Dear all,
I would like to wish everyone a very happy and safe new year
Wednesday, December 31, 2008
Monday, December 22, 2008
The Credit Crisis- Unplugged
Background: To understand the ongoing subprime mortgage and credit crisis, let’s go back a few years. The end of the Dot-Com Bubble was the start of another, even larger bubble: the housing bubble.
From 2000 to 2005, the median sales price of existing homes increased year over year and speculative investment in properties skyrocketed. "Flipping" or buying a house, doing some quick renovation or repair, then selling it for a handsome profit, became sort of a national pastime, with cable TV shows dedicated to it. In 2005 we saw the launch of not one but two shows, one called Flip This House and another - completely unrelated - called Flip That House.
When property values kept on increasing, home loans became very easy to get (after all, if the borrower defaulted on the mortgage, then the bank got the house - which value kept on increasing anyway!). New mortgage products became popular: subprime loans for borrowers who otherwise wouldn’t qualify for loans because of their lack of creditworthiness (hence the term "subprime") and adjustable-rate mortgage, which, as its name implies, have a variable interest rate. In addition to ARMs, there were also interest only loan - which let the borrower pay only the interest and not the principal on the loan for a period of time, and negative amortization loan (or NegAm) which let the borrower pay a portion of the monthly payment (the rest got added to the total amount borrowed - in this type of mortgage, the amount you owe gets larger year after year!).
How easy was it to get a mortgage? One mortgage provider, HCL Finance (motto: "Home of the ‘no doc’ loan" - no doc refers to no documentation of income required) had a product called the NINJA loan. It stood for No Income, No Job (and) no Assets! (Source)
In 2006, home prices started to go down and a year or so later, borrowers of subprime mortgages started to default on their loans. In 2007, almost 1.3 million properties were being foreclosed - a jump of 75% over the year before. (Source) As late as March 2008, it was estimated that 8.8 million homeowners (about 10.8% of total homeowners) have zero or negative equity in their homes, meaning they owe more than their houses are worth. (Source)
Had that been it, the crisis probably would’ve been isolated. Sure some banks would undoubtedly fail because they made bad loans, but the subprime crisis had since spread to the credit markets and created a massive credit crunch that is larger and far more dangerous than the subprime crisis.
Securitization: To understand the current credit crisis, it’s important to understand something called "securitization." Securitization is an old process by which an asset that generates a cash flow can be converted into a security (like a bond), that can then be bought and sold in the market just like any other security.
A great example is the Bowie Bond. In 1997, musician David Bowie issued a bond (basically a loan note) secured by the current and future royalty revenues of his first 25 albums (a total of 287 songs … here it was the "asset"). The 10-year Bowie Bonds were bought for $55 million by Prudential Insurance Company, who then would collect on the royalties for ten years. So David Bowie got $55 million up front, and Prudential could either keep the bond (and get the song royalties) or sell the bond for profit. (Source)
Back to the topic at hand. Traditionally, banks hold mortgages until maturity, with profits being interest of the loan. But Wall Street had an idea: why not do to mortgages what David Bowie did to songs? So they (and by they, I mean Freddie Mac, Fannie Mae, and 12 Federal Home Loan Banks) pooled together mortgages and bundled them up into asset-backed securities (ABSs) and sold the package to get up front money (the investor would get the monthly mortgage payments from all of the homeowners whose mortgages got bundled).
But wait - these mortgages all had different risks. Some were safe, stodgy 30-year mortgages whereas others were subprime loans that though were more risky, also had higher interest rates and thus were more profitable. Not to worry: Wall Street split the ABSs into "tranches" (just a fancy word meaning sections or classes): the safest were rated AAA (by rating agencies whose sole job was to gauge how risky something was … and got paid by those whom it rated - talk about a conflict of interest!), the rest were medium and low-rated tranches.
The logic was this: one borrower might default on his loan, but if you bundled them together, there’s safety in number: it’s unlikely that ALL borrowers would default all at once.
But wait - there’s more. The medium and low-rated tranches were riskier investments, but it’s unlikely that all of them would default at the same time. So let’s take all those medium-to-low rated ABSs and pool them together to create something called collateralized debt obligations (CDOs). And through the magic of rating, we once again could turn some of these risky securities into - tada! - A-rated securities fit for pension funds. Repackage these CDOs a few more times and pretty soon you wouldn’t know how much subprime loans were actually in them. (Source)
The Credit Crisis: So how did the housing downturn infect the credit markets? Well, when the housing price dropped, a large number of borrowers began to default on their mortgages. Suddenly, ABSs and CDOs looked very suspicious as no one knew how much exposure to the subprime mortgage mess these securities actually had. The market for ABSs and CDOs dried up and holders of these securities couldn’t sell them. In many cases, these companies leveraged their purchase of these securities, which really amplified their losses.
Just as the market worsened and investment firms and companies found that their holdings of ABSs and CDOs were worth far less than they had paid for them (and thus had to write off that loss in their books - causing a number of hedge funds to collapse), another domino fell: Credit-default Swaps (which took down AIG).
Credit-default Swap: Credit-default Swap (or CDS) is basically insurance on debt. Say that a bank buys a large amount of bonds from a company. As with any debt, there is a risk of the debtor fail to pay the money back. To protect against the company defaulting on its bond payments, the bank would buy CDS. In case of a default, the bank go to the insurer and cash in its CDS.
American International Group or AIG was the creator and the largest seller of CDS. It thought that CDS was an insurance product just like a homeowner’s policy, but obviously it was wrong. "Any one house burning down doesn’t increase the likelihood that lots of other houses will burn down," explained Adam Davidson of NPR, "That doesn’t apply to bond insurance." (Source)
In case of bonds, a default can create a domino effect: as investors lose confidence and sell, the price of bonds go down and the interest rates go up. Borrowers who can’t find capital to meet their obligations would start to default on their bonds and the cycle deepens. (Photo: Gone-Walkabout [Flickr])
To make sure that AIG would actually pony up and pay the CDS in case of a bond default, it had to post a collateral. This collateral depended on their credit ranking - as their credit was downgraded, it had to post more collateral. Because of its worthless mortgage-backed securities assets, AIG’s creditworthiness would be downgraded - which meant that it would need to post as much as $250 billion, which of course it didn’t have laying around, in collateral in a matter of weeks!
Why Bail Out AIG? Over the years, the CDS market has grown into a $70 trillion a year business. And since no one knew who has CDS from AIG, the failure of AIG would mean that a lot of companies are holding bonds that are significantly riskier than they first thought. Companies that had "hedged" their bets by buying CDS would find their books suddenly unbalanced, which means they have to sell off assets to cover their risks or they would become insolvent. This failure would propagate throughout the entire economy and create a "systemic failure." That, by the way, was what the government was trying to avoid by bailing out AIG. (Source)
The Credit Crunch: The basic essence of the credit crunch is this: banks won’t lend because they can’t be sure that they’ll be paid back. Companies with excellent credit ratings found themselves unable to get a loan (after all, all those ABSs and CDOs had excellent ratings, so who’s to say that the ratings are worth anything?). Even some banks find themselves unable to borrow money from other banks!
