The BIG players’ Equity Game

The Sharp shooters of BSE/NSE equity market platform (they are operators, fund managers and of course FII) are focusing on macros of economy in their investment strategy. Interest rate, Inflation, IIP data, GDP growth, corporate earnings, trade deficit, fiscal deficit, global economy trend, Global currency trend, commodity price movements and lot more….

They analyze the data of all above macros and predict a market move and accordingly take position in equity market. Since market moves on various factors, above macro analysis may not work in short run. However, market players know the market cycle and continue their position. The stocks acquiring activity is at ease and there is no hurry to pick the stocks at once. Let the investors sell the stocks and the players are ready to catch it.

We all know that market cycle will turn after some time. So at an appropriate time market starts moving up which was all expected and the great thing for operators is, they have acquired lot of stocks at throw away prices.

The layman investor is reading the newspaper which is full of negative news like political uncertainties, unrest among various classes of society, various agitations, various scandals, high living cost and so on…

Reading such disappointing news, the layman investor becomes negative and never thought to enter in to market. Instead he sells his stocks in desperation. He ignores macros, fundamentals of economy, market cycle and opportunity of acquiring stocks at cheap market level.

At the second stage, as the turn of macros / fundamental becomes strong, slowly economy recovers and other positive news comes out. The investor is now hopeful but avoids buying at this stage and wait for the gone “Low” to buy stocks.

At the third stage, result of economy recovery is seen in GDP growth rate, consumer buying data, corporate sales growth and higher earning of companies. The investor is now reading high growth data of corporate earnings and tempted to buy the stocks. Initially he earns. Excited by high earning in short run, he enters in the market with more funds.

More the earning in short run, more the investor invests at high prices, such a level where the corporate earnings are known to all. Investors are busy buying the stocks on good news inflows. The operators has now chance to offload the acquired stocks at their decided price and layman investors crazily buying stocks on receipts of ‘short term earning stock TIPS’

This is the main difference. The front runner in the market always looks in to opportunity at future date, will look at macros / fundamentals. They visualize what can be good and what can go wrong at certain time frame and accordingly they take risk. That is calculated risk. The common man invests looking to current situations/reading corporate results and hence his transaction price is discounted by prevailing news. He is late entrant and so he always pays premium for the news which is known to all.

So always try to understand fundamentals of economy which is basis of equity market growth. Before buying a stock understand market price history of the stock. Purely entering in to equity market after reading P&L and balance sheet may be proved to be a shocking loss by entering at higher price. The operators successfully sell their holding during market hype making handsome profits.

Ending this write up, I think next boost to Indian economy will be through crude oil prices. Once the crude prices eases, all the macros listed above will become positive. FII was strong buyer in equity market in last year and the same is continued even now, my instinct says there will be easing in crude oil prices in current calendar year. The positive news may put the Stock market on fire.

(Important Note: This article is a write up to provide information. The predictions may go wrong. This is not invitation to invest to any scheme.)

“CONSUMPTION” & “A STRONG ECONOMY”

Whenever I listen fund managers, they frequently use word “CONSUMPTION”. According to Equity experts, “CONSUMPTION” is a great driver to boost GDP among other boost factors to stock market.

Today, I will discuss “CONSUMPTION” & “A STRONG ECONOMY” in very simple words.

Before we consume, we “BUY”.  So buying is the basic of consumption. Buying capacity comes from our income. We need to buy necessities and we buy luxuries too. More we buy from our income, we are left with less saving on hand for other needs, future goals & causalities. If we don’t have money on hand to buy our desires, we opt to “Borrow”. To feed for all our spending, we borrow more and it contributes to higher the growth of “Banking Industry”. But a borrower enters in to a long term repaying contract (EMI). What his earning of today and tomorrow, he has to pay for the previous borrowings. Not in all cases but excessive blind spending may lead one to “Debt Trap”.

