The strong upmove today has been a big relief in an otherwise bearish market till now.
Post budget, the markets have been bearish, and have not given a chance to the long investors to exit.
The sentiment is reflecting in the general volume and brokerage numbers. While the market volumes have been down, some of the partners' volumes have fallen much more sharply.
I am sure all of you must be wondering, how to get out of this situation. After tasting successes in the month of May and June, July has been really subdued.
This trend reversal has been a learning experience and I think all of us should wisen up with this.
There are a few things that we have observed after looking at the broad numbers -
1. A lot of clients built long positions at 15000 levels with expectations that the markets would go up. While the correction was quite gradual, till the budget day, the clients have held their positions.
2. The pre-budget expectations were very high and there was a sense that if the budget does not live up to expectations, the markets will fall sharply. These long clients were betting too much on the budget.
3. Post the budget, the fall has been very sharp closing the exit options for the clients.
The learning that we have are quite a few -
1. The clients should be nimble and should move with the market trends.
2. Stop losses are extremely important when you are investing for short periods (upto 3 months).
3. Hedging whenever there are market moving events like budget, election, key quarterly results, is very important.
4. Derivatives can help offset the risks.
Friends, I am sure you are looking at ways and means to improve your volumes and revenues. One of the key things to grow the broking business is active client base. The more the number of active clients, the more revenue can you make.
Therefore acquiring new clients (of good quality) is as important as activating the existing clients.
There are quite a few clients who have not participated in the post March rally yet. This correction is a great opportunity to approach these clients and get them started.
To help and motivate you, there is an exciting activation contest that has been launched a week before. If you get the targeted number of clients traded, you can earn rewards every day.
My request and suggestion to all of you is to activate as many clients as possible. There are a host of inputs now available to you from research to assist you in getting more active clients.
I will keep writing to you. Do send me your feedback
Showing posts with label Articals. Show all posts
Showing posts with label Articals. Show all posts
Tuesday, July 14, 2009
Thursday, July 9, 2009
Don't see an increase in Infosys' FY10 outlook: JP Morgan
Bhavin Shah of JP Morgan said the Software Technology Parks of India (STPI) extension in the budget will benefit companies by 3-4% in FY11. He sees limited upside in Infosys but finds TCS still undervalued.
On the Q1 results of IT companies, Shah said he does not expect big surprises from IT this quarter. "IT companies are likely to see low single-digit revenue decline. We expect margin erosion based on hedged positions and would look out for the Q2 FY10 outlook." He sees some resumption of growth in Q2 FY10.
Speaking on Infosys' Q1 numbers which are expected tomorrow, Shah expects some margin erosion on visa; and selling, general and administrative costs. "We see a better chance of upside in dollar revenues."
He does not expect a meaningful diversion from guided EPS. "We see FY10 and FY11 EPS at Rs 106.5 and Rs 126.8 respectively."
Shah does not expect Infy to increase its full-year guidance. "We may see some guidance revision from Q3 FY10."
Here is a verbatim transcript of the exclusive interview with Bhavin Shah
Q: Will the Software Technology Park of India (STPI) extension in the budget change your forecast at all for the next year?
A: I believe the government has essentially answered most requests from the technology sector. I think the extension of STPI should help different companies depending on which company you are looking at, maybe from a marginal impact to 3-4% benefit in FY11.
While Fringe Benefit Tax (FBT) is not a big number, it suddenly removes some of the procedural headaches, so some small benefit from there as well. Also, there is some simplification on the service tax related matter for export companies. I think there are multiple things that seem to have been addressed.
Q: Before we speak about Infosys specifically, tell me what are you expecting from the IT sector per se during this quarter?
A: We don’t expect any big surprises from this quarter itself. I think we are going to see anywhere from one to low single to mid-single digit revenue decline depending on how well some companies are hedged and obviously some small rupee appreciation, So depending on that, you will see some margin erosion. Also, some companies have one-off cost in Q1 like visa and selling, general and administrative expenses (SG&A). So, that itself is not going to be a big surprise. I think what companies come out and say about the September quarter is going to be a lot more interesting. We do expect companies to talk about resumption of some sort of growth in the September quarter, not a huge growth but some sort of low single-digit growth.
Q: What about Infosys specifically, do you expect it to change its guidance at all for the full year tomorrow?