The Solution? As you well know by now, the White House requested, and the Congress passed a $700 billion bailout program. The idea is to for the government to buy distressed asset, especially mortgage-backed securities, from the nation’s banks, which would inspire banks to lend again. The bailout remains unpopular with the general public, who perceive it as bailing out Wall Street, who caused this mess in the first place.
Whether the bailout will work or not remains to be seen.
From 2000 to 2005, the median sales price of existing homes increased year over year and speculative investment in properties skyrocketed. "Flipping" or buying a house, doing some quick renovation or repair, then selling it for a handsome profit, became sort of a national pastime, with cable TV shows dedicated to it. In 2005 we saw the launch of not one but two shows, one called Flip This House and another - completely unrelated - called Flip That House.
When property values kept on increasing, home loans became very easy to get (after all, if the borrower defaulted on the mortgage, then the bank got the house - which value kept on increasing anyway!). New mortgage products became popular: subprime loans for borrowers who otherwise wouldn’t qualify for loans because of their lack of creditworthiness (hence the term "subprime") and adjustable-rate mortgage, which, as its name implies, have a variable interest rate. In addition to ARMs, there were also interest only loan - which let the borrower pay only the interest and not the principal on the loan for a period of time, and negative amortization loan (or NegAm) which let the borrower pay a portion of the monthly payment (the rest got added to the total amount borrowed - in this type of mortgage, the amount you owe gets larger year after year!).
How easy was it to get a mortgage? One mortgage provider, HCL Finance (motto: "Home of the ‘no doc’ loan" - no doc refers to no documentation of income required) had a product called the NINJA loan. It stood for No Income, No Job (and) no Assets! (Source)
In 2006, home prices started to go down and a year or so later, borrowers of subprime mortgages started to default on their loans. In 2007, almost 1.3 million properties were being foreclosed - a jump of 75% over the year before. (Source) As late as March 2008, it was estimated that 8.8 million homeowners (about 10.8% of total homeowners) have zero or negative equity in their homes, meaning they owe more than their houses are worth. (Source)
Had that been it, the crisis probably would’ve been isolated. Sure some banks would undoubtedly fail because they made bad loans, but the subprime crisis had since spread to the credit markets and created a massive credit crunch that is larger and far more dangerous than the subprime crisis.
Securitization: To understand the current credit crisis, it’s important to understand something called "securitization." Securitization is an old process by which an asset that generates a cash flow can be converted into a security (like a bond), that can then be bought and sold in the market just like any other security.
A great example is the Bowie Bond. In 1997, musician David Bowie issued a bond (basically a loan note) secured by the current and future royalty revenues of his first 25 albums (a total of 287 songs … here it was the "asset"). The 10-year Bowie Bonds were bought for $55 million by Prudential Insurance Company, who then would collect on the royalties for ten years. So David Bowie got $55 million up front, and Prudential could either keep the bond (and get the song royalties) or sell the bond for profit. (Source)
Back to the topic at hand. Traditionally, banks hold mortgages until maturity, with profits being interest of the loan. But Wall Street had an idea: why not do to mortgages what David Bowie did to songs? So they (and by they, I mean Freddie Mac, Fannie Mae, and 12 Federal Home Loan Banks) pooled together mortgages and bundled them up into asset-backed securities (ABSs) and sold the package to get up front money (the investor would get the monthly mortgage payments from all of the homeowners whose mortgages got bundled).
But wait - these mortgages all had different risks. Some were safe, stodgy 30-year mortgages whereas others were subprime loans that though were more risky, also had higher interest rates and thus were more profitable. Not to worry: Wall Street split the ABSs into "tranches" (just a fancy word meaning sections or classes): the safest were rated AAA (by rating agencies whose sole job was to gauge how risky something was … and got paid by those whom it rated - talk about a conflict of interest!), the rest were medium and low-rated tranches.
The logic was this: one borrower might default on his loan, but if you bundled them together, there’s safety in number: it’s unlikely that ALL borrowers would default all at once.
But wait - there’s more. The medium and low-rated tranches were riskier investments, but it’s unlikely that all of them would default at the same time. So let’s take all those medium-to-low rated ABSs and pool them together to create something called collateralized debt obligations (CDOs). And through the magic of rating, we once again could turn some of these risky securities into - tada! - A-rated securities fit for pension funds. Repackage these CDOs a few more times and pretty soon you wouldn’t know how much subprime loans were actually in them. (Source)
The Credit Crisis: So how did the housing downturn infect the credit markets? Well, when the housing price dropped, a large number of borrowers began to default on their mortgages. Suddenly, ABSs and CDOs looked very suspicious as no one knew how much exposure to the subprime mortgage mess these securities actually had. The market for ABSs and CDOs dried up and holders of these securities couldn’t sell them. In many cases, these companies leveraged their purchase of these securities, which really amplified their losses.
Just as the market worsened and investment firms and companies found that their holdings of ABSs and CDOs were worth far less than they had paid for them (and thus had to write off that loss in their books - causing a number of hedge funds to collapse), another domino fell: Credit-default Swaps (which took down AIG).
Credit-default Swap: Credit-default Swap (or CDS) is basically insurance on debt. Say that a bank buys a large amount of bonds from a company. As with any debt, there is a risk of the debtor fail to pay the money back. To protect against the company defaulting on its bond payments, the bank would buy CDS. In case of a default, the bank go to the insurer and cash in its CDS.
American International Group or AIG was the creator and the largest seller of CDS. It thought that CDS was an insurance product just like a homeowner’s policy, but obviously it was wrong. "Any one house burning down doesn’t increase the likelihood that lots of other houses will burn down," explained Adam Davidson of NPR, "That doesn’t apply to bond insurance." (Source)
In case of bonds, a default can create a domino effect: as investors lose confidence and sell, the price of bonds go down and the interest rates go up. Borrowers who can’t find capital to meet their obligations would start to default on their bonds and the cycle deepens. (Photo: Gone-Walkabout [Flickr])
To make sure that AIG would actually pony up and pay the CDS in case of a bond default, it had to post a collateral. This collateral depended on their credit ranking - as their credit was downgraded, it had to post more collateral. Because of its worthless mortgage-backed securities assets, AIG’s creditworthiness would be downgraded - which meant that it would need to post as much as $250 billion, which of course it didn’t have laying around, in collateral in a matter of weeks!
Why Bail Out AIG? Over the years, the CDS market has grown into a $70 trillion a year business. And since no one knew who has CDS from AIG, the failure of AIG would mean that a lot of companies are holding bonds that are significantly riskier than they first thought. Companies that had "hedged" their bets by buying CDS would find their books suddenly unbalanced, which means they have to sell off assets to cover their risks or they would become insolvent. This failure would propagate throughout the entire economy and create a "systemic failure." That, by the way, was what the government was trying to avoid by bailing out AIG. (Source)
The Credit Crunch: The basic essence of the credit crunch is this: banks won’t lend because they can’t be sure that they’ll be paid back. Companies with excellent credit ratings found themselves unable to get a loan (after all, all those ABSs and CDOs had excellent ratings, so who’s to say that the ratings are worth anything?). Even some banks find themselves unable to borrow money from other banks!
The Solution? As you well know by now, the White House requested, and the Congress passed a $700 billion bailout program. The idea is to for the government to buy distressed asset, especially mortgage-backed securities, from the nation’s banks, which would inspire banks to lend again. The bailout remains unpopular with the general public, who perceive it as bailing out Wall Street, who caused this mess in the first place.