All traders, Manufacturers and Government (In light words “The Game Gurus”) too wish that people spend more money. That is the real success Mantra. Additional help is received by Celebrities through their endorsement to products and Large Events (Like Sports Events, TV Shows etc.). This helps all three Game Gurus to give people a sip of fun for buying, people take the sip and spend very unconsciously.

Let us go to the word “Consumption” once again. If consumption is for necessities like health or education, it improves standard of living & creates basics of growth of individual and society. But if the consumption is for lifestyle, for fashion, entertainment & vanishing products, the buyer left with nothing on hand. Such consumption leads to more trapping situation.

A suggestion. Please start observing people around you. Those who are not aware about spending, they are making their own road of disaster, because once they start living in higher life style, later they will not be able to compromise. This will lead them to an imaginary feeling, “I am special. I need different superior environment (in Food, People, Clothes, Brands etc.) around me”. By living in such environment, one further goes deeper into this false idea and in case of any unforeseen event, he collapses.

This is the short story of unaware consumption.

Now, let us look to GDP and then “A strong Economy”.

When consumption grows, the traders, manufacturers, media, celebrities & Government earns, whereas the unaware spender left with less savings.

When one buys for a product it is boost to a trade, so GDP grows & Government is happy with the figures, corporate profit grows & Sensex naturally grows.

However, the money spent for a product should be manufactured in our country. It gives employment to mass, growth of Manufacturing activity, new employment generated due to economic activities, Higher Tax revenue to government etc. But if the money spent for imported products (Foreign country products), we as a country, looses as our currency (Rupee) becomes weak, low employment generation & low tax revenue to government. Other countries are exporting their product so they earn, they become stronger at our cost, all this due to unaware spending of people. So a strong Economy is a country which exports more & imports wisely.

A strong country is result of a strong economy. This is possible only with strong SPIRIT of the people of the country… No arguments, only one Oath… Our country, Our Economy, Our Products, Our currency and everything ours…..

Are We………..????????

KAL, AAJ aur KAL

The all time common question asked is “Shun lage chhe?”, ‘’Kya lagta hai?”

The funny answer to it is ‘’Shenu shu lage chhe?”

There are many things where we can discuss the “Lage Chhe” effect. Predictions are expected for Rain, Budget, Mehngai (Inflation), Gold, Real estate & of course Equity Sensex.

Everybody try to get some immediate relief by asking two lines & others reply to it as if they know everything and should at least speak something when asked.

Since long before, I am being asked these questions for Equity Sensex predictions. Replying to this common question “Kya lagta hai” before 25 years, in the very initial years of my career, I used to become serious to reply & though having no deep clue of market, I used to deliver my opinion on market. However, I accept that most of the predictions I made have not met because they were copied. I was using somebody’s words.

But now the time has changed. I know that everybody express their views with their own vested interest. Fund raisers presentations are so designed that listeners are attracted to invest in their scheme. Some media presents / highlights some schemes and performance which are smartly prepared considering specific time period which is in favour of the scheme they want to promote.

Isn’t it sounding like darkness every where? I think it is tough to share market predictions with confidence. However, while predicting anything, proper pros & cons must be shared with listeners. Everybody should consider that market runs on fundamentals, demand/supply rules, uncertainties and Greed & fear factors.

My Latest market predictions in the form of KAL (Jan –Sep 2012), AAJ (Sept-Oct 2012) & KAL (2013), may read with all uncertainties on market regarding Politics, inflation, Interest rates, trade deficit, fiscal deficit, & lot more.

