Real Estate Developers & Agents!

I guess PM needs to urgently rework the rules of engagement and communication with people.

"EASE" vs. "ease" of doing business

The reaction of many global corporations (MNCs) to the attempts by Indian authorities to implement good business practices, global compliance standards, and globally accepted sustainability framework raises doubt over feasibility and desirability of programs and policies like Make in India, liberal FDI regime, fiscal incentives etc.

From the reactions of auto majors towards the ban on diesel vehicles; reaction of foreign investors and businesses to implementation of GAAR and revision of DTAA with tax havens like Mauritius; conditions of local sourcing and employment generation; etc., prima facie it appears that the real pull factor for investing in India may be the "EASE" of doing business in India rather than the "ease of doing business".

There can be no denying the fact that an overwhelming majority of Indian companies have been direct or indirect beneficiary of (a) the inefficiencies of the administration; (b) lack of transparency; (c) incongruent policy framework; (d) unduly supportive politicians; (e) government largesse in form of misdirected subsidies; and (f) protection from fair competition at the expense of consumers, etc. This "EASE" of doing business in India is diminishing under the current regime.

There could be little argument on the fact that the changing structure of India’s socio-economic milieu require tremendous amount of capital investment.

The demand for civil and industrial amenities like power, transportation infrastructure (e.g., roads, airports, railways, ports, waterways etc.), sanitation, water, education and health etc. is rising with conspicuous rise in affordability. The demand for food, especially protein rich food, is also rising in non-linear trend since past decade or so.

However, the supply has not matched the demand in most of these areas leading to serious productivity constraints and persistently high inflation. This trend highlights the urgent need to invest huge amount of capital in building basic infrastructure and improving agro productivity. Unfortunately, all the required capital is not available within the country and we have to rely on the foreign capital for this.

This is as simple as it sounds and we need not complicate the matter. If we need foreign capital, which we do desperately, we need to be consistent in our approach towards investors.

In my view, in the interest of transparency and predictability, the government needs to issue a conceptual framework for the global investors and businesses investing or willing to invest in India.

It would be a good idea to clarify in the preamble of the said framework itself that "India is a well regulated market and it has earnestly embraced the generally accepted global practices & standards for compliance & disclosures. India whole heartedly supports the global sustainability framework and committed to the Paris Agreement on Climate signed in December 2015. India is committed to prevent money laundering and tax evasion." ....to continue

May I dare ask a question?

Thought for the day

"My father was a great innovator in public life, but when it came to raising his daughters, no one could have been more conservative."

—Rose Kennedy (American, 1890-1995)

Word for the day

Doctrinaire (adj)

Merely theoretical; impractical, Rigid

Malice towards none

ISRO loses the arbitration case relating to the cancellation of Antrix - Devas deal.

The government might have to shell out $672mn as compensation to Devas Multimedia.

List key learning from the fiasco.

First random thought this morning

GST will happen, monsoon session or the winter session or next year. The cobbler sitting at the corner of my street knows it. So what's the deal.

Do you seriously believe that market is still so inefficient that it has still not factored the cost and benefit of this tax regime change?

May I dare ask a question?

Last Friday 2,00,134 shares of Force Motors Limited were traded on BSE. Though not alarming, this volume was significantly higher as compared to the average daily volume of past few months. However on monthly basis the stock of the company has witnessed below average volumes (month till date).

In a commendable show of alertness, BSE asked the company to explain this spurt in the volume and if there is any development at the company that the market should know.

As per media reports last weekend (see here), "The Finance Ministry has directed all profit making PSUs to use their surplus cash to buy back shares and pay handsome dividend, besides considering issuing bonus shares or going for stock split."

As reported, "The Department of Investment and Public Asset Management (DIPAM) in a recent letter to Central Public Sector Enterprises (CPSEs) has asked them to pay dividend at the rate of 30 per cent of net profit or 5 per cent of the networth, whichever is higher." The said letter has purportedly asked the CPSEs "to consider share split if the book value of their shares exceeds 50 times their face value."

Instinctively I believe that the idea behind this directive is to help the government meet its fiscal goals; though the stated objective reportedly is to "encourage participation of small investors in capital markets". as "High price of shares sometimes act as a deterrent for investors to invest in the company and CPSEs needs to decide, from time to time, the option of splitting shares".