Whether the bailout will work or not remains to be seen.
Sunday, December 21, 2008
typos
Sorry guys for the typos in my earlier post. It 2am and I have to wake up in 4 hours for work. Will try and prevent the typos from next post
Cheers and thank you
Kunal
Cheers and thank you
Kunal
The reincarnation
Dear all,
Its been a long time since I wrote about finance, that many of you may have actually forgotten about me.
Two major events have taken place since I last wrote, I moved in to another country and secondly the world has entered the worst depression since 1929.
In these grave times, as we are led to believe, I should not be loquacious and talk about myself, but comment on something I am really passionate about. I intend to make the common investor aware of the happenings in the financial world through a series a write-ups and how to deal with the recession.
The eternal question which everyone keeps asking is that is investing in the stocks equivalent to gambling. The answer is a yes and no. For the uninitiated, the answer is yes. It is also true that around 80% of the people loose money in the markets. So then why should one invest? Why dont we just put all our money in the banks and accept their measely returns under the pretext of security. Other options which people consider especially in Australia is to invest in property and buying houses or like most indians, buy Gold.
It has been a proven fact from the past that Gold is a favorite commodity to buy when the stocks are going down and recession loops large. But then, has anyone wondered that Indians buy gold under all circumstances and never sell? Its an investment which is passed on from generations to generations. If you compare a 20 year chart of stocks v/s gold, I think stocks would win.
Investing in real estate has been another favorite amongst the rich and the famous. The common man thought that it was the best way to make money. The banks and investment houses also helped to spread the myth. The outcome of this relentless onslaught of greed and poor information was the real estate prices kept zooming upwards leading to a big bubble. The only difference between the rich and the common man is that rich actually have the money and the common man is funded by the bank and he has to pay a chuck of his salary as interest.
I have seen people boast about the number of houses that they own. The forget to mention the debt component in their lives.
The outcome of this greed has been the dramatic burst of the real estate bubble. It has created a massive dent in our financial structure and has led to loss of millions of jobs and money worth nearly 1 trillion dollars and counting.
The effect of this bubble has been devastating on the stocks. Benchmark indexes have fallen over 50% and are trading at 4-5 year low. People have lost lot of money and the day traders have become bankrupt.
The confidence of the long term investor has been battered and bruised. So in the midst of this self created crisis, should the smart investor quit?
For the smart investor, this could not have been a better time to buy into the stocks. So many good companies are trading at P/E of 5-6. Do you think that the stock market will go to 0?
Markets are ruled by greed and fear. The smart investor needs to sense both these emotions and act to the contrary. We are in the midst of a massive fear factor and there could not be a better time to buy into the markets for the long term
For example, last week, Satyam Consultancy Services, one of the finest IT companies in India have a cash balance of around 1.2 billion dollars decided to use that money to diversify into infrastructure by buying into the company owned by the promoters. It was an eg of bad corporate governance and was rightly punised by the markets. 50% of the market value of Satyam was wiped off in a day. The promoters under huge pressure from the investors, called of the deal immediately. The stock was still down. Its market cap was 2 billion dollars. The company has 1.2 billion dollars in hand. It earns around 300-400 million dollars per year profits.
You dont have to be a rocket scientist to estimate that the company is worth buying into. There are issues about corporate governance for sure and i am sure the image of the company has been shattered. But then, these very chimps who are crying about corporate governance are responsible for the bubble which has burst.
If we come out of the recession soon, these very chimps will be crying out loud to buy the stock. Only then, it would have been much more expensive then it is now. This is a classical example of fear running deep into the markets.
So thats what has been happening currently in the financial world- Fear. In the next few write ups, I will try and explain in lucid language as to what exactly led to the bubble creation. Also depending on availibity of time, I would give some stock recomendations
Happy investing!
Kunal
Its been a long time since I wrote about finance, that many of you may have actually forgotten about me.
Two major events have taken place since I last wrote, I moved in to another country and secondly the world has entered the worst depression since 1929.
In these grave times, as we are led to believe, I should not be loquacious and talk about myself, but comment on something I am really passionate about. I intend to make the common investor aware of the happenings in the financial world through a series a write-ups and how to deal with the recession.
The eternal question which everyone keeps asking is that is investing in the stocks equivalent to gambling. The answer is a yes and no. For the uninitiated, the answer is yes. It is also true that around 80% of the people loose money in the markets. So then why should one invest? Why dont we just put all our money in the banks and accept their measely returns under the pretext of security. Other options which people consider especially in Australia is to invest in property and buying houses or like most indians, buy Gold.
It has been a proven fact from the past that Gold is a favorite commodity to buy when the stocks are going down and recession loops large. But then, has anyone wondered that Indians buy gold under all circumstances and never sell? Its an investment which is passed on from generations to generations. If you compare a 20 year chart of stocks v/s gold, I think stocks would win.
Investing in real estate has been another favorite amongst the rich and the famous. The common man thought that it was the best way to make money. The banks and investment houses also helped to spread the myth. The outcome of this relentless onslaught of greed and poor information was the real estate prices kept zooming upwards leading to a big bubble. The only difference between the rich and the common man is that rich actually have the money and the common man is funded by the bank and he has to pay a chuck of his salary as interest.
I have seen people boast about the number of houses that they own. The forget to mention the debt component in their lives.
The outcome of this greed has been the dramatic burst of the real estate bubble. It has created a massive dent in our financial structure and has led to loss of millions of jobs and money worth nearly 1 trillion dollars and counting.
The effect of this bubble has been devastating on the stocks. Benchmark indexes have fallen over 50% and are trading at 4-5 year low. People have lost lot of money and the day traders have become bankrupt.
The confidence of the long term investor has been battered and bruised. So in the midst of this self created crisis, should the smart investor quit?
For the smart investor, this could not have been a better time to buy into the stocks. So many good companies are trading at P/E of 5-6. Do you think that the stock market will go to 0?
Markets are ruled by greed and fear. The smart investor needs to sense both these emotions and act to the contrary. We are in the midst of a massive fear factor and there could not be a better time to buy into the markets for the long term
For example, last week, Satyam Consultancy Services, one of the finest IT companies in India have a cash balance of around 1.2 billion dollars decided to use that money to diversify into infrastructure by buying into the company owned by the promoters. It was an eg of bad corporate governance and was rightly punised by the markets. 50% of the market value of Satyam was wiped off in a day. The promoters under huge pressure from the investors, called of the deal immediately. The stock was still down. Its market cap was 2 billion dollars. The company has 1.2 billion dollars in hand. It earns around 300-400 million dollars per year profits.
You dont have to be a rocket scientist to estimate that the company is worth buying into. There are issues about corporate governance for sure and i am sure the image of the company has been shattered. But then, these very chimps who are crying about corporate governance are responsible for the bubble which has burst.
If we come out of the recession soon, these very chimps will be crying out loud to buy the stock. Only then, it would have been much more expensive then it is now. This is a classical example of fear running deep into the markets.
So thats what has been happening currently in the financial world- Fear. In the next few write ups, I will try and explain in lucid language as to what exactly led to the bubble creation. Also depending on availibity of time, I would give some stock recomendations
Happy investing!