KAL, AAJ AUR KAL

Yesterday	Scenario	High crude prices. Hence very weak Indian currency High Inflation, Poor GDP data
	Foreign (vested) interest	Rating agencies declining India’s ratings Negative comments from foreign media for Indian leadership & government
	Indian Investor’s behavior	Stressed investors having no returns in last 5 years of investment sells most equity in belief that market will not perform. FII (Foreign interests) came in to buy this equity.
	Conclusion	Foreign (vested) interests have created situation that Indian government has to open doors for FDI in various sectors.
Present	Scenario	Indian government turns into “Show off” mood. Declares FDI in retail & other sectors, Diesel price hike etc.
	Foreign (vested) interest	Heavy and continuous buying of equity by FII High inflow of dollars and Indian rupee improving.
	Indian investor’s behavior	With fear in mind of market to go down, more Indians selling their equity.
	Conclusion	Foreign (vested) interests finally succeeded in mission to make the Indian government to open the doors for FDI in various sectors.
Future	Scenario	Crude prices going down Rating agencies improves India’s rating Foreign media praising positive steps by government Expectations of GDP to be on right track once again
	Foreign (vested) interest	Rupee is gaining (say below 50) and equities gains to new hype mode. FII gradually starts booking profit. FII benefits from o   Purchased equities at high rupee price o   Stock market gain over period of time o   Selling equities at low rupee price
	Indian investor’s behavior	“India shining” hype is created. In “Rahi Gayo” mood, buy stocks crazily at high prices
	Conclusion	FII makes profit while Indian investors locked with buying at high price.

I have done a risky prediction of market, but the sad end of this story that My fellow Indian investors are expected to be losers in this game if they are not smart enough. 

English and Economics: Absolutely Hilarious

We will begin with a box, and plural is boxes

But the plural of ox becomes oxen, not oxes.

If I speak of my foot and show you my feet

And I give you a boot, would a pair be called beet?

Then the masculine pronouns are he, his and him

But imagine the feminine: she, shis and shim!

Let’s face it- English is a crazy language.

There is no egg in eggplant or ham in hamburger

Neither apple nor pine in pineapple.

English muffins weren’t invented in England.

We take English for granted, but if we explore its paradoxes, we find that boxing rings are square, and a guinea pig is neither from guinea nor is it a pig. And why is it that Grocers don’t groce and hammers don’t harm?

If teachers taught, why didn’t preachers praught?

If a vegetarian eats vegetables, what does a humanitarian eat?

And in Closing…….

If Father is pop, how come mother’s not Mop???????

(Taken from “Dignity Dialogue” June 2012 Issue from “English: Absolutely Hilarious” by KRK Moorthy)

Yes, we have lot more funny things around us, even in our daily market gossip.

Let us look to the world of Indian economy. We are now surrounded by various 24*7 news channels and flooded with lot of information, most of them are unnecessary.  The “Experts” delivers opinion; interestingly very basic things are forgotten by these experts. Let us give a look to it.

Our country’s Foreign Exchange surplus is invested in US treasury which earns around 3 to 4% per annum. However, FII inflow of equity market, in around half year, makes profit of 10 to 15% from equity market movement with tax benefits & goes back to their home country. During the same period our government makes funny 3-4% from the US treasury investments for full one year investment. Interestingly, still we all are very happy when we see FII positive inflow data.

Experts are happy with IIP Growth data of various sectors including growth of Auto sector sales. Interestingly, the increase in traffic, air pollution, time consumption on road & burden by crude oil import bill is not at all the point being talked.

Those who earn money & pay tax, have good money (accounted money) on hand. The post tax returns from FD and Equity of last couple of years is not sufficient enough to cover inflation. Because of anti money laundering law, only two sectors (gold & real estate) are left for investment of unaccounted money. Real estate has multiplied by 3 to 4 times in last 5 years and gold has also delivered handsome returns. It is funny to observe that those who hold unaccounted money have been able to earn good returns compare to the honest tax payers.

The bankers (global scenario) lend money to earn good interest income. To grow, lending is extended to sub standard category of assets. Over a period of time, the books of banks lending moves from safe to risk, but as soon as banks reach to such default position, government enters & helps bank to survive. As per government opinion, this is important to sustain investor’s (public) confidence in bank. As banks do not default even though their bad workings, a general opinion prevails in the public that nothing to worry while investing in bank. Interestingly, nobody bothers that the government which supplies money to banks may itself come in to trouble on any day.