A: We do not expect them to increase their yearly guidance. While there is slightly better probability of an upside to the revenues on a dollar basis, I think they will probably keep in mind some sort of the rupee appreciation as well. So, it is unlikely that we see any material change to their full-year guidance. For the September quarter, we expect a low to mid single-digit kind of growth outlook.
Q: What are you going with in terms of rupee EPS number for the full year?
A: We have Rs 106.5 for FY10 and Rs 126.8 for FY11. Our FY10 earnings per share (EPS) is above their guidance. We don’t think that there is going to be any material change to their guidance this year, not yet. Maybe come October they could consider further revisions.
Q: What’s your general call on the sector now? Do you have buys out on most of the top stocks in coverage in the IT sector at current prices?
A: We like the sector in general and do believe that over the last several months with a slowdown in demand there has been a fair bit of slag that has been developed in the system. Companies will be able to hire people a lot more easily over the next couple of years. In the meantime, we have had increase in capacity in terms of engineering costs. So, the labour pool availability is going to be significantly improved over the next several years. As far as the demand goes, obviously we have experienced some slowdown. The general offshore trend remains pretty firm. So, we continue to be overall positive on the sector. When you think about individual stocks, Infosys has done well and we have limited near term upside for Infosys per se. We do think that TCS still remains somewhat undervalued and so expect higher upside on TCS. We obviously have Satyam. On this one, we expect meaningful upside and have an Rs 100 price target on Satyam.
Q: What about midcaps. You just alluded to Satyam, if you come down from Infosys, TCS, Wipro and HCL Technologies, how do you look at the next rung in IT now?
A: When I look at the target price versus current share prices there has been a fair bit of improvement in the midcap stocks as well, so that is why we continue to focus on companies where we still feel that there is meaningful upside. I think Satyam and Tech Mahindra come to the mind. There is significant room for margin improvement in Satyam. If you look at it from an FY11 basis, those two looks particularly cheap.
Q: Give us target prices both for Satyam and for some of the other stocks under coverage for you now?
A: We continue to think of meaningful upsides on Satyam. Rs 100 price target versus Rs 70 current price, so that is a pretty big gap. TCS is another one which we find somewhat undervalued compared to Infosys and Wipro. We have an Rs 550 price target on TCS, so that is another one that we would recommend.
On the Q1 results of IT companies, Shah said he does not expect big surprises from IT this quarter. "IT companies are likely to see low single-digit revenue decline. We expect margin erosion based on hedged positions and would look out for the Q2 FY10 outlook." He sees some resumption of growth in Q2 FY10.
Speaking on Infosys' Q1 numbers which are expected tomorrow, Shah expects some margin erosion on visa; and selling, general and administrative costs. "We see a better chance of upside in dollar revenues."
He does not expect a meaningful diversion from guided EPS. "We see FY10 and FY11 EPS at Rs 106.5 and Rs 126.8 respectively."
Shah does not expect Infy to increase its full-year guidance. "We may see some guidance revision from Q3 FY10."
Here is a verbatim transcript of the exclusive interview with Bhavin Shah
Q: Will the Software Technology Park of India (STPI) extension in the budget change your forecast at all for the next year?
A: I believe the government has essentially answered most requests from the technology sector. I think the extension of STPI should help different companies depending on which company you are looking at, maybe from a marginal impact to 3-4% benefit in FY11.
While Fringe Benefit Tax (FBT) is not a big number, it suddenly removes some of the procedural headaches, so some small benefit from there as well. Also, there is some simplification on the service tax related matter for export companies. I think there are multiple things that seem to have been addressed.
Q: Before we speak about Infosys specifically, tell me what are you expecting from the IT sector per se during this quarter?
A: We don’t expect any big surprises from this quarter itself. I think we are going to see anywhere from one to low single to mid-single digit revenue decline depending on how well some companies are hedged and obviously some small rupee appreciation, So depending on that, you will see some margin erosion. Also, some companies have one-off cost in Q1 like visa and selling, general and administrative expenses (SG&A). So, that itself is not going to be a big surprise. I think what companies come out and say about the September quarter is going to be a lot more interesting. We do expect companies to talk about resumption of some sort of growth in the September quarter, not a huge growth but some sort of low single-digit growth.