Kunal
Thursday, February 28, 2008
Budget
The eagerly awaited union budget will be released tomorrow.
You could see the hype created by the media. Its their job to do that and its your job not to get influenced by it.
Lot has been said about the budget and how it will impact the common man.
It is expected to be a populist budget and there will be many sops for the common man as there is elections next year.
I would like to mention a few things which will happen on the day
The past experience has shown that it will be a very volatile day and there will be large intraday swings. The companies which will be benefited and sectors will move up drastically
Expect fertiliser companies to move up a bit as there will be a push for greater subsidies or some sops
I expect some positive sops for the dollar hit sectors like textiles
Corporate tax is unlikely to be changed
Tax exemption limit for the common man may rise to 1.5lakh INR
Alternate energy like biofuels and ethanol may get a push
There will be greater focus on agriculture as it is the main laggard
Infrastructure will hog the limelight and i expect greater allocation
More emphasis on giving more credit for buying houses
These are few of things which are relevant. Once the budget is out and i read the fine print, i will update you all.
You could see the hype created by the media. Its their job to do that and its your job not to get influenced by it.
Lot has been said about the budget and how it will impact the common man.
It is expected to be a populist budget and there will be many sops for the common man as there is elections next year.
I would like to mention a few things which will happen on the day
The past experience has shown that it will be a very volatile day and there will be large intraday swings. The companies which will be benefited and sectors will move up drastically
Expect fertiliser companies to move up a bit as there will be a push for greater subsidies or some sops
I expect some positive sops for the dollar hit sectors like textiles
Corporate tax is unlikely to be changed
Tax exemption limit for the common man may rise to 1.5lakh INR
Alternate energy like biofuels and ethanol may get a push
There will be greater focus on agriculture as it is the main laggard
Infrastructure will hog the limelight and i expect greater allocation
More emphasis on giving more credit for buying houses
These are few of things which are relevant. Once the budget is out and i read the fine print, i will update you all.
Real v/s Reel expectations
Dear all,
I am sorry for the prolonged absence on the blog as I was caught up with a few personal issues.
My todays topic for discussion would be the expectation which one would have from stocks.
Firstly, i would like to categorize the investors into categories
1- The lambs- these are the innocent investors mainly retail and majority of them having no knowledge of the markets who are feed upon by the foxes. They are thrashed and straggled to death to never return again to the stocks
2- The hare- speculators mainly who are in need to quick money. Most of them are over leveraged and deal in Futures and Options only and proudly say it. They fail to realise that these trading instruments are mainly for hedging purposes
3- The tortoise- They are the lazy and defensive investors who would buy a stock for years on end rely on the dividend yields
4- The foxes- This is the most important category and includes operators, politicians, FII's and corporates. They feed on the lambs and the hares. They lure them into a comfort zone and before they realize the lurking danger, foxes pounce and make sure the stocks fall by 40-50% in value so that froth is thrown out.
Now one has to decide where one wants to be. A pro after many years can become a fox. But we will be looking to become something in between a fox and a tortoise.
So then what are the realistic expectations one should expect?
I think, one way to look at things will be as to compare the returns given by savings instruments like post office, bank FD or some government bonds. They give an average yearly pre-tax return of around 8-9%.
Through regular research and dedication, i think one can aim to 25% p.a in our markets which is nearly 3 times the returns provided by above mentioned instruments.
I strongly believe that our markets will enable you to earn 25% p.a compounded for the next 5 years atleast.
Before the fall happened, i was being mocked at by people who said they could become rich overnight. Some even say, the stock market is a gamble. I roll with laughter when some says that. It just shows how naive people are and sooner than later, they will also realise.
Also, there is nothing like fast money. The higher the stocks go, more they fall during a bear phase and people who mock and become rich overnight, become paupers.
At such times, these people should undergo lesson in proctology.
Happy investing!
I am sorry for the prolonged absence on the blog as I was caught up with a few personal issues.
My todays topic for discussion would be the expectation which one would have from stocks.
Firstly, i would like to categorize the investors into categories
1- The lambs- these are the innocent investors mainly retail and majority of them having no knowledge of the markets who are feed upon by the foxes. They are thrashed and straggled to death to never return again to the stocks
2- The hare- speculators mainly who are in need to quick money. Most of them are over leveraged and deal in Futures and Options only and proudly say it. They fail to realise that these trading instruments are mainly for hedging purposes
3- The tortoise- They are the lazy and defensive investors who would buy a stock for years on end rely on the dividend yields
4- The foxes- This is the most important category and includes operators, politicians, FII's and corporates. They feed on the lambs and the hares. They lure them into a comfort zone and before they realize the lurking danger, foxes pounce and make sure the stocks fall by 40-50% in value so that froth is thrown out.
Now one has to decide where one wants to be. A pro after many years can become a fox. But we will be looking to become something in between a fox and a tortoise.
So then what are the realistic expectations one should expect?
I think, one way to look at things will be as to compare the returns given by savings instruments like post office, bank FD or some government bonds. They give an average yearly pre-tax return of around 8-9%.
Through regular research and dedication, i think one can aim to 25% p.a in our markets which is nearly 3 times the returns provided by above mentioned instruments.
I strongly believe that our markets will enable you to earn 25% p.a compounded for the next 5 years atleast.
Before the fall happened, i was being mocked at by people who said they could become rich overnight. Some even say, the stock market is a gamble. I roll with laughter when some says that. It just shows how naive people are and sooner than later, they will also realise.
Also, there is nothing like fast money. The higher the stocks go, more they fall during a bear phase and people who mock and become rich overnight, become paupers.
At such times, these people should undergo lesson in proctology.
Happy investing!
Sunday, February 10, 2008
Listing Of Reliance Power
Reliance power, boasting of having the largest number of shareholders in the world, will list on monday the 11th.
With pathetic market conditions, the grey market premium has considerably come down for the company and there is expectation that it will list at around 600 odd levels.
Most of the HNI's are expected to cash out at 600 odd levels. The FII's are expected to hold on and ride the wave. All ADAG group stocks should do well.
The retail investors, having being alloted a paltry, 16 or 17 shares, should book profits upto 580 levels. You stand to earn something around the range of 2-2.5k rs.
The indian stock markets are in a very difficult stage at the moment. I keep my view of doing short term trades.
Gmr infra has again come back to our buying zone
Lok housing, having approximately reached the selling zone, is back to the buying zone.
RNRL is expected to win the gas supply case against RIL. There is some talk of a compromise formula happening and should be positive for RNRL
I keep a buy on it.
KS oil, is trading at important resistance level of 81-83 zone. If markets are positive then i expect it to do some 5-10%
I do plan to attach technical charts to help you people bolster the views which i give based on my analysis.
If any suggestion as to where to post the charts, please do let me know
Happy Investing!
With pathetic market conditions, the grey market premium has considerably come down for the company and there is expectation that it will list at around 600 odd levels.
Most of the HNI's are expected to cash out at 600 odd levels. The FII's are expected to hold on and ride the wave. All ADAG group stocks should do well.
The retail investors, having being alloted a paltry, 16 or 17 shares, should book profits upto 580 levels. You stand to earn something around the range of 2-2.5k rs.
The indian stock markets are in a very difficult stage at the moment. I keep my view of doing short term trades.
