Stock Observatory 2012 2Q (April-September)

 

Stock Observatory – Second Quarter 2012 (April-September) – Published  daily from 28 September, 2012

 

READERS MAY NOTE that this column is started from today (28/Sept/2012) and will appear on daily basis except on Sunday.

 

Stock Observatory India

Ref: ISO/12/73 of 2012-09-28, Saturday, India Time 12.06 pm)

Overnight Events and Effects:

  1. Spain is again in limelight. It is said its banks have deficit of about Eu59 Billions or $76 billions. Dollar climbed as result with corresponding fall in Euro
  2. Dow fell marginally. There are no significant events. It is just Friday effect.
  3. Indian market climbed 184 points, very healthy rise indeed, maintaining recent rally. In spite of rise in dollar, Rupee maintained its strength. Latest report of narrowing budget quarterly deficit also raised the outlook. However, on negative side, the threat by rating agencies to downgrade India’s status nearly losing investment grade status could pose serious risk, since most Pension funds may leave the market if the investment grade is not maintained. Nevertheless, the current trading scenario looked healthy due to positive eurphoria on policy changes in favor of FDI.
  4. Weaker activity due to holidays ahead. In India too, Lord Ganesh will be very happy on “visarjan day” seeing bullish Indian bourses.
  5. China weakened again for 11th month in a row. When China does not sell, the Americans and Europeans do not buy. Since the China effect will be delayed by about 2 months, we may expect weaker economic performance in US, UK, Japan and Eurozone.

 

US & Asian Markets today

 

INDEX

CURRENT

PREVIOUS

CHANGE

COMMENTS
Dow Jones USA

13,437

13,485

-48

 
NASDAQ

3,115

3,135

-20

 
NIKKEI – Japan

8,870

8,919

 -49

Hang Sang -HK

20,840

20,846

 -6

SENSEX – India

18,763

18,579

 184

* = live intra-day.

No significant movement in the indices. The actions are more in currency market than stock market. The fact that the SENSEX keeps its neck above 18,000 level, little more gains to consolidation may be expected in India market. There are less fears and more hopes in Indian market.

Currency:

Pair/Index

LATEST

PREVIOUS

CHANGE

Comments

US$ Index

79.894

79.43

0.4640

Euro/US$

1.2859

1.2936

-0.0077

Rs/US$

52.88

52.76

0.1200

Observation (Currency):

Dollar index rebounded by 0.66% which caused almost all world currencies to lose out against US Dollar.Rupee is maintaining healthy stance. Since the

Interest Rates (US$)

LIBOR 1M   LIBOR 3M   LIBOR 6M   LIBOR 1Y  
T 1M T 3M 0.09 T 1Y 0.15 T 2Y 0.23
FED Target 0.25 T 5Y 1.05 T 10Y 1.63 T 30Y 2.82

Commodities

Item

Latest

PREVIOUS

Change

Current OI

Previous OI

Change

Oil (WTI- USA)

92.19

92.28

-0.09

320,432

331,443

-11011

Oil (Brent) …

0.00

0

Gold …

1,773

1,782

-9.00

353,966

339,606

14360

Silver …

34.57

34.76

-0.19

86,972

84,679

2293

Palladium …

640.8

638.55

2.25

18,832

18,979

-147

Platinum …

1,668

1,665

3.00

55,496

52,797

2699

Observation (Commodities)

  1. Open interest in Gold is surging. Nearly 354,000 contracts amount to 35.4 Million ounces of gold which is equal to open short position of 1,069 Tons. Gold also touched $ 1,785 level which is the key resistance for more rally. After $1,785, next critical level will be $1,835 level. Silver is firm and Platinum is rising strongly of late.
  2. Gold is near trading sell point ($1,785 and $ 1,835 in extended rally). For Silver, the trading sell point is $35.50 and $38.50 in extended rally.

Stocks: Our Observations and Comments

  1. Dow, Hang Seng and Nikkei stable to subdued. Only SENSEX is firm.
  2. Tata Global, our old favorite recommended near 108 is doing well. With Starbuck opening in South Bombay, this joint venture may become a solid force in future. World over Starbuck coffee shops are star attractions and many small timers use it as “business meeting point”. Enjoy the rally and lighten up slightly. Nearly 30% gains since our recommendations is not too high nor too low. Keep this stock in all time focus for next two years which may be a serious growing phase for this company.

Special Situation:

  1. None today.

 

Something Right, Something Wrong….

Everyday is dynamic. Some events, news or policies are right having beneficial effects on the stock, sector or economy and some are wrong hurting the same categories. These are explained briefly. For detailed view, refer to other appropriate sections for which reference is made here with a link, if possible.

  1. More tomorrow. None today.

SWAPS:(All in Rupees)

Following swaps are suggested to maximize gains on the capital. The idea is to get out of stagnating or weakening sectors into growth or strengthening sectors

SECTOR SWAP

From

 

To

 

Reason

Watch tomorrow

 

STOCK SWAP

Following situations are suggested. The idea is to sell the overpriced stocks and switch the proceeds to underpriced stocks or those stocks which gained or regained favors of the investors. These are not necessarily long term recommendations. Read the comments with the following tables to make sure that you understand what you are going to do.

SELL

@< or >

BUY

@< or >

Reasons

None

Kalidas One Liner

    • Bank of Amrica settled class action law suit with investors by paying over $2.9 billions in damages. BofA does not have money, but does not matter, FED will print it for them.

OVER


Stock Observatory India

Ref: ISO/12/72 of 2012-09-28 Friday, India Time 9.30 am)

 

Overnight Events and Effects:

  1. On political front, President Obama is gaining edge over Republican Mit Romney, latest poll shows. Romney does not seem to have clear agenda how to solve the economic mess, and most important issue from American point of view is Health Care where he is in confused state of mind.
  2. European Debt crisis is still prolonging with hopes oscilating between two extremes every day. Now, they say Spain may be able to introduce reforms to address its deficits and it may qualify for international aid. It boosted Euro for second day in a row. This is a repetitive exercise over last 6 months. Hopes arise and then falter, keeping almost every currency on roller coaster ride. While US dollar is fundamentally weak due to Qe3 announced by FED, the relative weakness and uncertainty in Euro region on Greece, Italy and Spain gives it a temporary strength. Your loss is my gain, so it goes in Dollar market versus other curencies.
  3. Dow is strengthening day by day, on false hopes that easy money will address the financial crisis, but it does not, in fact it did not for over 4 years. The internet medium has become so powerful and confusing that news, views and opinions are aired almost every minute to dash any negativity. Still, most stocks still lose money, and retail investors continue to pull out the funds from Equity oriented funds or market. The fact is that most people do not have enough savings in their banks, so any demand on their resouces is met by selling stocks – other assets can not be sold such as Home or Housing and Auto which is essential commodity for American household.
  4. Equity market in Japan continue to be weak. While Dow gained over 9% in last 3 months, NIKKEI in fact dropped by almost similar %. In other words, Japan is no longer a financial force as it used to be 7 years ago. No Japanese funds or individuals is standing in line to buy equity in emerging or US markets any more. They too run out of money.
  5. Indian market is still enjoying rally caused by uproar on FDI liberalization in retail, airlines and infrastructure. Still there are many untold stories and caviats in retail participation where the FDI investors are not allowed selling their products ONLINE. I do not understand why did the Government disallowed internet trading ONLINE in retail segments. After all, Indians in general are not that brand conscious and they are not used to buy online like in United States, where the goods could be returned to the seller within 30 days for full refund. The mom and pop stores will continue to outperform the organized retail sector which has appeal only for elated masses (educted elites including software engineers and internet conscious population mainly from South India. The people in north, west and eastern region are not used to buy online, and they will buy only after they have seen and felt the goods. Online retainling is still 15 years away from advanced markets.
  6. Kingfisher is again on news for defaulting on service payment tax. Lot of FDI hopes are keeping this counter buzzing, but except some Gulf carriers, or some odd Venture Capital firms, the real attraction is much less. Limit of 49% does not help. If FDI retail are allowed 51% or more, why limit and peg down the % limit to 49%, short of 50%. A couple of points more is not going to make much difference from any strategic point of view, but it will make almost all airlines in India an attractive destination if only majority control is allowed.
  7. Rupee is firming up to stay below Rs 53, having gained by Rs 4 or about 8% in last 30 days. It brings down the cost of import, and imposes lesser subsidy burden on the government in the matter of oil. Airlines are also benefited if they have not hedged in future markets. We may not know how each airline contracts on Oil – on forward basis or spot basis.
  8. Software firms may not perform well due to rising rupee. They have to depend only on volume gain to compensate effects of firmer rupee.
  9. Metal and other commodity stocks may perform less than average due to same reason – higher rupee.
  10. RBI’s action to impart liquidity by easing CRR is not going to work. The indirect message to the market usually do not work. It has to officially reduce the interest rates, esp when the Rupee is on firm track. If RBI misses this time to reduce the interest rate explicitly, a golden opportunity is lost to infuse real confidence into the market.

