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

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

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.

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

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.

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!

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

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