Gmr infra has again come back to our buying zone
Lok housing, having approximately reached the selling zone, is back to the buying zone.
RNRL is expected to win the gas supply case against RIL. There is some talk of a compromise formula happening and should be positive for RNRL
I keep a buy on it.
KS oil, is trading at important resistance level of 81-83 zone. If markets are positive then i expect it to do some 5-10%
I do plan to attach technical charts to help you people bolster the views which i give based on my analysis.
If any suggestion as to where to post the charts, please do let me know
Happy Investing!
replies to queries
This is in response to query posted by kairav regarding HFCL
This stock is pure operator play and is not backed by good fundamentals. There was a buzz that before the telecom licenses were handed out, that HFCL will qualify for it. Infact HFCL did not bag a single license and in accordance with the the general sell off in HFCL, it got sold out
Now if you you want to play this stock and watch your pulse rate fluctuate then you can go ahead and do it.
What i do advise is to avoid such operator driven stock as there are better plays available.
In response to sanjeev regarding apply for V guard ipo. You have to realise that the primary markets are in very bad shape due to the greed of the companies and conequent over pricing of the issues by the BRLM( book running lead managers). Besides, whenever you do apply for an ipo, to maximize the chances of allotment, u should apply for 1 lakh INR. with 10,000 which you propose to invest, i wouldnt advise u to apply
This stock is pure operator play and is not backed by good fundamentals. There was a buzz that before the telecom licenses were handed out, that HFCL will qualify for it. Infact HFCL did not bag a single license and in accordance with the the general sell off in HFCL, it got sold out
Now if you you want to play this stock and watch your pulse rate fluctuate then you can go ahead and do it.
What i do advise is to avoid such operator driven stock as there are better plays available.
In response to sanjeev regarding apply for V guard ipo. You have to realise that the primary markets are in very bad shape due to the greed of the companies and conequent over pricing of the issues by the BRLM( book running lead managers). Besides, whenever you do apply for an ipo, to maximize the chances of allotment, u should apply for 1 lakh INR. with 10,000 which you propose to invest, i wouldnt advise u to apply
Wednesday, February 6, 2008
stock recomendation
Dear all,
I had recomended LOK housing couple of days back at 215 odd levels..It hit a high of 252 today. Those who bought, please sell half your shares at around 263-64 levels as this is the 38.2% percentage retracement level from the fall witnessed
Rnrl - please sell half ur shares @ 179-181 levels
Praj and GMRinfra are hold
Ibulls real estate sell 25% of shares @ 690-94 levels
Ks oil- key resistance@ 82-83 levels. will zoom to 90 levels once resistance broken
The new stock which has come on my radar has been Bombay Burmah Trading Corporation
This is wadia group holding company and having major investments in Bombay dyeing
The stock is languishing at its low which was witnessed on 1st feburary and again today.
But i can clearly see a bullish hammer formation.
To further strengthen the buy call is the bullish divergence which I have noticed in RSI and Williams %R oscillator.
I would like you readers to ask me doubts about any stocks which you may want by posting comments and I will surely get back to you.
Besides, I am considering to initiate analysis on the banking sector.
Also, i am planing to create a list of stocks whose analysis can be done on a regular basis
the basket will contain a diverse range of stocks from all sectors
I once again request you to post comments so that we can collectively make the list
Happy Trading!
I had recomended LOK housing couple of days back at 215 odd levels..It hit a high of 252 today. Those who bought, please sell half your shares at around 263-64 levels as this is the 38.2% percentage retracement level from the fall witnessed
Rnrl - please sell half ur shares @ 179-181 levels
Praj and GMRinfra are hold
Ibulls real estate sell 25% of shares @ 690-94 levels
Ks oil- key resistance@ 82-83 levels. will zoom to 90 levels once resistance broken
The new stock which has come on my radar has been Bombay Burmah Trading Corporation
This is wadia group holding company and having major investments in Bombay dyeing
The stock is languishing at its low which was witnessed on 1st feburary and again today.
But i can clearly see a bullish hammer formation.
To further strengthen the buy call is the bullish divergence which I have noticed in RSI and Williams %R oscillator.
I would like you readers to ask me doubts about any stocks which you may want by posting comments and I will surely get back to you.
Besides, I am considering to initiate analysis on the banking sector.
Also, i am planing to create a list of stocks whose analysis can be done on a regular basis
the basket will contain a diverse range of stocks from all sectors
I once again request you to post comments so that we can collectively make the list
Happy Trading!
Saturday, February 2, 2008
Market is King
Dear all,
The turbulent and volatile times are continuing and as predicted earlier, volatility will be the norm for sometime to come. One was advised to do short term trades in such a volatile scenario. The fed cut the fed discount rate according to the expected 50bps and there was an expected sell off in dollar assets.
The dow jones jumped by almost 200 points when the fed cut was announced. But there were news of a large insurer reporting huge losses and the prospects of a rating cut led to massive sell off in the stocks, led by the financials. Our stock markets reacted accordingly and followed global cues to fall.
Next day, the insurer MBIA, came up with a clarification which cheered the us markets. Our markets opened gap down and there were fears that we have entered a bear phase and that FED may not have much left in its armory to save the US from recession. I do agree that there is still lot of pain left in the markets, but let us not to be blind and just behave on what the usa markets are doing.
To everyones suprise, the market recovered in the afternoon and from then, there was no looking back. The volumes were lower which did mean there was a lack of participation on the institutional front. There have been rumours of an impending fall in the markets the coming week. I received this news from everyone including people whom i really like- namely the panwallas and the sub brokers.
I was perturbed by this news as if you have a trading plan in mind which was laid out in front of you earlier, it wouldnt matter much. And also one point which i have not mentioned before is the need to have trading stop losses. They are very important and it makes you flexible and accept the market as being the ultimate king and we being mear slaves. The one who rejects this thesis is bound to be bankrupt soon. You cannot impose your views on the market. The market is much bigger than an individual and the market is always right. The individual may be wrong in the analysis.
So, then, what is the outlook for monday. My analysis says it maybe bullish. My favorite stocks, are giving bullish signals. The conservative traders should still wait for confirmation.
Gmr Infra, the ultimate beauty in trading which bounced from 168-69 levels back to 176 has formed a hammer formation on the charts which implies bullishness. It should reach our target of 183-85 and breaking that would reach 196-98.
Ks oils has formed a morning star pattern and i expect it to reach 82-83 levels soon
Our FM has said, that they may have to review the credit policy soon in view of the recnt global changes and I strongly expect a 25bps reverse repo rate cut by RBI.
I would remain invested in the real estate stocks
Ibulls real estate is a hold
Another real estate stock which i would like to suggest is LOK housing
Its available at the very cheap P/e compared to its peers and has posted impressive results.
Besides many mutual funds, namely, CLSA, kotak mahindra, have bought stakes at 350 levels
There is a preferential allotment to the promoters scehduled to happen at 354.
The Times of India Group is on the board as well
Cmp is around 215. I initiate a buy on it with a 1 year price target of 1000
I suggest that everyone who reads the blog, to do their own analysis before investing.
Further, i would like to make an appeal to everyone who reads this, to refer their friends or whomever they know, who is interestd in the financial markets to Visit this blog
Happy trading!