US & Asian Markets today

INDEX

CURRENT

Previous

CHANGE

COMMENTS
Dow Jones USA

13,485

13,413

72

NASDAQ

3,135

3,094

41

NIKKEI – Japan

8,919

8,939

 -20

Hang Sang -HK

20,846

20,763

 83

SENSEX – India

18,579

18,631

 -52

* = live intra-day.

While Dow has been rising, Nikkei and Hang Seng are faltering. SENSEX is outperforming other markets due to continuing euphoria over reforms relating to FDI Retail and Airlines. The party is nearly over, and one should take the profit wherever it can, unless the interest rates are cut exdplicitly.

Currency:

Pair/Index

LATEST

Previous

CHANGE

Comments

US$ Index

79.43

79.55

-0.1200

Euro/US$

1.2936

1.2914

0.0022

Rs/US$

52.76

52.865

-0.1050

Observation (Currency):

Still the old equation of dollar vs Euro is playing its rôle which makes the oil, Gold, Silver and metal markets fluctuate based on daily news out. While Qe3 is utterly negative to US dollar, the troubles in Euro zones keep the dollar relatively firmer.

Interest Rates (US$)

LIBOR 1M 0.22 LIBOR 3M 0.36 LIBOR 6M 0.65 LIBOR 1Y 0.99
T 1M T 3M 0.09 T 1Y 0.16 T 2Y 0.25
FED Target 0.25 T 5Y 0.64 T 10Y 1.65 T 30Y 2.83

Interest rates are still maintaining lower profile. Most rates are manipulated. Even RBS or Royal Bank of Scotland was caught and fined over $500 millions for wrong reporting of LIBOR rates with a view to mainpulating interest rate markets and its derivatives. It is also admission of the fact that there is no real economic recovery, but the pressure booster on derivative markets that keep the market alive and give false hopes that “All is Well”

Commodities

Item

Latest

Previous

Change

Current OI

Previous

Change

Oil (WTI- USA)

92.28

91.85

0.43

331,443

NA

331443

Oil (Brent) …

0.00

NA

0

Gold …

1,782

1,780

2.00

339,606

NA

339606

Silver …

34.76

34.67

0.09

84,679

NA

84679

Palladium …

638.55

635.40

3.15

18,979

NA

18979

Platinum …

1,665

1,651

14.00

52,797

NA

52797

Observation (Commodities)

  1. Gold is really firming up. Critical level is 1785. We also find huge short interest on gold at over 331,443 contracts – each contract is of 100 oz. It is also reported that Hedge funds have turned most bullish on Silver in last 7 months, and long positions are building up.
  2. In India, the gold and silver market may perform less than overseas market due to rising rupee. If Rupee was at Rs 57 or about, nearly 8% above current level, the Gold prices would have been higher by Rs 2400 per 10 grams from current level and Silver prices by Rs 4,800

Stocks: Our Observations and Comments

  1. We will cover on individual stocks tomorrow. Currently, our preference lies for subdued metal stocks and Auto stocks. In high tech, our favored stock is still Satyam and TCS.
  2. Enjoy the rally in airline stocks, and start selling them in two or three lots on every rise. Do not consider the market and focus on individual stocks. Currently, Airline stocks have positive fundamentals such as rising rupee and lower oil prices in real terms which increases the profit margin
  3. Rising Rupee, possibly lower rates, and lower oil prices in dollar terms act as triple engine to OMC, gas and gas producers stocks. We just received Rs 5 per share dividend from IOC. With rise in diesel prices realization, firmer rupee lowering the cost of acquisition, the dividend rates in future will rise several times when the full decontrol takes place for petrol and diesel price regulation. May be that situation is still 2 years away, but when that happens, the dividend may rise to Rs 50 to Rs 60 per share, almost 20% of current stock prices of all OMC stocks, including ONGC. The government is major shareholder of these companies, so higher payout on increased profit would benefit the OMC stocks. I think we are close to that situation than where we were at 2 years ago. When the subsidy regime ends, most possibly in 2014 (after election), the government deficit will come down by more than Rs 200,000 crores. May be 100% decontrol may not take place, but almost 50% is not a optimistic vision. We are therefore still recommending taking and accumulating long term position in OMC stocks. BPCL which has been split and trading closely aligned to ONGC , HPCL and IOC , will be more attractive than HPCL and even IOC, but we would not sell IOC in favor of BPCL. It is advisable to allocate almost 20% of investment budget to these stocks over a period of 3 years, with each year increasing position by 5% at least.
  4. If you believe in India’s growth story or infrastructure, better hit the souce such as Oil and Gas stocks who feed those very sectors. Never lose the sight of ONGC, BPCL, IOC, HPCL, GAIL, Petronet, GSPL, Reliance, Essar Oil Ltd and other major seconary players. Watch them every day just as you brush your teeth as unavoidable routine.

Special Situation:

  1. None today

Something Right, Something Wrong….

Everyday is dynamic. Some events, news or policies are right having beneficial effects on the stock, sector or economy and some are wrong hurting the same categories. These are explained briefly. For detailed view, refer to other appropriate sections for which reference is made here with a link, if possible.

  1. Rising Rupee is right, whereas continuing subsidy on Oil is wrong.
  2. Gold and Silver are rising. More and more printing of notes by FED, BOE and ECB act as strong booster of fundamentals. That is “Right” and will remain so until the interest rates rise by 3% in advanced markets.
  3. Rising rupee translates metal prices in dollar terms to lower in Rupee terms. This may act as “correction” to meta stocks which are improving on fundamentals. Watch leading metal stocks and build the position slowly. Study each stocks in metal sector on its own merit and then make the selection.

SWAPS:(All in Rupees)

Following swaps are suggested to maximize gains on the capital. The idea is to get out of stagnating or weakening sectors into growth or strengthening sector

SECTOR SWAP

From

 

To

 

Reason

Telecom stocks Battered Airlines, metal and Oil stocks From lower margin earners to higher earners, esp when the bottom is hit for swapped sectors

 

STOCK SWAP

Following situations are suggested. The idea is to sell the overpriced stocks and switch the proceeds to underpriced stocks or those stocks which gained or regained favors of the investors. These are not necessarily long term recommendations. Read the comments with the following tables to make sure that you understand what you are going to do.