Q: What about Infosys specifically, do you expect it to change its guidance at all for the full year tomorrow?
A: We do not expect them to increase their yearly guidance. While there is slightly better probability of an upside to the revenues on a dollar basis, I think they will probably keep in mind some sort of the rupee appreciation as well. So, it is unlikely that we see any material change to their full-year guidance. For the September quarter, we expect a low to mid single-digit kind of growth outlook.
Q: What are you going with in terms of rupee EPS number for the full year?
A: We have Rs 106.5 for FY10 and Rs 126.8 for FY11. Our FY10 earnings per share (EPS) is above their guidance. We don’t think that there is going to be any material change to their guidance this year, not yet. Maybe come October they could consider further revisions.
Q: What’s your general call on the sector now? Do you have buys out on most of the top stocks in coverage in the IT sector at current prices?
A: We like the sector in general and do believe that over the last several months with a slowdown in demand there has been a fair bit of slag that has been developed in the system. Companies will be able to hire people a lot more easily over the next couple of years. In the meantime, we have had increase in capacity in terms of engineering costs. So, the labour pool availability is going to be significantly improved over the next several years. As far as the demand goes, obviously we have experienced some slowdown. The general offshore trend remains pretty firm. So, we continue to be overall positive on the sector. When you think about individual stocks, Infosys has done well and we have limited near term upside for Infosys per se. We do think that TCS still remains somewhat undervalued and so expect higher upside on TCS. We obviously have Satyam. On this one, we expect meaningful upside and have an Rs 100 price target on Satyam.
Q: What about midcaps. You just alluded to Satyam, if you come down from Infosys, TCS, Wipro and HCL Technologies, how do you look at the next rung in IT now?
A: When I look at the target price versus current share prices there has been a fair bit of improvement in the midcap stocks as well, so that is why we continue to focus on companies where we still feel that there is meaningful upside. I think Satyam and Tech Mahindra come to the mind. There is significant room for margin improvement in Satyam. If you look at it from an FY11 basis, those two looks particularly cheap.
Q: Give us target prices both for Satyam and for some of the other stocks under coverage for you now?
A: We continue to think of meaningful upsides on Satyam. Rs 100 price target versus Rs 70 current price, so that is a pretty big gap. TCS is another one which we find somewhat undervalued compared to Infosys and Wipro. We have an Rs 550 price target on TCS, so that is another one that we would recommend.
Budget By Udayan Mukherjee
A game of patience
Hope is a dangerous thing, as investors found out yesterday. If the Finance Minister was guilty of presenting an insipid budget that was low on the detail that the market wanted, investors too were perhaps guilty of expecting too much, too soon. That doesn't absolve the Finance Minister of a budget that is low on ambition, boldness and vision but at least it teaches investors to not hope for the moon going into a policy event.
The real damage was done when the FM spelt out the 6.8% deficit number implying a large market borrowing programme with little detail on how he "would get back on the FRBM path". Global rating agencies will pass their judgement in the next few days but the bond market didn't wait that long. The benchmark bond yield shot past 7% raising fears of interest rate spikes and triggering off a collapse in stock prices. At a macro level, that perhaps was the undoing of the market. At a more micro level, a lot of sectors had run up expecting substantial boosts from the budget. Education, real estate, textile and fertiliser stocks which had meaningful rallies leading up to the event collapsed completely . The surprise was Infrastructure, where stocks sold off as well, as apart from an increased outlay for the NHAI the budget was a bit low on bold moves.
Then there was disinvestment, which the market had pinned some hopes on. The pitiful Rs 1100 crore figure which the FM unveiled dashed those hopes. That number is truly inexplicable.
Not that this budget had nothing postive for the stock market and corporate India. The scrapping of FBT, extension of 10A/10B for IT companies, removal of CTT and no rollback of excise cuts were all positives, partly offset by the hike in MAT. The scrapping of the surcharge on personal income taxes may even be a limited consumption trigger. Tobacco companies were spared the axe this time and ITC was one of the few stocks that ended in the green, contrary to investor fears.