I could not find the said letter in public domain (so much for the committed transparency!). On the basis of whatever is reported in the media, I must say that this move raises a number of questions of the propriety, competence and intent. For example, consider the following-

(a)   The people who do not understand the simple basics of equity investment and markets have put in charge of managing enterprises worth trillions.

       Someone may please explain how a stock split or bonus per se increases the value of shareholders. The trading unit of all companies is just one share. Anyone with Rs.15,000 in his purse could buy one share each of 61 listed PSEs which are part of BSE PSU Index. I fail to understand, why a lower price per share would attract more investors.

(b)   Why the exchanges who are prompt enough to ask companies to explain the jump in the daily traded volumes of their listed equity, did not bother to ask these CPSEs, whose shares have seen quantum jump in price and volumes recently. "Why this policy decision was not promptly reported to the exchanges and the minority shareholders, as per the listing guidelines?"

(c)           Since the share prices and traded volumes of PSU stock has definitely seen unusual movements in past few months, Should the market regulator not investigate, like it does in other cases, whether there is any violation of the regulations relating to insider trading, market manipulation or unlawful activities?

Nifty: market re-fueling in the air

Thought for the day

"I've had an exciting time; I married for love and got a little money along with it."

—Rose Kennedy (American, 1890-1995)

Word for the day

Megillah (n)

A lengthy and tediously complicated situation or matter. or A lengthy, detailed explanation or account:, e.g., Just give me the facts, not the whole megillah.

Malice towards none

NGT has banned vehicles older than 15yr from plying in Delhi with immediate effect.

Congress has moved Ms. Dixit, who was CM of Delhi for 15yrs, to UP.

First random thought this morning

No urgency is visible amongst the government quarters to handle the situation in the Kota (Rajasthan ) factories, where a number of young students committed suicide in recent months. Neither anyone is explaining how this is different from farmers' suicide? The 3 idiots (Amir Khan, Chetan Bhagat and Raju Hirani) are also not owning any responsibility for this.

Nifty: market re-fueling in the air

Technically, Nifty is gaining strength with each passing day. Nifty has so far absorbed a host of 'below expectation' results; in a disappointment for analysts and the traders waiting for a correction.

So far Nifty is not showing any sign of a material correction in the offing. This is despite the short term indicators continuously hovering at the border of overbought territory.

In my analysis, the reason for Nifty's apparent resilience is the frequent and sharp sectoral re-balancing. It is akin to a jet fighter's ability to refuel in the air, without any need to land on ground to refill its fuel tanks.

In few months we have seen, sharp and deep corrections in sectors like pharma (10-25%), IT (10-15%), PSU banks (5-12%), etc. The popular plays in the broader markets have also experienced 10-25% fall in prices.

I expect this trend to continue in next few months, as Nifty inches towards new highs.

I am closely watching a firm closing above 8710 on Nifty. I feel, this should lead it to new highs in a blink. For Bank Nifty the corresponding level would be 19450.

This week is eventful with BoJ, FOMC and F&O expiry lined up. This Monday morning however, Nifty and Bank Nifty are showing any intention to make a major move this week. The ranges 8330-8630 for Nifty and 18250-19150 for Bank Nifty may act boundaries.

 

 

Nifty: Preparing for an early Diwali

Thought for the day

"Anything that consoles is fake."

—Iris Murdoch (Irish, 1919-1999)

Word for the day

Puissant (adj)

Powerful; mighty; potent.

Malice towards none

A spate of mindless terrorist attacks on civilian around the world implies that the war on terrorism is near completion.

With their back to the wall, these extremists are indulging in the desperate acts of violence.

The key now is now to lose the focus and not open any window for them to escape.

First random thought this morning

Last week the former RBI governor D. Subbarao made some revelations about the RBi- Government relationship. Apparently, the revelations did not startled anyone. Perhaps everyone knows by experience or instinctively, what the former governor is trying to reveal

So not much ruckus from any quarter.

I guess the incumbent governor's memoire would also be treated with similar disdain whenever he decides to write.