SELL

@< or >

BUY

@< or >

Reasons

Kalidas One Liner

  • Government of India and SEBI are the biggest manipulators, who act to the detriment of minority shareholders.
  • SEBI permitted Government to take over 55% stake in IFCI by exempting it from mandatory offers. Rules of convenience operate in the marketplace. What is the meaning of “Mandatory Offer” if they are optionable at the hands of the beneficiaries.
  • Argued that Government at one time infused large amount to IFCI to warrant exemption. Will SEBI allow Kingfisher Airlines on similar ground because Vijay Mallya and United Brewery Group pumped in thousands of crores including financial guarantee?
  • Says the market rumors that one gulf airline is interested in taking stake in KFA. Yes, 49% limit does not act as diffuser for Gulf Airlines because most are controlled by their respective governments.

Kalidas Chopai

PEP = Preferred Entry Point; How to use the following table?

Finding PEP is always difficult. So, it is advisable to use first point of entry so as not to miss the stock. It so happens that the stock goes down after your purchase, so you buy more on downside (2nd entry) and then stop. When the stock begins to go higher, and is up by at least 12% to 15%, with target still far away, you make third entry on the upside because upward trend is reasonably established. Similarly, while selling always get hold of first exit point. If the stock goes higher, sell some more to average up your selling price. Now stop. When the stock begins to go down after hitting recent top, you sell immediately at the bid price because the stock may develop downtrend. Never be cheesy while buying and never be greedy while selling. Money is in your pocket when you sell. Always smile first before buying or selling. Only large hearted investors make money all the time.

Stock   CMP PEP CMP
No comments today.

 

First Entry 2nd Entry on Downside 3rd Entry on Upside
Comments: 
First Sell 2nd Sale on Upside 3rd Sale on Downside
Comments: 
Ref. No. 12/KC/20 Date: 2012.mm.dd Target (3M) SENSEX now at

OVER


Stock Observatory India

Ref: ISO/12/72 of 2012-05-10, Thursday, India Time 10.30 am)

Overnight Events and Effects:

    1. Having succeeded in manipulating the markets in futures markets on CFTC, the same policy has been emboldened. For over several months, the policy dictated in future markets is to cause the collapse in commodity markets by strengthening US dollar. And when the US dollar strengthens, it is ensured that Dow Jones also goes down. The idea is to show the world that US markets are very much concerned at the happening of events in Europe but the real agenda is to depress the commodity markets.
    2. It may be noted that the US dollar index has not shown much movements in last 2 months. It is just fluctuating within a band of just 1.5%, but the commodity markets have been hammered down by more than 5% to 12% during same period on the grounds of higher dollar. The trades appear to be to short the Dow or S&P and buy USD Index and then short the commodity prices to buy USD index again. The short position then immediately covered by using the finance generated by shorting the S&P 500.

This is why when the short interest goes down, when the commodity prices are also pushed down. In other words, the profits are booked against commodity while shorting S&P 500. When the delivery period approaches on expiration of concerned future market, the trades are reversed for a few days by shorting the dollar index, pushing up Euro, gold and silver prices, and buying back the S&P 500 to push it higher.

Otherwise, if the dollar goes down why should the Dow go up and when the dollar goes up why should the Dow go down ( as it has happened in last 5 days when the Dow lost nearly 500 points)

If dollar goes up, it means that foreigners are buying dollars, and if they are buying dollars where do they park it? It must be equities or bonds and in that case, the equity and bond markets should go up, not down if there was really genuine demand for dollars. But the fact of the matter is that higher dollar does not mean that the dollar physically went to the United States and bought equity or bonds.

In other words, strength of the dollar is just in derivative markets which is used to depress the oil prices at the pumps. While the WTI prices went down, the Brent Crude prices remained almost near same level. Even in United States, where I live, the petrol pump prices are near the highest level ($4.52 against $3.33 nearly 9 months ago and near $4.54 last week only) despite nearly 7% drop on paper in oil prices in United States.

That is, there is a wide divergence between the paper market (derivative markets) and physical market.

Unless and until the major European nations such as Italy, Spain, Greece and Portugal begin to sell the gold, there may not be respite. They own collectively almost 5,800 tons of gold which is lying in United States and under lien to them. This is the gold shorted by United States indirectly by creating the lien on the gold in favour of those 4 nations which was physically given to major banks (such as JPMC) to short it in the markets.

I am still not able to figure out what would ultimately cause the collapse of derivative markets in United States. This market is tightly controlled by major banks such as JPMC and brokers like Goldman Sachs (whose rôle is diminishing), HSBC etc at the instance of US financial authorities like FED and Treasury with proactive participation by CFTC to help CME Group who controls the ICE. They would like to avoid the delivery default by all means.

    1. Look at the charts of any commodity – be they Oil, Gold, Silver, Palladium or Platinum – they are all pushed down in just a few minutes of trades around the closing time, which is usually near 12:00 noon or 12:00 PM US time. Look at the following picture and the red rectangle and look at the side the price fall on Y axis and time on X axis
  1. It is now an established and well committed Agenda for US to destroy the Europe and Eurozone and talks of the tiny Greece resurface every now and then. In spite of all these troubles, the Euro has traded between the band of 1.29 and 1.32 or just 2% whereas the havoc in commodity market is on huge scale. A time is going to come when some major bank may suddenly fall same way Enron fell while manipulating energy prices. Since we can not have data who is doing all these trades we can make only honest guess.

US & Asian Markets today

INDEX

10 May 2012

7 May 2012

CHANGE

COMMENTS
Dow Jones USA

12,835

13,038

-203

NASDAQ

2,934

2,958

-24

NIKKEI – Japan

9,065

9,134

 -69

Hang Sang -HK

20,208

20,575

 -367

SENSEX – India

16,480

16,831

 -351

* = live intra-day.

We must say that we are proved wrong in judging the Indian market this time. The market was really due for a rally for about 1000 points due to rate cut announced by RBI, but all positive momentum was destroyed by Pranab Mukherji, the Finance Minister. It is highly regrettable that the Prime Minister Manmohan Singh is keeping silence on issue of national and international importance. He is the most inept Prime Minister who is heading the seat just for a show.

It is mainly due to GARR actions of the government and latest statement from Mr. Gujral, the secretary of the Finance Ministry that Vodafone tax liability will be anywhere around Rs 20,000 crores or nearly $ 4 billions. The Finance Minister Mr. Pranab Mukherji is deliberately sliding to sideline and let the bureaucrat do the talking. He is causing enormous damage to India’s credibility.

Have you seen any company subject to tax on income it never earned? The only company who could have earned income was Hutchison from Hong Kong who was the seller. Why does not Government of India suing the Hutchison in India or Hong Kong for recovery of so called taxes. Why is it chasing the Vodafone? How could a buyer be subject to tax? There is every possibility that Vodafone will go to the “International Court in Hague” for redressal because even Supreme court can not help it due to change in law now passed by the parliament.

India’s credibility is at stake. It is quite likely that rating agencies will use this episode to downgrade India’s rating and convert into junk grade from Investment grade. Major pension funds will run for the exit door and Rupee could fall by massive 10% in short and swift trade on Foreign Exchange front. Here too, the Non Deliverable Forward contracts (called NDF in international finance) in Rupee to Dollar is playing havoc by trading overseas in Bermuda and Cayman Islands ( overseas unofficial exchange derivative markets). Such clues are picked up on MCX where the dollar rupee is trading on its platform to mimic the trades of offshore havens (or hells for Indians)

Currency:

Pair/Index

LATEST

7 May 2012

CHANGE

Comments

US$ Index

80.129

79.955

0.1740

Euro/US$

1.2944

1.2980

-0.0036

Rs/US$

53.77

53.67

0.1000

Observation (Currency):

Dollar index is pushed up but only slightly but the effects on commodity market is enormous.