Yet what the market wanted was a green signal, that finally the drought on reforms is over. That a government, shorn of the Left, will press ahead with bold policy moves. The charitable view is to accord the FM the benefit of doubt : he didn't have enough time to unveil a big bang budget and the best is yet to come, over the next few months and in the next February budget. The cynical view is that the market is running ahead of itself; despite the electoral surprise, things will improve only incrementally and over a much longer duration than investors want. The truth, as often, perhaps lies somewhere in the middle. While investing in India, the virtue of patience cannot be overstated.
Hope is a dangerous thing, as investors found out yesterday. If the Finance Minister was guilty of presenting an insipid budget that was low on the detail that the market wanted, investors too were perhaps guilty of expecting too much, too soon. That doesn't absolve the Finance Minister of a budget that is low on ambition, boldness and vision but at least it teaches investors to not hope for the moon going into a policy event.
The real damage was done when the FM spelt out the 6.8% deficit number implying a large market borrowing programme with little detail on how he "would get back on the FRBM path". Global rating agencies will pass their judgement in the next few days but the bond market didn't wait that long. The benchmark bond yield shot past 7% raising fears of interest rate spikes and triggering off a collapse in stock prices. At a macro level, that perhaps was the undoing of the market. At a more micro level, a lot of sectors had run up expecting substantial boosts from the budget. Education, real estate, textile and fertiliser stocks which had meaningful rallies leading up to the event collapsed completely . The surprise was Infrastructure, where stocks sold off as well, as apart from an increased outlay for the NHAI the budget was a bit low on bold moves.
Then there was disinvestment, which the market had pinned some hopes on. The pitiful Rs 1100 crore figure which the FM unveiled dashed those hopes. That number is truly inexplicable.
Not that this budget had nothing postive for the stock market and corporate India. The scrapping of FBT, extension of 10A/10B for IT companies, removal of CTT and no rollback of excise cuts were all positives, partly offset by the hike in MAT. The scrapping of the surcharge on personal income taxes may even be a limited consumption trigger. Tobacco companies were spared the axe this time and ITC was one of the few stocks that ended in the green, contrary to investor fears.
Yet what the market wanted was a green signal, that finally the drought on reforms is over. That a government, shorn of the Left, will press ahead with bold policy moves. The charitable view is to accord the FM the benefit of doubt : he didn't have enough time to unveil a big bang budget and the best is yet to come, over the next few months and in the next February budget. The cynical view is that the market is running ahead of itself; despite the electoral surprise, things will improve only incrementally and over a much longer duration than investors want. The truth, as often, perhaps lies somewhere in the middle. While investing in India, the virtue of patience cannot be overstated.
Saturday, July 4, 2009
Don't expect too much, you won't be disappointed
A test match, not T20
For me, a Test match is still the real thing. T20 is fine for the occasional thrill and I have no quarrel with the place it has carved out in the hearts of cricket lovers. Yet I suspect that any serious cricketer will still measure his career against his Test track record. So it is, or should be, with policy making. The stock market may want instant gratification but it's prudent to shed that T20 frame of mind going into this budget. A dream budget will be like a flamboyant Yuvraj Singh century within a test match, supremely welcome but the bigger goal has to be to win the Test match. Never miss the woods for the trees.
Reams have been written about the significance of this electoral verdict for the Indian economy. This may have raised the bar of expectations for the first Union Budget of this government though interestingly the Sensex hasn't added any weight at all from where it was one day after the election result. That could well mean that investors hope that strong reform signals come through but have not positioned themselves for such an outcome. It's like admiring the shape of a horse and fancying it's chances of winning but not exactly betting on it. You see the difference? The market is going in fairly light, into the event. If it is a complete damp squib, and let’s discuss what would qualify as one, the Nifty could certainly retreat to 3800 kind of levels but that would hardly be a dire scenario. If it has some positive tones but not a lot, the Nifty may not even break 4000. That is, on the budget impact alone. And if it is a complete dream budget, it will certainly rush back to 4600-4700 levels, it's recent peak, and then wait to see what is going on in the global equity environment. That is my best guess of the budget impact; depending on how good or bad it is perceived to be, the nifty will probably go to 4000 or 4700. Only a terribly insipid budget will break it below 4000 or an outstanding one take it beyond 4700. After that the environment takes over. If global markets rally on, the S&P goes to 1100, the Nifty will head to 5000 plus. If global markets correct, something which can certainly not be ruled out and the S&P falls to below 800, then the Nifty too perhaps heads to 3600-3700. The budget is just one event, even something as unexpected as the election result got discounted by the market in one day flat. I doubt very much though that the budget is a 20% binary event. Seems more like 7-8% to me, either way.