The dow jones jumped by almost 200 points when the fed cut was announced. But there were news of a large insurer reporting huge losses and the prospects of a rating cut led to massive sell off in the stocks, led by the financials. Our stock markets reacted accordingly and followed global cues to fall.
Next day, the insurer MBIA, came up with a clarification which cheered the us markets. Our markets opened gap down and there were fears that we have entered a bear phase and that FED may not have much left in its armory to save the US from recession. I do agree that there is still lot of pain left in the markets, but let us not to be blind and just behave on what the usa markets are doing.
To everyones suprise, the market recovered in the afternoon and from then, there was no looking back. The volumes were lower which did mean there was a lack of participation on the institutional front. There have been rumours of an impending fall in the markets the coming week. I received this news from everyone including people whom i really like- namely the panwallas and the sub brokers.
I was perturbed by this news as if you have a trading plan in mind which was laid out in front of you earlier, it wouldnt matter much. And also one point which i have not mentioned before is the need to have trading stop losses. They are very important and it makes you flexible and accept the market as being the ultimate king and we being mear slaves. The one who rejects this thesis is bound to be bankrupt soon. You cannot impose your views on the market. The market is much bigger than an individual and the market is always right. The individual may be wrong in the analysis.
So, then, what is the outlook for monday. My analysis says it maybe bullish. My favorite stocks, are giving bullish signals. The conservative traders should still wait for confirmation.
Gmr Infra, the ultimate beauty in trading which bounced from 168-69 levels back to 176 has formed a hammer formation on the charts which implies bullishness. It should reach our target of 183-85 and breaking that would reach 196-98.
Ks oils has formed a morning star pattern and i expect it to reach 82-83 levels soon
Our FM has said, that they may have to review the credit policy soon in view of the recnt global changes and I strongly expect a 25bps reverse repo rate cut by RBI.
I would remain invested in the real estate stocks
Ibulls real estate is a hold
Another real estate stock which i would like to suggest is LOK housing
Its available at the very cheap P/e compared to its peers and has posted impressive results.
Besides many mutual funds, namely, CLSA, kotak mahindra, have bought stakes at 350 levels
There is a preferential allotment to the promoters scehduled to happen at 354.
The Times of India Group is on the board as well
Cmp is around 215. I initiate a buy on it with a 1 year price target of 1000
I suggest that everyone who reads the blog, to do their own analysis before investing.
Further, i would like to make an appeal to everyone who reads this, to refer their friends or whomever they know, who is interestd in the financial markets to Visit this blog
Happy trading!
Tuesday, January 29, 2008
RBI Credit Policy
The RBI in its credit policy review has left all the key interest rates namely, repo, reverse repo and CRR unchanged.
I personally feel thats its quite a defensive step taken by the RBI. When the global scenario is not clear and central banks world over are cutting rates, and there is a decline in Indian corporate performance, RBI is still focussed on inflation.
The fed is expected to cut the rate by 50bps. This will cause a sell off in dollar based asset class and there will be tremendous surge in liquidity pouring into the Emerging Markets. With decline in dollar, exporters and IT companies are going to hit again. As said earlier, i would want to stay away from IT, Textiles and Pharma.
We have heard time and again, that the RBI will try its best to manage the inflows. But with such a huge difference in interest rates between India and USA, i think it will be really difficult. If the inflows continue, I expect a reverse repo rate cut of 25bps soon.
Money from reliance power ipo, future capital group, fed rate cut, february FNO series are all scheduled to hit the markets on FEB 1st. Expect a bomblast on that day
I expect sensex to reach 20k levels soon
Stay invested
I personally feel thats its quite a defensive step taken by the RBI. When the global scenario is not clear and central banks world over are cutting rates, and there is a decline in Indian corporate performance, RBI is still focussed on inflation.
The fed is expected to cut the rate by 50bps. This will cause a sell off in dollar based asset class and there will be tremendous surge in liquidity pouring into the Emerging Markets. With decline in dollar, exporters and IT companies are going to hit again. As said earlier, i would want to stay away from IT, Textiles and Pharma.
We have heard time and again, that the RBI will try its best to manage the inflows. But with such a huge difference in interest rates between India and USA, i think it will be really difficult. If the inflows continue, I expect a reverse repo rate cut of 25bps soon.
Money from reliance power ipo, future capital group, fed rate cut, february FNO series are all scheduled to hit the markets on FEB 1st. Expect a bomblast on that day
I expect sensex to reach 20k levels soon
Stay invested
praj- target achieved
Dear all,
As was mentioned yesterday..the target set for praj industries has been achieved in 1 day itself. Please stay invested for furthere gains
As was mentioned yesterday..the target set for praj industries has been achieved in 1 day itself. Please stay invested for furthere gains
Monday, January 28, 2008
Market Commentary
Dear all,
The market is very sentiment oriented right now, so please do not get disturbed by the wild swings that you may witness as we head into expiry for the january fno series.
The global scenario is likely to improve this week as there is expectation of 50bps point rate cut by FED on jan 30.
Further, RBI will be forced to have a relook at the reverse repo rate and I expect a 25bps cut which will be v positive for the markets and for rate sensitive sectors like real estate and banking. I do not expect any change in the CRR. There is a view in some quarters, that RBI has enough fire power through the market stabilization bonds to suck out the excess liquidity which is bound to hit as FII will want to park their money into India in view of the great rate differential between USA and India.
Reliance Power today announced that they will be refunding the excess 25 billion $ which it raised through its IPO. A large sum of this money is going to find its way towards the market. Also, the refunds from Future Capital Holdings will be due shortly.
I expect the liquidity situation to improve dramatically with the new FNO series from feburary and the weak hands have already been wiped out by this correction.
On the stock front,
As was mentioned in the earlier post, Gmr was a sell at 194-96 levels. I have re bought it again at 178 levels and I expect it to reach the earlier levels again
Praj Industries has formed a nice Harami pattern on the candlesticks and which has been followed by Hammer Formation and i expect it to reach 180-82 levels soon from CMP 162.
Indiabulls real estate looks very bullish and should blast if the rate cuts come in
Stay invested and do not panic.
The market is very sentiment oriented right now, so please do not get disturbed by the wild swings that you may witness as we head into expiry for the january fno series.
The global scenario is likely to improve this week as there is expectation of 50bps point rate cut by FED on jan 30.
Further, RBI will be forced to have a relook at the reverse repo rate and I expect a 25bps cut which will be v positive for the markets and for rate sensitive sectors like real estate and banking. I do not expect any change in the CRR. There is a view in some quarters, that RBI has enough fire power through the market stabilization bonds to suck out the excess liquidity which is bound to hit as FII will want to park their money into India in view of the great rate differential between USA and India.
Reliance Power today announced that they will be refunding the excess 25 billion $ which it raised through its IPO. A large sum of this money is going to find its way towards the market. Also, the refunds from Future Capital Holdings will be due shortly.
I expect the liquidity situation to improve dramatically with the new FNO series from feburary and the weak hands have already been wiped out by this correction.
On the stock front,
As was mentioned in the earlier post, Gmr was a sell at 194-96 levels. I have re bought it again at 178 levels and I expect it to reach the earlier levels again
Praj Industries has formed a nice Harami pattern on the candlesticks and which has been followed by Hammer Formation and i expect it to reach 180-82 levels soon from CMP 162.