Rupee is falling versus dollar due mainly to GARR and fear of India losing investment grade status. The strength in dollar is just about 1.5% which is not the cause for steel fall of Rupee by 6% and commodity prices by 8% to 12%. If Vodafone is forced to shell out Rs 20,000 crores in taxes on income it never earned, hell will break lose on Indian financial markets for which the responsibility will lie only on Finance Minister Pranab Mukherji and Prime Minister Manmohan Singh, India’s weakling Prime Minister.

Sudden depreciation of rupee if Vodafone is forced to pay Rs 20,000 crores will cause financial disaster. If Vodafone is forced to pay Rs 20,000 crores soon (original estimate was only Rs 11,000 crores, so from where additional Rs 9000 crores came to the mind of the Gujral, the Secretary in Finance Ministry, I do not know), there is a possibility that it may have to remit the funds from abroad, which means that almost $4 billions or equivalent Pounds will need to be sold and buy Indian Rupee which may strengthen it later after initial weakness.

It is just question of equation of supply and demand in physical financial markets in India. When and How much is the figure that will dictate the exchange rates.

Those who are sitting on dollar may send the money partly now when the rupee is trading near Rs 54 level. Any level breach beyond Rs 53.85 will surely mean that the Rupee is going down the drain. I am personally sending the money now to India taking advantage of higher exchange rate and also higher NRE deposit rates.

Interest Rates (US$)

LIBOR 1M 0.23875 LIBOR 3M 0.46585 LIBOR 6M 0.7284 LIBOR 1Y 1.0472
T 1M T 3M 0.09 T 1Y 0.17 T 2Y 0.25
FED Target 0.25 T 5Y 0.75 T 10Y 1.82 T 30Y 3.03

No major change in interest rates except strengthening of rates at short end of 3 months which have gone up from low of 0.07 to 0.09. I do not read much at the moment. I am watching LIBOR movement for 3M and 6M and also Treasury 2Y market prices.

Commodities

Item

10 May 2012

7 May 2012

Change

10 May OI

7 May 2012 OI

Change

Oil (WTI- USA)

96.35

96.96

-0.61

226,619

256,327

-29708

Oil (Brent) …

112.42

112.07

0.35

0

Gold …

1,592.50

1,639.60

-47.10

198,902

204,475

-5573

Silver …

29.13

30.16

-1.03

61,107

59,684

1423

Palladium …

615.85

647.90

-32.05

18,370

18,237

133

Platinum …

1,504

1,517

-13.00

40,467

40,300

167

Observation (Commodities)

  1. Palladium is more attractive than other metals at the moment. It is time to buy Gold first and forgetting Silver for the time being. Look at the rising short positions in silver – it shows that Silver might be forced down by 5% from current level in dollar terms.
  2. We suggest Readers to buy Gold around $1,585 level which is important level for entry. At this level most downside in dollar terms is $20 or $1,565 level. Since Gold is having better appeal to large investors including countries, we suggest Readers to buy Gold first followed by Palladium at $610 level for a good entry (even present price of $615 is a good one). Mark Silver to buy at $26.50 level in overseas front. In India, one may buy Silver when it is $26.50 level in dollar terms. Work out the rupee prices having regard to Exchange rates.

Stocks: Our Observations and Comments

  1. Indian stocks are weaker due to three reasons – Finance Ministry’s twin measures under Taxation such as GARR and fresh demand of taxes on Vodafone, higher deficits due to subsidizing oil prices, and rising oil prices more due to fall in rupees rather than rise in prices in dollar terms.
  2. The market is at intermediate level. Use perhaps 16,170 level to buy desired stocks. Our suggestion is to buy the same stocks which was commented on 7 May, 2012
  3. To repeat our recommendations, we suggest Readers to buy (suggested price of entry is mentioned in the bracket) following stocks
  4. Ashok Leyland 26.50’ Arvind Mills Rs 81.35 or below, ADSL Rs 21.35 or 21.85, Essar oil Rs 49.85 as strong entry point, Essar Shipping (Rs 25.85 to Rs 26.35), Tata Steel Rs 410, Hindustan Copper Rs 235, LIC Housing Finance Rs 235 (strong buy), RCOm Rs 71.10 CMP, Tata Global Rs 108 , UCO Bank Rs 63.50, Rs 35.85 (even current prices RS 38.40 are also good), State Bank of India Rs 1785 to 1,835 level etc.

Special Situation:

  1. None today

Something Right, Something Wrong….

Everyday is dynamic. Some events, news or policies are right having beneficial effects on the stock, sector or economy and some are wrong hurting the same categories. These are explained briefly. For detailed view, refer to other appropriate sections for which reference is made here with a link, if possible.

  1. GARR
  2. Tax demand on Vodafone

SWAPS:(All in Rupees)

Following swaps are suggested to maximize gains on the capital. The idea is to get out of stagnating or weakening sectors into growth or strengthening sectors

SECTOR SWAP

From

 

To

 

Reason

None today. More on Monday edition.

STOCK SWAP

Following situations are suggested. The idea is to sell the overpriced stocks and switch the proceeds to underpriced stocks or those stocks which gained or regained favors of the investors. These are not necessarily long term recommendations. Read the comments with the following tables to make sure that you understand what you are going to do.

SELL

@< or >

BUY

@< or >

Reasons

Watch for our Monday edition

Kalidas One Liner

    • Good time to send dollar/pounds now for two step buying – first step now and second when the Rupee falls sharply when Vodafone is forced to pay Rs 20,000 crores.

OVER

Stock Observatory India

Ref: ISO/12/71 of 2012-05-07, Monday, India Time 10.30 am)

Overnight Events and Effects:

  1. Again rehash of same pattern. Whenever the Dollar rises, the Dow falls, Euro falls (corollary to dollar), gold and silver also fall. No significant news on US front, but when nothing is happening near home, people usually look through window to spy on neighbours what they are doing.
  2. Again Europe is on the forefront. We have mentioned before that unless European nations begin to sell off the gold already lying in FED, so that US treasury could recover its short position before anyone comes to know the truth, the pressure on Euro zone will continue. Now they give the reasons of Greece election and loss of Sarkozy’s bid for top post in France. Both are economically non event, but they are made out in the press by the interested quarters who are shorting positions to make the dollar strong, gold and silver weak.
  3. India lost heavily in last two days including today. Almost 600 points are lost in last two sessions. The reason is stated to be the FII selling but my broker came up with the statistics that FII were net buyers whereas real sellers were the domestic institutions. More under Indian stocks section

US & Asian Markets today

INDEX

7 May 2012

4 May 2012

CHANGE

COMMENTS
Dow Jones USA

13,038

13,207

-169

NASDAQ

2,958

3,024

-66

NIKKEI – Japan

9,134

9,380

 -246

Noticeably weak due to Euro
Hang Sang -HK

20,575

21,103

 -528

 as above
SENSEX – India

16,831

17,090

 -259

As above with GARR news.

* = live intra-day.

Currency:

 

Pair/Index

LATEST

4 May 2012

CHANGE

Comments

US$ Index

79.955

79.173

0.7820

Plays within a range near 80s
Euro/US$

1.2980

1.3154

-0.0174

Also plays within a range of 2%
Rs/US$

53.67

53.64

0.0300

Sharply lower due to non deliverable rupee trade off shore and MCX

Observation (Currency):

Euro was shot down as we expected last week, that the first 10 days of May will see rise in dollar, weakness in euro, gold, silver and almost all commodities. It has happened exactly same way. The US traders, mostly government sponsored or incited, are playing havoc in currency markets, and bring down the Euro so that Asian nations continue to buy dollar for their reserve requirements. They have succeeded in last 6 months, because their formula is working well so far.