But lets leave the market aside for a moment. The budget is, after all, much bigger than just the stock market. The only thing that one expects will shine through the budget speech is positive intent. The budget is not the best forum to push through sensitive policy reform. One cannot forget that it is, after all, a very political document. However, given that Prakash Karat will not be sniping at his heels this time, one certainly hopes that Pranab Mukherjee can unveil a roadmap that he will execute over his five year term. Heavens will not fall if FDI in insurance is not taken to 49% in this budget or if a Rs 40,000 crore divestment target is not set out for the current fiscal. The budget should not be judged on some of these litmus tests alone. Yes, the policy inaction of the last five years has fostered a lot of impatience. Some observers are waiting to stand up say "if you couldn't even do it this time, shorn of the Left, then when will you ever do it?" and there would be a grain of truth in that criticism too. Yet, my only submission is that having waited so long, another year or so will not kill us. The first message that the Congress government wants to send out would be to the people who voted it to power. Not to big business or investors. Sure, the two need not be mutually exclusive but the government will probably prioritise and in doing that, will lean closer to those large sections of our population who do not invest in the stock market. I say, that's fine. What's good for India, is eventually good for the stock market. So if the FM lays stress on issues like education or rural employment generation, collective groans of 'socialist/populist' should not come up from investors. The Finance Minister's job is not to spark a 300 point Nifty rally on budget day. If that happens, it will be a bonus.
So what are the issues on which will hinge the stock market's response. The most immediate items are STT/Capital gains, disinvestment, FDI and GST. Let’s take them one at a time. Long term capital gains tax regime has worked like a dream for investors. Yes, lower STT may benefit traders and arbitrageurs but any move to phase out STT and reintroduce capital gains tax will go down as a big negative. If no change happens, the markets will be fine. Any disappointment from traders will be very short-lived. Unless LTCG comes back, this is not such a make or break item.
Disinvestment. Let’s call it that without confusing it with privatisation. Given that this has been on the backburner for the last five years, the FM may want to start small and then scale up. So the first step may well be to sell small 5-10% stakes in large listed PSU companies and raise some money. This will help raising some money for the fisc but it is a drop in the ocean of our deficit, so macro watchers should not get too excited. It's not as if divestment will bring down our combined fiscal deficit from 12% to 8%. No way. And frankly, these partial stake sales have little positive implication for the stock market. It is simply fresh supply of paper into a market which is already facing too much supply from QIPs, in fact it may even crowd out private listed companies from the capital raising arena. Money is better raised by companies for productive use than by the government for putting in the fiscal deficit blackhole. The other thing that may happen is IPOs for unlis ted government companies. In fact, NHPC and OIL are already in queue. This is positive. New PSUs getting listed at attractive prices will revive the primary market and some of these unlisted PSUs like BSNL and Coal India are so huge that they will end up raising serious money for the government. So the more the FM stresses about new listings, the happier the market will be. If he goes on to lay a firm divestment target for the next five years and that number is substantial, say 4 lakh crore or 80 billion dollars, investors will be very happy. Privatisation is too bold a first step, that’s just being too wishful. That is the stuff of the Economic survey, not the Union Budget. On the subject of capital raising, a firm mention of the 3G auction would be welcome.
On FDI, some caution is warranted. Yes, there is no issue with doing 49% in Insurance and I hope he does that at least but don't expect much more than that. Retail is too sensitive for a first budget. Aviation too may not happen and but that will only make Vijay Mallya unhappy. Eventually, all of this will happen, it has to.