Indiabulls real estate looks very bullish and should blast if the rate cuts come in
Stay invested and do not panic.
Friday, January 25, 2008
indiabulls realestate
Dear all,
I have noticed a bullish engulfing pattern for this stock. But we will wait for a confirmation on monday. If the closing price is more than opening price then it should get confirmed. Expect 690-700 levels on this counter
I have noticed a bullish engulfing pattern for this stock. But we will wait for a confirmation on monday. If the closing price is more than opening price then it should get confirmed. Expect 690-700 levels on this counter
The Road Ahead
Dear all,
As you may have seen after the fed cut, period of volatility and uncertainty has set in. The market closed up the following day after the fed rate cut and then open higher again the following day. Optimism was sky high and i heard people saying that the worst is over. Disaster struck, and unfortunately the market closed down around 400 points, having intraday swing of over 1k points.
So then wat should one do in such volatile times. The acceptance that volatility will be the name of the game is a must. The global scenario will take sometime to settle, if at all it settles. The US govt and Fed are trying to do their best to stem the downtrend. The us govt has announced some stimulus pakage for the financial institutions and there is hope that FED may cut the interest rates by another 25bps. The analyst community is divided over these measures. Some say, the mess is too big to be contained and that making credit available easy is not the solution. The bulls and the hopefulls, think that these measures may atleast revive the economy. The financial markets and time will decide who is right.
The volatility in your markets has given a wonderful oppurtunity to do short term trades. As i had mentioned earlier, one needs to divide the portfolio into short term and long term. The long term Indian story is still strong but maybe dented if the global economic crisis continues. I still belive that the pain is not over as yet. For the long term side of the portfolio there is nothing to worry about. For the short term, one will need to be flexible and nimble. Be cautious before creating any fresh longterm positions, keep holding what you have widout panicking.
I had given a call to buy gmr infra during the panic selling which happened. I would advise you to sell half of your holdings at around 190-194 range as there will be resistance there. The profit percentage stands at around 30-40% depending on the levels bought.
Have a great weekend.
So then wat should one do in such volatile times. The acceptance that volatility will be the name of the game is a must. The global scenario will take sometime to settle, if at all it settles. The US govt and Fed are trying to do their best to stem the downtrend. The us govt has announced some stimulus pakage for the financial institutions and there is hope that FED may cut the interest rates by another 25bps. The analyst community is divided over these measures. Some say, the mess is too big to be contained and that making credit available easy is not the solution. The bulls and the hopefulls, think that these measures may atleast revive the economy. The financial markets and time will decide who is right.
The volatility in your markets has given a wonderful oppurtunity to do short term trades. As i had mentioned earlier, one needs to divide the portfolio into short term and long term. The long term Indian story is still strong but maybe dented if the global economic crisis continues. I still belive that the pain is not over as yet. For the long term side of the portfolio there is nothing to worry about. For the short term, one will need to be flexible and nimble. Be cautious before creating any fresh longterm positions, keep holding what you have widout panicking.
I had given a call to buy gmr infra during the panic selling which happened. I would advise you to sell half of your holdings at around 190-194 range as there will be resistance there. The profit percentage stands at around 30-40% depending on the levels bought.
Have a great weekend.
Tuesday, January 22, 2008
Fed Rate Cut
The fed in an unexpected move, has cut the fed discount rate by 75bps. This is the largest cut in over a decade and the 1st time since september 2001 that a rate cut has been announced during an inter meeting of the FED.
There are 2 ways to interpret this. Firstly, it is another warning the threat of recession looms large over the USA. The fed is trying to reduce the cost of borrowing for the american companies in the hope that economy improves. I believe such a measure may not be enough and the FED's next move maybe to inject more liquidity into the credit markets.
Economic measures and nimbleness of the FED maybe the last hope of saving the US from recession.
Secondly, the debt markets of USA will become very unattractive to the financial institution. So they may want to shift their investments into emerging markets which may give higher year on year returns.
So, what it means for Indian markets is that more liquidity will surely come in from FIIS. So expect some exhuberance in the market. I had given a buy call in my last post. I stand by it. But i feel the pain may not be over as yet.
I am hearing stories of a syndicate of brokers who sold the shares of people who had paid the margin difference. Complaining to SEBI is of no use as nothing will be done. These same brokers were not allowing anyone to buy in the morning under the pretext that they were not allowed by the exchanges. I feel that especialy the small brokers make a fast buck out of such moves as they always buy at such lows and when they finaly allow the retail investor to buy, the brokers have already dumped their shares bought earlier at lows and make a cool 25-30% gain. In matured markets, you are considered a guru if u can generate that kind of returns in 1 year. In India, our brokers and corporates generate in 1 day. All black money and hence never gets reported in forbes magazine otherwise I am sure we will have the highest no of millionaires in the world.
As a retail investor, I would still advise people to remain invested in quality companies. The pain may not have ended. But please do not PANIC. All the great bull runs have always started on PANIC and ended on greed and hope.
Cheers!
There are 2 ways to interpret this. Firstly, it is another warning the threat of recession looms large over the USA. The fed is trying to reduce the cost of borrowing for the american companies in the hope that economy improves. I believe such a measure may not be enough and the FED's next move maybe to inject more liquidity into the credit markets.
Economic measures and nimbleness of the FED maybe the last hope of saving the US from recession.
Secondly, the debt markets of USA will become very unattractive to the financial institution. So they may want to shift their investments into emerging markets which may give higher year on year returns.
So, what it means for Indian markets is that more liquidity will surely come in from FIIS. So expect some exhuberance in the market. I had given a buy call in my last post. I stand by it. But i feel the pain may not be over as yet.
I am hearing stories of a syndicate of brokers who sold the shares of people who had paid the margin difference. Complaining to SEBI is of no use as nothing will be done. These same brokers were not allowing anyone to buy in the morning under the pretext that they were not allowed by the exchanges. I feel that especialy the small brokers make a fast buck out of such moves as they always buy at such lows and when they finaly allow the retail investor to buy, the brokers have already dumped their shares bought earlier at lows and make a cool 25-30% gain. In matured markets, you are considered a guru if u can generate that kind of returns in 1 year. In India, our brokers and corporates generate in 1 day. All black money and hence never gets reported in forbes magazine otherwise I am sure we will have the highest no of millionaires in the world.
As a retail investor, I would still advise people to remain invested in quality companies. The pain may not have ended. But please do not PANIC. All the great bull runs have always started on PANIC and ended on greed and hope.
Cheers!
Monday, January 21, 2008
Market Trend
Dear all,
In view of the recent market events, I find it apt to create a blog to express my views about the current market scenario and what the future beholds.
Firstly, I would like to Analise the reasons for such a deep cut which has given sleepless nights to many people
In view of the recent market events, I find it apt to create a blog to express my views about the current market scenario and what the future beholds.
Firstly, I would like to Analise the reasons for such a deep cut which has given sleepless nights to many people
The global scenario is not very encouraging. The subprime mess in the usa is going to get bigger as around 400 billion dollars are on the line and the brokerage firms havent written enough loses. If ever one wanted to buy a house in the USA, the next 3 months seem to be the best time.