Indian Rupee was sharply lower but almost stabilizing after recent fall. The trend is weak but we believe that the selling was excessive. There are no real problems in India except the simply stupid move by Finance Ministry to chase the Vodafone and Reliance for total sum of just 15,000 crores. By following such stupid policy, the government has caused market loss running into billions of dollars.

Moneycontrol reports that Foreign Direct Investment was net positive with almost $50 billion inflow into Indian market. If so much money has come to the market, why the hell the Rupee fell by almost 20% in last 9 months? The main culprit is the ” Non Deliverable Forward or NDF in Rupee traded in off shore heavens like Bermuda. MCX follows such trades to extreme. This is the exchange which should be shut down or make almost all trades on “physical delivery basis”, and impose a fine of US$ 1 billions on institutions resorting to such NDF trades to depress the Indian rupee and its economy. It should be treated as “Crime against the State punishable with death penalty” because such attack makes the life of common person very difficult. Oil prices have dropped over 5% overseas in last two days, but in India they have gone up due to weaker rupee. Unless the violators see the heavy punishment that may make them almost bankrupt or subjects its employees to face death penalty, there is not going to be end to rupee saga. These are simple administrative measures which must be taken, not the measures like GARR which have negative implications on the market and confidence.

Interest Rates (US$)

LIBOR 1M 0.23875 LIBOR 3M 0.46585 LIBOR 6M 0.7284 LIBOR 1Y 1.0472
T 1M T 3M 0.07 T 1Y 0.17 T 2Y 0.25
FED Target 0.25 T 5Y 0.75 T 10Y 1.83 T 30Y 3.03

FED is flooding the international markets with the dollars. The rates are weaker even in LIBOR market suggesting the electronic money printed by FED is now invading the London market. Even with lower rates, the housing markets are still going down in United States. Even in Aliso Viejo,Orange County where I live, the home prices are down by almost 11% over last year.

Lower rates help almost all derivative trades in currencies and commodities. The only way the next crisis may come will be from higher market interest rates. This is why we have kept this column active and follow it daily.

Commodities

Item

7 May 2012

4 May 2012

Change

7 May OI

4 May 2012 OI

Change

Oil (WTI- USA)

96.96

102.70

-5.74

256,327

262,907

-6580

Oil (Brent) …

112.07

116.19

-4.12

0

Gold …

1,639.60

1,637.40

2.20

204,475

213,202

-8727

Silver …

30.16

30.11

0.05

59,684

59,885

-201

Palladium …

647.90

662.10

-14.20

18,237

18,632

-395

Platinum …

1,517

1,538

-21.00

40,300

39,907

393

Observation (Commodities)

  1. Same pattern is seen again and again. After assuming large short position in first 5 days of this month, the commodities were pushed down in derivative markets within a space of 15 minutes in very small trades. The short interest came down so that short sellers covered their shorts to make money (they shorted 3 days ago at higher prices (gold at $1664) and recovered in less than 3 days as you can see from reduction in open interests. In short, the US government is playing dirty game by using large institutions like JPMC, Citigroup etc with full and active participation of CFTC (Commodity Future Trade Commission) and ICE (International Commodity Exchange managed by CME Group) to avoid any major delivery default.
  2. The commodities will remain weak for a few days due to settlement dates being at least 2 months away. Dollar may rule firm but there are still buyers who understand this game and take contrarian position and they also go on booking short term profits.
  3. In short, we are in very short term markets where your or my judgment will not work because we can not have real time exchange data.
  4. Gold is testing the lower level of 1635 and Silver 29.50. They are weak so any position you may take has to be short term. If you want to take long term position, then wait for a day when these commodities see sharp fall. Current level no doubt offer good entry point but again, we are in the hands of government sponsored agencies who are manipulating the markets. I am still in process of finding out what may cause the derivative trades to collapse.
  5. Higher pump prices in US forced US government agencies to use their authorized dealers to cause sharp fall in the price of oils – almost 5% in last 4 days. If US economy is improving, why should Oil prices falter – they should go up. But the dollar strength versus Euro is causing all equations to go awry.

Stocks: Our Observations and Comments

  1. They say that Pranab Mukherji could possibly become a President of India. In real sense, it is a demotion for him because he has consistently failed as Finance Minister. It is likely that Chidambaram may return to Finance Ministry which is again a demotion for him but unavoidable for Manmohan Singh. So long as we have very weak Prime Minister, we can not expect major recovery in India. There is a crisis of leadership in India.
  2. While we were expecting Indian market to put up about 1000 points after rate cut, our calculations went wrong due to political reasons such as GARR. I do not know why Pranab Mukherji is pursuing disastrous route of GARR just for sake of Rs 16,000 crores (11,000 crores from Vodafone and Rs 6500 crores from Reliance towards penalty) when right measures could help government to arrest the fall in rupee and also raise lot of revenue. If Rupee appreciates by at least 10%, the major ill effects of oil price rise will be negated.
  3. It is said that FDI was almost $50 billions in 2011-12. If that was so, why the rupee fell? If $50 billion could not impart strength to rupee, what will? Something is wrong here. I do not know why RBI is not conducting special study what causes the Rupee to go weaker when foreign inflow of dollar is still strong.?
  4. SBI is falling steeply having lost almost Rs 180 points in last two sessions alone. Banking stocks and auto stocks were major losers in India although almost all companies are still reporting better numbers in sales, may not be in profits.
  5. We see that the major fall in indices is not accompanied by rise in volume. I find the volume of almost every share at about 50% of monthly average. It means that major real sellers are absent and it will not take long before we could see major rebound in Indian equities. Still, we have to see final numbers of SBI
  6. Godrej Properties is in lime light, and it is coming up to launch 15 new projects. It is flush with the funds from Singapore and other places, so it can afford to outperform other housing companies including Tata Housing.
  7. We read somewhere today that Bangalore property prices have risen by 5% in last few months. Is it real or aberration, we do not know, but it must be said that Bangalore properties had chance to go through long period of consolidation, so it will be the first market to recover.
  8. We find the following stocks at entry level. Take some position now: They are, Allied Digital (ADSL @Rs 23.75), Ashok Leyland @Rs 28, Essar Oil @Rs 51.55, Essar Shipping @ 29.05, GSPL @Rs 64, Hindustan Copper Rs 250 (preferred price of Rs 230), IFCI Rs 37.85, IDBI Rs 93.50, LICHF Rs 250, Petronet Rs 131.25, Tata Global Rs 117, Sterlite Industries Rs 98.95 (if you have already bought some earlier, better wait until it reaches Rs 92 for best re-entry level) ONGC Rs 256 and Kingfisher Airlines at Rs 12.85 (current price Rs 13.50)

Special Situation:

  1. None today

Something Right, Something Wrong….

Everyday is dynamic. Some events, news or policies are right having beneficial effects on the stock, sector or economy and some are wrong hurting the same categories. These are explained briefly. For detailed view, refer to other appropriate sections for which reference is made here with a link, if possible.

  1. None today

 

SWAPS:(All in Rupees)

Following swaps are suggested to maximize gains on the capital. The idea is to get out of stagnating or weakening sectors into growth or strengthening sectors

SECTOR SWAP

From

 

To

 

Reason

None

 

STOCK SWAP

Following situations are suggested. The idea is to sell the overpriced stocks and switch the proceeds to underpriced stocks or those stocks which gained or regained favors of the investors. These are not necessarily long term recommendations. Read the comments with the following tables to make sure that you understand what you are going to do.