Our investment market (or environment) is as funny as English language we speak.

One and forever advice – “Give time to the market”

In a meeting with my investor clients last week, there was long discussion regarding which asset class is the best?

As currently all real estate investors are very happy with their real estate investments. Almost all agreed to one asset class. I.e. Real Assets

I am happy if investors earn from whatever asset class they have invested in…..

In conclusion of the meeting, my statement to all was as per below:

In 1980’s BSE SENSEX was introduced with reference to 100, which is now around 17000 level. It shows 170 times growth in 32 years. A very good performance indeed!!! The gold and real estate have also given very good appreciation to the investors as well taking the same period on account.

So my advice to all was very simple.

The asset class whichever is preferred by investors performs only after given time. If investor fails to wait, than he gets disappointed with the poor performance which is for a time being only  or he sells the asset in desperation & jump in to other shining asset & try to chase the returns which is already left & may miss earning opportunity of both asset class & most possibly he may loose the money.

The key take away is “Give time to the investment instead of timing the market “

In last 10 years,

There was great time for all asset classes like

2003-2007 – We have seen 5 times growth in Equity Sensex.

2008-2012 – Gold & real estate have given great returns.

If investor understands the Economy cycle of ups – downs & if he rides this curve smartly, he can earn smart money. Others with patience & cool and long term investors will also earn handsome returns. Those who try to chase returns & entering at top price of assets are most likely losers.

Even at current sensex level of 17000, investors are in panic & in no mood of investing in equity. Most of their funds are invested in fixed investment opportunities & thankfully there are very good interest rate opportunities available for investing in Fixed Deposit like HDFC Ltd. & GRUH FINANCE and Debt MF schemes like FMPs & BOND FUNDs are also getting attention of investors.

SBI DYNAMIC BOND FUND, UTI BOND FUND & TEMPLETON INDIA CORPORATE BOND OPPORTUNITIES FUNDS are also some schemes where investors are looking investment opportunities due to tax advantage & its fixed income nature.

However the burning issue is, should one invest in equity now?????

I think one should invest in equity at current sensex level in the range of 17000 to 17500. However, investor should first see his risk profile, better not to jump in equity in single stroke & he should try to understand the possible loss if invested in equity.

The equity has not performed in last 5 years. Equity sensex is at a level where it was before 5 years. So, it is better for investor to find out how much risk he can take & then he can enter in equity.

As advised earlier “Give time to market”.

Too much borrowing is damaging

We receive sales calls trying to sell us a credit card. There is a lot of meaning to the economy of credit card buying habits. When a person wanted to buy something that was in excess of his available funds, he can use someone else’s savings and buy it. Now, on repayment he reduces his monthly savings and increases more spending. However, if collectively, a society went on a shopping mood, it would result in serious events: 

• As a result of higher sales and profitability, the companies would be happy. The companies will expand capacities in anticipation of demand. Immediate positive result of this is, Jobs will be created, more factories built, more revenue to Government and a fill good factor will also felt.

• Banks would be happy as they would expand Loan book, higher profit and large balance sheet. Then recruitment of more people, pay hefty salaries, giving them sales target to be achieved and believing that this growth is for real.

• As Government has more tax revenue, will spend more. The Governments subsidy spending on social sectors is not productive and do not create an asset.

• Increase in asset prices. More people buy assets, they leverage, and buy more assets. This leads to an asset inflation, which increases core inflation as input prices increase. Agricultural land gets converted into construction and investment land, increasing pressure for food prices.

• Society as large feels good that they spend more, earn more, and save more. Everyone feels good till the party ends because events starts turning reverse. Such as price spike of a commodity or maintaining the living at higher costs. Governments in turn try to “simulate” the economy by reducing interest rates, but this hardly works.