Lot has been said about the decoupling theory about the fact that India will be isolated from the world economic crunch and that our economy was driven by domestic factors. I agree that sectors like construction, real estate, FMCG, power are largely domestic driven. But one fails to realise that major investments are required to carry out the infrastructure projects and the investment comes from abroad. Further, sectors like textiles, IT, education are largely dependent on the US. The fear of a recession in the USA is growing by the day, and I believe many job cuts and less IT spending will happen. I would want to avoid IT and textiles for sure. I expect more sub prime loses and the brokerage houses to cash out from profitable investments
Secondly, the reliance power ipo has sucked out liquidity from the markets. It has generated tremendous interest from fii's, banks, doctors, lawyers, housewives, pan wallas and the like. In search of listing gains, people have applied for the ipo blindly and the retail investor will end up getting only about 15 shares. With the grey market premium quoting at around 250rs, down from earlier 400 rs, the listing gains may be around 4-5k only. Further, due to the recent crackdown in the FNO segment, the HNI's and retail investors dont have the liquidity required to pay off the margin. As a result, people have been forced to sell their holdings which has lead to further downside. Also, some people have started making stop payments on their check for the IPO. The biggest gainer in all this will be Anil Ambani, he will have an liquidity of 11,000cr. I dont think all the money will be diverted to the power projects and some of it will find its way to the stocks market and buying will ensue at lower level
Thirdly and most importantly, the Retail investor is the most responsible for the fall. There was so much exhuberance in the stock market. 16-18 yr olds, having no knowledge in the market had started investing and were talking about becoming rich quickly. Housewives, having no knowledge or expertise too to the stock market in a big way thinking it was their kitchen backyard. Where ever you go, people spoke of only stocks. Agreed, the greed of fast money is strong, but it always leads to overtrading.
Another fundamental flaw which I find is that 95% of the people rely on tips. Now these tips work wonders in a bull market but when correction occurs, such stocks are the one which fall the most. The retail investor at most times buys when the prices are sky high and sells at rock bottom. The operators feed on such innocent people and make a living out of it
Everytime, there occurs a huge euphoria about the stock market. People brag about the quick money they have made in Futures and Options and mock at others. Such illiterate people are the prime cause of margin pressures being created and market falling on its head. Further, with such rise in the sensex, new class of innocent investors, looking for fast money and relying on tips, enter the market only to be wipped out by savage corrections. They cry foul and curse the market never to return again. There is a temporary lull, that is time when the FII's and operators are buying. Slowly and steading there is a rise in the market and soon it goes into overdrive when again a new generation of money mongering people enter and FII's are more than willing to book their profits
So then what is the road ahead. Firstly, one should not PANIC. I know its easier said then done. But having a risk appetite is a must. One needs to have patience and invest for long term.
FNO can be done, but only when you have adequate KNOWLEDGE. Relying on tips wont be advisible. I would use FNO only to hedge myself against the cash positions i hold.
Overtrading is a strict no and all such temptations should be avoided
I would advise people to divide their portfolio into few sections as follows
Allocate 50% of your cash for long term. Invest in good quality stocks and I am sure they will give you above average returns
40% of the portfolio should be a trading portfolio. Trading means short term holding and is based purely on technicals
there maybe criticism about the requirement of a trading allocation, but then one needs to capitalise on short term gyrations of the market
10% of the cash should be kept in the bank in times of need or margin pressure.
Buy quality stocks and buy only few stocks and allocate your money wisely to each stock and strict Money Management rules should be followed
The following stocks are a screaming buy
GMR INFRA
KS OIL
NTPC
ADLABS
JPASSOCIATE
LOK HOUSING
Ibulls real Estate
IKF technology
Videocon
Godrej Industries
Lot has been said about the decoupling theory about the fact that India will be isolated from the world economic crunch and that our economy was driven by domestic factors. I agree that sectors like construction, real estate, FMCG, power are largely domestic driven. But one fails to realise that major investments are required to carry out the infrastructure projects and the investment comes from abroad. Further, sectors like textiles, IT, education are largely dependent on the US. The fear of a recession in the USA is growing by the day, and I believe many job cuts and less IT spending will happen. I would want to avoid IT and textiles for sure. I expect more sub prime loses and the brokerage houses to cash out from profitable investments
Secondly, the reliance power ipo has sucked out liquidity from the markets. It has generated tremendous interest from fii's, banks, doctors, lawyers, housewives, pan wallas and the like. In search of listing gains, people have applied for the ipo blindly and the retail investor will end up getting only about 15 shares. With the grey market premium quoting at around 250rs, down from earlier 400 rs, the listing gains may be around 4-5k only. Further, due to the recent crackdown in the FNO segment, the HNI's and retail investors dont have the liquidity required to pay off the margin. As a result, people have been forced to sell their holdings which has lead to further downside. Also, some people have started making stop payments on their check for the IPO. The biggest gainer in all this will be Anil Ambani, he will have an liquidity of 11,000cr. I dont think all the money will be diverted to the power projects and some of it will find its way to the stocks market and buying will ensue at lower level
Thirdly and most importantly, the Retail investor is the most responsible for the fall. There was so much exhuberance in the stock market. 16-18 yr olds, having no knowledge in the market had started investing and were talking about becoming rich quickly. Housewives, having no knowledge or expertise too to the stock market in a big way thinking it was their kitchen backyard. Where ever you go, people spoke of only stocks. Agreed, the greed of fast money is strong, but it always leads to overtrading.
Another fundamental flaw which I find is that 95% of the people rely on tips. Now these tips work wonders in a bull market but when correction occurs, such stocks are the one which fall the most. The retail investor at most times buys when the prices are sky high and sells at rock bottom. The operators feed on such innocent people and make a living out of it
Everytime, there occurs a huge euphoria about the stock market. People brag about the quick money they have made in Futures and Options and mock at others. Such illiterate people are the prime cause of margin pressures being created and market falling on its head. Further, with such rise in the sensex, new class of innocent investors, looking for fast money and relying on tips, enter the market only to be wipped out by savage corrections. They cry foul and curse the market never to return again. There is a temporary lull, that is time when the FII's and operators are buying. Slowly and steading there is a rise in the market and soon it goes into overdrive when again a new generation of money mongering people enter and FII's are more than willing to book their profits
So then what is the road ahead. Firstly, one should not PANIC. I know its easier said then done. But having a risk appetite is a must. One needs to have patience and invest for long term.
FNO can be done, but only when you have adequate KNOWLEDGE. Relying on tips wont be advisible. I would use FNO only to hedge myself against the cash positions i hold.
Overtrading is a strict no and all such temptations should be avoided
I would advise people to divide their portfolio into few sections as follows
Allocate 50% of your cash for long term. Invest in good quality stocks and I am sure they will give you above average returns
40% of the portfolio should be a trading portfolio. Trading means short term holding and is based purely on technicals
there maybe criticism about the requirement of a trading allocation, but then one needs to capitalise on short term gyrations of the market
10% of the cash should be kept in the bank in times of need or margin pressure.
Buy quality stocks and buy only few stocks and allocate your money wisely to each stock and strict Money Management rules should be followed
The following stocks are a screaming buy
GMR INFRA
KS OIL
NTPC
ADLABS
JPASSOCIATE
LOK HOUSING
Ibulls real Estate
IKF technology
Videocon
Godrej Industries
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