SELL

@< or >

BUY

@< or >

Reasons

None

Kalidas One Liner

    • None today

OVER

 


 

 

Stock Observatory India

Ref: ISO/12/70 of 2012-05 (May)-04, Thursday, India Time 10.30 am)

Overnight Events and Effects:

  1. One day they say that the economy is rebounding and other they say that the jobs numbers are less than expected. This has been going on for almost 15 months by now. The markets are supported by false hopes and when those hopes are not realized, they bid up the prices saying that the news were discounted.
  2. Dow Jones moderated a bit, more due to troubles in UK where the country has dipped into double dip recession, in France due to possible loss of election by incumbent Sarkozy, Euro is in trouble due to problems in Spain and Italy. China is reportedly slowing dow, Australia reported cooling off the inflation and growth, and India too is facing slow down increasingly, though not officially admitted. In short, whole world is contracting except they say only US is expanding. When the major suppliers to United States, China and Europe are facing slow down due to lack of demand, how United States is expanding, is a million dollar question.
  3. FED and US treasury believe that “convincing does not work” so “confuse the investors” . In the surfeit of news, analysis and rating going round in rapid succession, the best thing is to follow “Confusion policy”. If the people are confused, their ability to think shrinks and there will be no more political protests even if the economy slides down.
  4. We are in first week of May, so all rally due to physical delivery in commodity market ended on stronger note in April but as we correctly predicted that the first 10 days of May may show reversal of gains, and this is what happened. When the delivery date nears, the players cover their short position and when the new month begins, they depress the prices in derivative markets. You will see rise in “Open Interests” in first 10 days of beginning of new months. Oil was pushed down 3% , Gold 2% and Silver almost 5% in matter of minutes by floating all so called rosy economic scenario.
  5. There is no respite to Rupee. It has fallen to 53.64 at the time of this writing which we consider good level to remit money to India. Rupee is pushed down in “non delivery based derivatives trading in Singapore, MCX and most notably in Bermuda. They are paper trades which even RBI does not understand. If India wants to protect the Rupee, it must de-legalize the non delivery forward contracts and those who indulge in them should be fined or imprisoned. Even such offense should be made as “Crime against the State” and capital punishment be offered to violators. Unless one faces heavy monetary loss and physical loss of life, he is not going to be deterred from betting on downfall of rupee because they have nothing to deliver.
  6. So while the oil prices dropped by 3% (in manipulation), the Rupee also dropped by 3% which negated the price fall in oils. Unless Rupee goes back to Rs 45, the chances of hell breaking loose in India are more. The only sector that may benefit is Softwares and Pharmaceuticals. The government will be under pressure to remove the subsidy, but it is waiting for some stability in oil market which is not going come soon. Weaker Rupee is the biggest drag on the Indian economic growth.

US & Asian Markets today

INDEX

4 May, 2012

30 Apr 2012

CHANGE

COMMENTS
Dow Jones USA

13,207

13,228

-21

NASDAQ

3,024

3,069

-45

NIKKEI – Japan

9,380

9,521

 -141

Hang Sang -HK

21,103

20,974

 129

SENSEX – India

17,090

17,283

 -193

* = live intra-day.

Nothing significant. Almost all markets are near same level as before with India and Japan showing more decline than others.

Currency:

Pair/Index

4 May 2012

30 Apr 2012

CHANGE

Comments

US$ Index

79.173

78.721

0.4520

Euro/US$

1.3154

1.3247

-0.0093

Rs/US$

53.64

52.52

1.1200

Observation (Currency):

Beginning of month showed resumption of long position in dollars and short position in Euro and Indian Rupees. Rupee weakened over 2% – a massive move. 53.50 level we were advising to enter into rupee which we still hold good. If one wants to send the money to India, this is the better time. There is no guarantee that the Rupee may not weaken more, but there is always some time for action, and it is now to buy rupee. Weaker rupee suggest that the Interest Rates may not be cut by RBI aggressively. Even Government of India may defer the policy of decontrol of diesel prices. Weaker rupee also increased the debt exposure to corporate sector and also increases the India’s overseas debt level in rupee terms.

It is RBI who messed up with the Rupee. We have always mentioned that RBI is the most inefficient financial institution in India, and it is wrongly advising Finance Minister, Economic and Planning Commission and also Prime Minister. However, almost all – FM, PM and EPC members, are highly loyal to the notorious RBI who is playing havoc with Indian economy.

Remove almost all advisers and executives at RBI from South and replace them with the appointees from North(UP, Bihar and Gujarat) so that the rot stops at once and we have fresh perspective of the economy. However, this is not going to happen. I have worked for South based bank for 19 years, and quite familiar with how they think and act in collusion. They are well qualified academically but from experience perspective, they do not have active exposure to monetary management internationally. They know little about exchange markets.

Interest Rates (US$)

LIBOR 1M 0.23875 LIBOR 3M 0.46585 LIBOR 6M 0.7284 LIBOR 1Y 1.0472
T 1M T 3M 0.08 T 1Y 0.18 T 2Y 0.26
FED Target 0.25 T 5Y 0.82 T 10Y 1.93 T 30Y 3.12

Nothing significant on interest rate front. They are still down. They continue to support the economies and false measures of the respective governments. Unless the rates rise by at least 2%, there is not going to be any collapse of derivative empires. At the moment, we are not sure wherefrom the trigger will come from.

Commodities

Item

4 May 2012

30 Apr 2012

Change

4 May 12 OI

30 Apr 2012 OI

Change

Oil (WTI- USA)

102.70

104.80

-2.10

262,907

278,340

-15433

Oil (Brent) …

116.19

119.86

-3.67

0

Gold …

1,637.40

1,664.50

-27.10

213,202

223,516

-10314

Silver …

30.11

31.45

-1.34

59,885

59,965

-80

Palladium …

662.10

682.70

-20.60

18,632

18,980

-348

Platinum …

1,538

1,575

-37.00

39,907

38,823

1084

Observation (Commodities)

  1. Gold was suppressed, but the major loser was Platinum. At one time it overtake the gold but the Gold has proved to be Gold.
  2. Silver was pushed down in derivative trades – we mentioned it very correctly in previous reports. The US manipulators buy dollar index at the beginning of the period and then use it as instrument to weaken almost all foreign currencies, gold and other precious metals. I am still trying to figure out what will bring down the derivative empire. It is a very complex subject.

Stocks: Our Observations and Comments

  1. While index remained same as before, most of our stocks declined. There is no connect between the Index stocks and non index stocks.
  2. Our faith in Arvind was justified. It is in upward trend. We strongly suggested when it was trading below Rs 83, and now went as high as 90 only a few days back. It is still a buy but only in correction by at least 5%
  3. Ashok Leyland finally gave up the strength and moved lower to <30 which is an opportunity to buy. Not very heavy upside but gain of 15% to 20% could be expected in 6 months from current level. It is a good stock to own.
  4. Petronet LNG is now within our buying range. It is one of the strongest stock in Indian arena, and this is perhaps the good time to enter the scrip. Long time ago, we advocated this level as entry point, but the stock was always getting ahead of others, It happened finally. Take the position today at or below Rs 131 level. GSPL is also very attractive at current level, but it is a middle level of entry. Allow it to come below Rs 63 and then make an entry.
  5. Essar Oil and Essar Shipping are at ideal level of entry. Buy in small lots and buy more when the final numbers suggest the turn around in company’s fortune. The Essar Shipping is stronger than Essar Oil. Both are good at entry level.
  6. Among OMC, Hindustan Petroleum is the strongest. At the moment, we are more willing to place a bet on ONGC which may benefit hugely should decontrol of diesel prices take place.
  7. Satyam Computer will be better buy if it drops to Rs 71 or about. Weaker rupee ensures higher profits for Satyam. This stock should outperform almost every other stock in Energy space.
  8. KFA (Kingfisher Airlines) is now at Rs 13.95, close to our initial buy level. However, the stock is weak, the market is weak, so lower the target price to Rs 12 or below when one can buy.
  9. Tata Global is maintaining strong profile because Starbuck will start its operation from July onwards. This is single most stock which every investor should buy or own on long term basis.
  10. Sterlite and Sesa Goa are at attractive level but the pressure on commodities is keeping its lead. Both stocks are in “Accumulation stage”
  11. IFCI offers initial entry point. It has also maintained its dividend at Rs 1 per share or about 2.5% of current stock price.