Government has choice of taxing and using it to spend on infrastructure or paying pension, subsidies and loss incurring companies to save them defaulting.

The bad part is the debt trap of borrowing to keep the fire burning which starts in the government and the society.

• Governments have the power to print any amount of currency and hence can pay down any debt. This creates a false impression that governments are AAA.

• This false belief has been perpetrated to such an extent that government believed in false power. Hence currencies depreciate and cause inflation, and erosion of buying power.

• Government then try to reduce own responsibility by saying that the private sector will do the work more efficiently and with less corruption. So we “invite” private and foreign companies.

• The central bank is an authority allowing restructuring loans to avert a banking crisis, and banks generously utilize the window to restructure.

Looking to India, we consume more, import more, export less and have a trade deficit. Downward pressure on the currency and its impact on inflation, The country funds its trade deficits using long term FDI, repatriation of earnings by NRIs and welcomes FII inflows. However, the inflow is of the nature of short run. Strong decisions are yet to be taken by the Government. In absence of firm actions, this situation will continue until a strong leadership takes control.

After discounting the negative factors and hopefully encouraging steps from government, economy will make U turn. Optimism will improve in market and the first runners will earn high returns and laymen will follow them. It is rightly said that “Only unexpected is expected from the market”.

Dare to Dream

Greetings to Readers,

At Current market level investors are not enthusiastic to invest in Equity Mutual funds. The market is under pressure of lot of negative news. One can see current market situation with following dimensions.

• Indian Equity Market has seen tough times before on various occasions, even though the sensex Long-term return is 15%+.

• When an investor is entering in equity at lower sensex, his probability of loss is low or the quantum of loss is low (and higher possibility of earning good returns).

• Almost all domestic & international negative news are discounted / factored in sensex. So buying at current level means buying stock of all those investors who are throwing away stocks at cheap prices.

• Investors should consider share prices V/S corporate earnings of stocks. When corporate earnings is expected to grow or remain at parallel level but the stock prices are going down, means stocks are available at cheap levels, Is this a time to grab the opportunity?

• Investors should put together performance of all economies. The possibility of revival of Indian economy is very high compare of other economies.

• The most dangerous challenge to Indian Economy is inflation & current a/c deficit. They are not lifelong issues. The main culprit is crude oil prices.

• The crude oil price itself is very volatile & in last 4 years we have seen the range of $ 60 to $145 & down to $35 & now near to $100. It is purely on speculation. All speculations are always settled over a period of time. It never lasts forever. That is main relaxing fact.

Surrounded by all negatives, even single positive indication may spark. Sir John Franklin Templeton has rightly said “Only unexpected is expected from the market”

This market crash is an investment opportunity for investors having 3 years+ horizon & expect good returns from equities in time to come. At least it is wise to enter in equities when others are afraid of market. Logically at downward market there are few sellers. They believe that why to sell at bottom? They prefer to hold equities for some more time. Slowly market stabilizes & all of a sudden market takes upward move at Rocket speed. The general trend of investors is mostly on herd mentality. Only smart investors take smart decisions and ride on the market.

This has proved for several times. Will this repeat once again? Would you “Dare to Dream”? Would you like a ride at Rocket speed?

Investors must be aware with the risk / benefits attached to the investment schemes in which they are investing. The key to success is to identify the risk / return attached at the time of investment.

There is always risk associated with equity market, but at current level, the difference is, the quantum of risk is less.

Our strong advise for Equity Investment.

• We advise you to invest in Dividend yield MF Schemes. Investor is comfortable with regular dividend income from good cash rich dividend paying companies. (With possibility of capital appreciation when market takes U turn).

• During the Mandi, investor prefers to protect the investments and to earn parallel regular income like fixed deposits and so prefer to buy Dividend Yield stocks.

• Even the existing investors are not interested to sell the Dividend Yield Stocks, because at least they earn regular Dividend income from the stocks.