The goods and service tax (GST) is truly important. I hope it does not get postponed by a year, though it is increasingly looking like that. Also, whether it is a dual structure or not is important. This is frankly, the only substantial and material tax reform sought in this budget. Other irritants like FBT or the education cess on corporate tax etc are marginal and any cut in corporate tax rates should not be expected. Nor for personal income taxes. Now of course there will be sector specific stuff like sops for exporters and more taxes for tobacco companies but that’s minutiae. That never makes a budget a dream or a dud. Its much better to focus on the big picture. In that, I truly hope that there is some out of the box thinking. A VDIS (voluntary disclosure of income scheme) like amnesty scheme has been spoken about to channelise resources into infrastructure, something that sounds like a good idea to me. A front on approach to tackle subsidies would be great but given t he recent fuel price hike one suspects that the budget will give the thorny issue of administered price dismantling a pass. Global investors will want to see a firm timeline for bringing our high fiscal deficit under control. The FM cannot be silent on this, but I hope he speaks of a phased reduction aided by higher capital receipts and lower subsidies rather than making it sound as the immediate and top priority. The intent and resolve is important, not immediate steps to rein it in at the cost of growth. Growth is the priority, managing the deficit a compulsion that cannot be ignored, if that note is struck even fiscal hawks may grudgingly agree and rating agencies baying for blood, kept at bay.
Having said all of this, I must confess that I am as ready to be surprised as anyone else, by this budget. I doubt very much though that the impact of the budget will last the week out. Unless there are huge surprises, which I am not betting on, it will be priced in within 48 hours or two trading sessions. It may not be a total non-event like the previous 3 budgets, particularly because of elevated expectations, but it may not be a trend decider for the market. That I continue to believe will be the global market environment, where worryingly some disturbing signs are cropping up.
This weekend I recommend Wimbledon and Yoga. Try not to work yourself into a frenzy with budget expectations, in fact try to temper them. Remember the oldest rule in the book of life: don't expect too much, you won't be disappointed.
For me, a Test match is still the real thing. T20 is fine for the occasional thrill and I have no quarrel with the place it has carved out in the hearts of cricket lovers. Yet I suspect that any serious cricketer will still measure his career against his Test track record. So it is, or should be, with policy making. The stock market may want instant gratification but it's prudent to shed that T20 frame of mind going into this budget. A dream budget will be like a flamboyant Yuvraj Singh century within a test match, supremely welcome but the bigger goal has to be to win the Test match. Never miss the woods for the trees.
Reams have been written about the significance of this electoral verdict for the Indian economy. This may have raised the bar of expectations for the first Union Budget of this government though interestingly the Sensex hasn't added any weight at all from where it was one day after the election result. That could well mean that investors hope that strong reform signals come through but have not positioned themselves for such an outcome. It's like admiring the shape of a horse and fancying it's chances of winning but not exactly betting on it. You see the difference? The market is going in fairly light, into the event. If it is a complete damp squib, and let’s discuss what would qualify as one, the Nifty could certainly retreat to 3800 kind of levels but that would hardly be a dire scenario. If it has some positive tones but not a lot, the Nifty may not even break 4000. That is, on the budget impact alone. And if it is a complete dream budget, it will certainly rush back to 4600-4700 levels, it's recent peak, and then wait to see what is going on in the global equity environment. That is my best guess of the budget impact; depending on how good or bad it is perceived to be, the nifty will probably go to 4000 or 4700. Only a terribly insipid budget will break it below 4000 or an outstanding one take it beyond 4700. After that the environment takes over. If global markets rally on, the S&P goes to 1100, the Nifty will head to 5000 plus. If global markets correct, something which can certainly not be ruled out and the S&P falls to below 800, then the Nifty too perhaps heads to 3600-3700. The budget is just one event, even something as unexpected as the election result got discounted by the market in one day flat. I doubt very much though that the budget is a 20% binary event. Seems more like 7-8% to me, either way.
But lets leave the market aside for a moment. The budget is, after all, much bigger than just the stock market. The only thing that one expects will shine through the budget speech is positive intent. The budget is not the best forum to push through sensitive policy reform. One cannot forget that it is, after all, a very political document. However, given that Prakash Karat will not be sniping at his heels this time, one certainly hopes that Pranab Mukherjee can unveil a roadmap that he will execute over his five year term. Heavens will not fall if FDI in insurance is not taken to 49% in this budget or if a Rs 40,000 crore divestment target is not set out for the current fiscal. The budget should not be judged on some of these litmus tests alone. Yes, the policy inaction of the last five years has fostered a lot of impatience. Some observers are waiting to stand up say "if you couldn't even do it this time, shorn of the Left, then when will you ever do it?" and there would be a grain of truth in that criticism too. Yet, my only submission is that having waited so long, another year or so will not kill us. The first message that the Congress government wants to send out would be to the people who voted it to power. Not to big business or investors. Sure, the two need not be mutually exclusive but the government will probably prioritise and in doing that, will lean closer to those large sections of our population who do not invest in the stock market. I say, that's fine. What's good for India, is eventually good for the stock market. So if the FM lays stress on issues like education or rural employment generation, collective groans of 'socialist/populist' should not come up from investors. The Finance Minister's job is not to spark a 300 point Nifty rally on budget day. If that happens, it will be a bonus.