Special Situation:

  1. None today

Something Right, Something Wrong….

Everyday is dynamic. Some events, news or policies are right having beneficial effects on the stock, sector or economy and some are wrong hurting the same categories. These are explained briefly. For detailed view, refer to other appropriate sections for which reference is made here with a link, if possible.

  1. We will fill in more during this weekend.

SWAPS:(All in Rupees)

Following swaps are suggested to maximize gains on the capital. The idea is to get out of stagnating or weakening sectors into growth or strengthening sectors

SECTOR SWAP

From

 

To

 

Reason

None

 

STOCK SWAP

Following situations are suggested. The idea is to sell the overpriced stocks and switch the proceeds to underpriced stocks or those stocks which gained or regained favors of the investors. These are not necessarily long term recommendations. Read the comments with the following tables to make sure that you understand what you are going to do.

SELL

@< or >

BUY

@< or >

Reasons

None today

Kalidas One Liner

  • None today

OVER

 


 


TO ALL READERS

Due to my internal travel, I would not be able to compile today’s edition. I have returned to the base and will publish the edition tomorrow, that is, Friday India time.

Kalidas (Author)
USA

Stock Observatory India

Ref: ISO/12/69 of 2012-04-30, Monday, India Time 11.00 am)

Overnight Events and Effects:

  1. US economy is drummed up with gains in consumer spending as indicator. US stocks goes up and down on the news from Euro front, especially after S&P downgrade of Spain by 2 notch.
  2. Rating agencies are playing havoc again. S&P downgraded Spain by 2 notch stating concern at the budget deficits and need to put in more money in banks. S&P also placed India on negative watch list expressing concern at ballooning budget deficits. However, same S&P does not express any surprise or concern at the trillions of dollars of deficits in United States, its base country. This clearly shows that the rating agencies are playing dirty games at the behest of their master sitting in FED and Treasury. They are acting as preset agenda.
  3. UK is thrown in double dip recession. HSBC, UK and Europe’s largest bank will fire 3200 employees in UK whereas NAB (National Australia Bank) will fire more than 1200 employees soon. Can you see economic recovery anywhere? How come US alone is showing economic recovery? The real reason behind US recovery is the playing with its statistics. Soon, there will be hundreds of thousands of employees who would be losing unemployment benefits and that will mean that the official numbers of unemployed will come down, which may show that the unemployment rates have gone down. In reality, the unemployment has risen, not fallen. However, none of the leading central bank in UK or Euro Zone has expressed reservation of US economic recovery. US plays smart game, and others just allow the US master to prevail upon them.
  4. Spain’s unemployment numbers have risen to 24%, and Singapore too reported rise in unemployment to 2.1%. So when almost all economies from Asia to Africa and Asia to Atlantic are contracting, how come US economy is expanding?
  5. Except for rise in fortune of technology companies, like Apple and Google, most of the manufacturing sector appear to be contracting.
  6. Nothing significant in news on India scene. The markets are where they were before. We are in middle of earning season, which is giving mixed picture. ICICI reported better numbers and improvement in Net Interest Margin. Yes bank also reported good numbers. IDBI too. In short, banking sector is reporting better numbers than expected by this author. The reason is lack of reporting of NPA in spite of rise in bad assets. Nevertheless, Indian consumers are more active in spending than anywhere else in the world.
  7. Telenor threatened to leave India if the TRAI (Telephone Regulatory Authority of India) decide to auction spectrums nearly 8 times the original price. Telenor was a major investor in India in real sense and has invested over $3 billions by now. It may post significant loss if it leaves India soon. It feels that the such huge increase in cost of the spectrum will make its operations in India as unviable. We are also worried about Vodafone who may suddenly decide to sell out its investment in India if it is forced to pay the taxes on Hutchison deal. The loss of these two major companies may make Indian telco companies much more attractive as they will gain sizable market share. Bharati Airtel, RCOM and Idea may gain significantly in their total revenue and profit therefore. RCOM is the weakest stock in major players, and we feel that in spite of

US & Asian Markets today

INDEX

30 Apr 2012

27 Apr 2012

CHANGE

COMMENTS
Dow Jones USA

13,228

13,204

24

NASDAQ

3,069

3,049

20

NIKKEI – Japan

9,521

9,596

 -75

Hang Sang -HK

20,974

20,914

 60

SENSEX – India

17,283

17,200

 83

* = live intra-day.

Currency:

Pair/Index

30 Apr 2012

27 Apr 2012

CHANGE

Comments

US$ Index

78.721

79.121

-0.4000

Euro/US$

1.3247

1.3187

0.0060

Rs/US$

52.52

52.60

-0.0800

Observation (Currency):

While US dollar is relatively weak (it was only due to Month end settlement for physical delivery), Indian rupee is more weaker due to which it is has dropped to as low as Rs 52.60. We do believe that weakness in Indian Rupee is not really called for, but the concerns at FDI, GARR and chasing of wrong guys (Vodafone) for tax collection is raising eyebrows of the the foreign investors. If the Government of India follows the right policy even from tomorrow, entire downtrend in Indian Rupee could be reversed, and entire economy could be resurrected quickly. It is not advisable to have high interest rates for too long which may swell the government deficits due to higher interest financing costs. If the interest rates come down even by 2%, it will give lot of boost to housing and other manufacturing sectors. India is badly managed economically, and that is the only reason for the present mess.

Euro strengthened near the month end in spite of Spain’s problem mainly due to physical settlement of Euro against dollars which caused rise in Euro value to 1.3247. During first week, we feel that the downtrend in dollar may be reversed, which may result in sharp correction in gold and silver prices. Look at the rise in short interest over last 4 days. This shows that the precious metals and Euro might be forced down with rise in dollar value. It is mainly a derivative and calender game.

Interest Rates (US$)

LIBOR 1M 0.23875 LIBOR 3M 0.46585 LIBOR 6M 0.7284 LIBOR 1Y 1.0472
T 1M T 3M 0.09 T 1Y 0.17 T 2Y 0.26
FED Target 0.25 T 5Y 0.83 T 10Y 1.93 T 30Y 3.12

Nothing much on interest rate front. The rates continue to trade in lower band. In spite of such low rates for over extended time, the housing markets in US, UK and Euro zone continue to suffer lack of demand. If low rates does not generate demand, what will?

Commodities

Item

30 Apr 2012

27 Apr 2012

Change

30/4/12 OI

27 Apr 2012 OI

Change

Oil (WTI- USA)

104.80

104.09

0.71

278,340

287,856

-9516

Oil (Brent) …

119.86

119.59

0.27

0

Gold …

1,664.50

1,655.60

8.90

223,516

218,865

4651

Silver …

31.45

31.08

0.37

59,965

51,500

8465

Palladium …

682.70

670.60

12.10

18,980

19,752

-772

Platinum …

1,575

1,567

8.00

38,823

38,811

12

Observation (Commodities)

  1. Except for Oil, most commodities saw rise in short interest rates suggesting that the rally in precious metals may be over in first week of May. The month end settlement caused short covering in physical markets that caused rise in the value of the commodities. It is a future derivative and calender game.
  2. Silver is shorted aggressively of late. It looks like that the major players, mainly major banks in USA (JPMC) and European major banks like HSBC may be directly involved in lowering the value of the Silver. This time around, when the silver drops by 5% or about, it may be a time to buy again. In dollar terms, Silver at 29.50 will be a good time to take some position. In India, both gold and silver prices are supported not by demand but by weaker rupee. If the dollar value goes down, but the rupee value goes up (that is Rupee is weakened), the net effect is neutral.