Nifty: Preparing for an early Diwali

I have been maintaining that Nifty is most likely to breach it's all time high closing level (8996 recorded on 03 March 2015) around Diwali this year. Well, the probability of this happening is the higher now, than ever before.

In fact, there is a fair chance that Diwali may actually come early this year, insofar as the Indian equity market is concerned.

Though ~3% rally of last week has again created a overbought condition on the near term charts; the monthly and quarterly charts show little sign of fatigue.

Any correction in the near term therefore would be an opportunity to stock up Indian equities.

This week, Nifty faces a strong resistance at 8630 level and has good support in 8308-8323 range. Any fall below 8215 would be an opportunity to create aggressive leveraged positions.

For Bank Nifty, good support is present in 18300-18460 range. For creating aggressive leveraged position waiting for 17600 is advisable.

Short positions should preferably be avoided. In any case, all short positions should be held with a strict stop loss of 8716 spot Nifty.

FA-u-Q

Thought for the day

"Nothing gives us courage more readily than the desire to avoid looking like a damn fool."

—Dean Koontz (American, 1945—)

Word for the day

Churrasco (n)

Meat cooked over an open fire.

Malice towards none

Is it time to appoint a Rural Economist as RBI governor?

Since, we have already tried market economists, development economists, career bureaucrats and bankers.

First random thought this morning

Close to full marks in quantitative subjects like Mathematics and Physics is fine.

But in humanities?

This is absurd!

This suggests that we still living under the Macaulay's spell. We are not allowing our children to think freely and express their thoughts in their language. We want them to be conformist in the colonial sense.

FA-u-Q

With so many emotions running concurrently, the present atmosphere in the Indian equity market distinctly resembles a traditional Indian wedding ceremony.

The market participants are happy, greedy, fearful, somber, repentant, hopeful, jealous, boastful, swaggering, inebriated, hasty and ruined all at the same time.

This is neither new, nor unusual. Most periods of market surge against all odds have seen witnessed similar scenes. The most recent being 1Q2015 and prior to that 1H2007.

In these times, it is common to frequently hear some uncomfortable questions (FA-u-Q). Overwhelmed with hope, fear and greed, these questions are uncomfortable because I cannot answer those questions with any degree of certainty or confidence in the argument. Some of the questions, I am afraid to hear are as follows:

How much more from here?

The potential upside in a rising market and downside in a falling market are always daily rolling targets. Technical targets are usually conditional (e.g., “if market rises above this level, it could go to that level else…) and generally do not account for exceptional moves. Price targets based on fundamental valuation and historical discounting trends are dependent on materialization of multitude of complex forecast regarding likely revenue, profitability, cash flows, capex, project execution, policy environment etc.

At the close of the market on 12^th July 2016 I could say that if Nifty sustains above 8418 level and manages to close above 8530, we could see it going to 8650 level soon. Else, it would fall to 8328 and then to 8060 level. However, if 1QFY17 results disappoint, GST bill is not passed in monsoon session, CNY devaluation accelerates, Brexit process starts earlier than expected, and/or July sales figures for auto and cement remain sluggish, we may see market correcting sharply.

If this does not make sense, well it actually does not. I am just trying to evade a straight answer to an uncomfortable question.

This stock is 2x in past three month. Is it still a buy?

The broader market indices are at all time high. Over 100 stocks have risen more than 100% in past three months. The question is how much more these stocks could rise?

Again there could be no straight answer to this. I can just remind that the markets are not that inefficient these days. The information arbitrage has diminished materially in past few years. The 'Eureka' movements have to be rare. If these are frequent, there must be something seriously amiss.

Should I buy midcap or large cap

Large cap ‑ midcap-small cap; long term ‑ short term; value investor – speculator etc. is nothing but jargon created to unnecessarily complicate the process of investment and compel investors to seek professional advice.

Stocks like Nestle, Britannia, Colgate, ABB, AB Nuvo, Ashok Leyland, Hind Zinc, BEL, Bharat Forge are termed midcap.

Investors who bought large cap RIL, HUL, Sun Pharma, Bharti Airtel etc. a year ago are regretting. While those who bought micro cap stocks in sugar, textile, cement etc. sectors are rejoicing.

In my view, the approximate correct answer would be buy the companies which are relevant in today’s context, for the period they are likely to remain relevant at today’s price.