So what are the issues on which will hinge the stock market's response. The most immediate items are STT/Capital gains, disinvestment, FDI and GST. Let’s take them one at a time. Long term capital gains tax regime has worked like a dream for investors. Yes, lower STT may benefit traders and arbitrageurs but any move to phase out STT and reintroduce capital gains tax will go down as a big negative. If no change happens, the markets will be fine. Any disappointment from traders will be very short-lived. Unless LTCG comes back, this is not such a make or break item.
Disinvestment. Let’s call it that without confusing it with privatisation. Given that this has been on the backburner for the last five years, the FM may want to start small and then scale up. So the first step may well be to sell small 5-10% stakes in large listed PSU companies and raise some money. This will help raising some money for the fisc but it is a drop in the ocean of our deficit, so macro watchers should not get too excited. It's not as if divestment will bring down our combined fiscal deficit from 12% to 8%. No way. And frankly, these partial stake sales have little positive implication for the stock market. It is simply fresh supply of paper into a market which is already facing too much supply from QIPs, in fact it may even crowd out private listed companies from the capital raising arena. Money is better raised by companies for productive use than by the government for putting in the fiscal deficit blackhole. The other thing that may happen is IPOs for unlis ted government companies. In fact, NHPC and OIL are already in queue. This is positive. New PSUs getting listed at attractive prices will revive the primary market and some of these unlisted PSUs like BSNL and Coal India are so huge that they will end up raising serious money for the government. So the more the FM stresses about new listings, the happier the market will be. If he goes on to lay a firm divestment target for the next five years and that number is substantial, say 4 lakh crore or 80 billion dollars, investors will be very happy. Privatisation is too bold a first step, that’s just being too wishful. That is the stuff of the Economic survey, not the Union Budget. On the subject of capital raising, a firm mention of the 3G auction would be welcome.
On FDI, some caution is warranted. Yes, there is no issue with doing 49% in Insurance and I hope he does that at least but don't expect much more than that. Retail is too sensitive for a first budget. Aviation too may not happen and but that will only make Vijay Mallya unhappy. Eventually, all of this will happen, it has to.
The goods and service tax (GST) is truly important. I hope it does not get postponed by a year, though it is increasingly looking like that. Also, whether it is a dual structure or not is important. This is frankly, the only substantial and material tax reform sought in this budget. Other irritants like FBT or the education cess on corporate tax etc are marginal and any cut in corporate tax rates should not be expected. Nor for personal income taxes. Now of course there will be sector specific stuff like sops for exporters and more taxes for tobacco companies but that’s minutiae. That never makes a budget a dream or a dud. Its much better to focus on the big picture. In that, I truly hope that there is some out of the box thinking. A VDIS (voluntary disclosure of income scheme) like amnesty scheme has been spoken about to channelise resources into infrastructure, something that sounds like a good idea to me. A front on approach to tackle subsidies would be great but given t he recent fuel price hike one suspects that the budget will give the thorny issue of administered price dismantling a pass. Global investors will want to see a firm timeline for bringing our high fiscal deficit under control. The FM cannot be silent on this, but I hope he speaks of a phased reduction aided by higher capital receipts and lower subsidies rather than making it sound as the immediate and top priority. The intent and resolve is important, not immediate steps to rein it in at the cost of growth. Growth is the priority, managing the deficit a compulsion that cannot be ignored, if that note is struck even fiscal hawks may grudgingly agree and rating agencies baying for blood, kept at bay.
Having said all of this, I must confess that I am as ready to be surprised as anyone else, by this budget. I doubt very much though that the impact of the budget will last the week out. Unless there are huge surprises, which I am not betting on, it will be priced in within 48 hours or two trading sessions. It may not be a total non-event like the previous 3 budgets, particularly because of elevated expectations, but it may not be a trend decider for the market. That I continue to believe will be the global market environment, where worryingly some disturbing signs are cropping up.
This weekend I recommend Wimbledon and Yoga. Try not to work yourself into a frenzy with budget expectations, in fact try to temper them. Remember the oldest rule in the book of life: don't expect too much, you won't be disappointed.
Wednesday, June 17, 2009
End of Phase 1- Bear Market
End of 1st phase of Bear Cycle
We look to come to an end of the 1st phase of Bear cycle. A correction of 20% starting anytime cannot be ruled out. And for the next 3months, equities will be allowed to take some rest to prepare for the next phase.
In the mean time, where will the capital go?? The answer is commodities. Crude, the premier target. $91 soon. If breaks 92-95 then we are going in for some major downturn. Expect 140 soon. Mostly, looks like upside capped at 91 but IF crosses 95 and rallies then this time, crude may goto 140-155 and we may head lower than March lows(equities).
Stocks that are good: Let the market correct and stocks which are into mining, oil exploration and Importers of goods and services(Dollar index looks to be a great shorting oppurtunity)
All the things have happened in a series, first Large cap gave their bit, then midcaps and then small caps. Seeing that people have been motivated by the exposure in the markets.
This phenomenan is not only common in bear markets but also in bull markets. Its a cycle that goes on in every market of the world.
There is a second thoughts to this study as we have elections round the corner. Exhaustion patterns are visible like the ones when nifty was at 5700. Exhaustion looked but we ran upto 6300 only to correct at higher levels. Or we can go down from here also.
Comments and views welcome
We look to come to an end of the 1st phase of Bear cycle. A correction of 20% starting anytime cannot be ruled out. And for the next 3months, equities will be allowed to take some rest to prepare for the next phase.
In the mean time, where will the capital go?? The answer is commodities. Crude, the premier target. $91 soon. If breaks 92-95 then we are going in for some major downturn. Expect 140 soon. Mostly, looks like upside capped at 91 but IF crosses 95 and rallies then this time, crude may goto 140-155 and we may head lower than March lows(equities).
Stocks that are good: Let the market correct and stocks which are into mining, oil exploration and Importers of goods and services(Dollar index looks to be a great shorting oppurtunity)
All the things have happened in a series, first Large cap gave their bit, then midcaps and then small caps. Seeing that people have been motivated by the exposure in the markets.
This phenomenan is not only common in bear markets but also in bull markets. Its a cycle that goes on in every market of the world.
There is a second thoughts to this study as we have elections round the corner. Exhaustion patterns are visible like the ones when nifty was at 5700. Exhaustion looked but we ran upto 6300 only to correct at higher levels. Or we can go down from here also.
Comments and views welcome
Possibile Directions to the Market after Elections
Possible Directions to the market after Elections
If we dont consider fundamental news and purely on technicals. (Things have been divided on positive movement and negative movement)
Positive:
Probability 1
If nifty opens below 3695 and goes on to cross 3730 then we can see something 3770 3830. Crossing 3830 is very difficult. this would open a target of 4000 4500 on nifty.
Possibility 2
We open gap up above 3730. Then we may have a rally for 3770 3830 but a drastic fall to 3400 would not be ruled out.
Negative
Possibility 1
We open gap down till 3630 and continue our slide downwards. Breaking of 3529 will give us a target of 3328 and 3000.
Possibility 2
We open gap down below 3598 and continue our slide downwards. breaking of 3529 will give us a target of 3476 3328. But most probably we would recover from 3476 and would give a very strong pullback to 3630 levels.
If we dont consider fundamental news and purely on technicals. (Things have been divided on positive movement and negative movement)
Positive:
Probability 1
If nifty opens below 3695 and goes on to cross 3730 then we can see something 3770 3830. Crossing 3830 is very difficult. this would open a target of 4000 4500 on nifty.
Possibility 2
We open gap up above 3730. Then we may have a rally for 3770 3830 but a drastic fall to 3400 would not be ruled out.
Negative
Possibility 1
We open gap down till 3630 and continue our slide downwards. Breaking of 3529 will give us a target of 3328 and 3000.
Possibility 2
We open gap down below 3598 and continue our slide downwards. breaking of 3529 will give us a target of 3476 3328. But most probably we would recover from 3476 and would give a very strong pullback to 3630 levels.
Subscribe to:
Posts (Atom)