Stocks: Our Observations and Comments

  1. ICICI Bank and reported good numbers. The performance of IDBI Bank was not bad either. We believe that it is time to buy IDBI bank on any weakness. The finance sector is not as bad as we had thought. However, we will wait for full spectrum of banks to report their numbers before recommending buy. At the moment, we advise Readers not to sell banking stocks for the time being.
  2. HPCL has reported completion of major refinery in colloboration with L N Mittal recently. The profitability of HPCL may improve due to in house sourcing of its needs. With diesel decontrol looming, and more production capacity now available, most of the downside for almost all OMC, especially HPCL, is now nearly over. We may expect liberal dividend later. We believe that HPCL at slightly higher price of Rs 300 is a good buy.
  3. Essar Oil reported that its margin may rise by USD 5 per barrels after recent completion of expansion. It expects rise in revenue in 2013 by 35%, which is a tremendous improvement. Due to conversion of FCCB, the promoters’ holding has risen to 90% as against maximum 75% allowed to maintain listing status. The CEO has mentioned that its performance over next two quarters will show major improvement (as expected by this author almost 6 months ago) and it will be a good idea to sell the 15% stock at better price after about 2 quarters. In other words, there is every likely hood that the stock price of Essar Oil may rise significantly over next 6 months. While we rate the stock as strong buy, we will wait for final result and report of last quarter to back up our assessment. We do not advise selling, but will certainly buy more if the present stock price is at about 20% cheaper than the Readers’ original entry price. Our target of Rs 120 in next 6 month remain same, and for full year target will be over Rs 160 against present stock price of Rs 54.50
  4. Arvind Mills is on the move today which was suggested by us earlier. Buy this stock on any correction. The stock is likely to enter bullish face very soon. Even present stock price of Rs 87 is attractive but we will buy in correction due to uncertain market conditions almost every where.
  5. GSPL is at very attractive price and at Rs 67, it is at middle price. We suggest buying it now some (say 40% of intended purchase) and more if it comes down to Rs 63 or below.
  6. Petronet is relatively weaker. While the current price of Rs 139 is very attractive, the present weakness of the stock make us wait for some more time to buy the stock in any weakness. Even at current price of Rs 139, it offers an excellent entry price. It is still one of the strongest growth company on Indian Stock Market. It is a strong buy.
  7. RCOM is sitting at very attractive price level. It is at good entry level pricing. The Government of India is not going to refuse TRAI recommendation which may cause Telenor to leave the country. RCOM could therefore gain more market share due to default of Telenor. Buy some now.
  8. UCO Bank is sitting at good price level (Rs 77.50) to enter. Buy it.
  9. LIC Housing Finance: Accumulate it aggressively.
  10. Gujarat Ambuja Cement: Good to buy some now. It is one of the strongest cement stock. However, with monsoon season lurking ahead, the seasonal demand for cement may be lower in June-September quarter. Focus on this stock to buy it during monsoon season.
  11. Sterlite Sesa Goa: Good to accumulate at current level (Rs 106.75) Sesa Goa reported good numbers of late. The merged company should report good numbers in future.

Special Situation:

  1. None today

Something Right, Something Wrong….

Everyday is dynamic. Some events, news or policies are right having beneficial effects on the stock, sector or economy and some are wrong hurting the same categories. These are explained briefly. For detailed view, refer to other appropriate sections for which reference is made here with a link, if possible.

  1. GARR is strongly negative for India
  2. MOF should retract the ominous tax act retrospectively implemented almost 50 years back. It is strongly negative.

SWAPS:(All in Rupees)

Following swaps are suggested to maximize gains on the capital. The idea is to get out of stagnating or weakening sectors into growth or strengthening sectors

SECTOR SWAP

From

 

To

 

Reason

STOCK SWAP

Following situations are suggested. The idea is to sell the overpriced stocks and switch the proceeds to underpriced stocks or those stocks which gained or regained favors of the investors. These are not necessarily long term recommendations. Read the comments with the following tables to make sure that you understand what you are going to do.

SELL

@< or >

BUY

@< or >

Reasons

Spicejet CMP (30) Kingfisher CMP (15.50) Value and speculative expection

Kalidas One Liner

  • Over

 


Stock Observatory India

Ref: ISO/12/68 of 2012-04-27, Friday, India Time 10.30 am)

Overnight Events and Effects:

  1. Dow rosé by more than 200 points, allaying the troubles in Europe, after so called better than Housing data and unemployment figures. Fed is also revising the growth numbers upwards and unemployment data. In Orange County, where I live in California, the latest news is that more than 92000 people will be removed from the list of unemployed and would lose their allowance under extended scheme. The effective date is May 12, 2012. It also applies for the rest of the country. So, when the job numbers are reported next month, do not be surprised if they show rise in employment. However, the risk of riots will increase if the congress does not extend the unemployment benefits.
  2. They say that housing numbers were better than expected. I understand from various press reports locally that many banks have postponed the foreclosure under Fed pressure. As such, the housing numbers look better. That is, we are in the middle of managed economic numbers, almost everywhere, with US being the leader.
  3. While they report that economy is on rebound, the UPS, the largest courier company reported weaker numbers. So, when the online sales are out pacing the physical sales, UPS the main transporter reports weaker business. Since their numbers can not be manipulated, it means that the economy is shrinking, not rising as reported.
  4. UK also reported sliding into recession. The British Government is generally fair and square who do not resort to manipulation of numbers. When Europe, UK, Japan are under official recession, and China does not lag behind (where recession is called Slowdown), there is no way that United States could show upward growth. No Way. We have to see what finally triggers the events in United States that would bring to an end the game of manipulation of economic numbers.
  5. Except for Apple. Google, Amazone in United States and Samsung, most tech companies are taking back seats. Tech sector is the only sector that is improving with improvement in technology. Mobile phones and Tablet pcs are the leaders.
  6. In India, S&P lowered the investment rating of the country. S&P also lowered the rating of Spain as well, but it will not reduce the outlook of United States. It bothers about budget deficits in practically every country, but for them and Moody’s the trillions of dollars of deficits in United States is a non event. These rating agencies always have hidden agenda. They are the tools used by Fed and US treasury to manipulate the financial markets.
  7. India is under increasing pressure to dilute the GAAR norms. I do not know what is forcing the Finance Ministry to go after GAAR when the easy solution for them is to withdraw almost hundred thousand of crores of subsidies. If they do that, the budget deficits may turn out to be budget surplus, strengthen the rupee, reduce the inflation and also eventually reduce the interest rates. In fact, india can afford to lower the tax rates by at least 3% to start with. Only one action on subsidy front will result in jump starting of economy and resumption of growth at the fastest pace. But nay, the dump peoples in Finance Ministry are ruling our monetary policies.
  8. As result of downgrade, higher taxes and implementation of tax demand even after Supreme court ruling, the picture of Indian economy is turning from bad to worse. Lower growth means less revenues or taxes for the government which again increases the deficits, inflation and interest rates. India is the only country in the world which is totally mismanaged. I can say that Kingfisher Airline handles its problems better than the Finance Ministry.

US & Asian Markets today

INDEX

27 Apr 2012

23 Apr 2012

CHANGE

COMMENTS
Dow Jones USA

13,204

13,029

175

NASDAQ

3,049

3,000

49

NIKKEI – Japan

9,596

9,557

 39

Hang Sang -HK

20,914

20,840

 74

SENSEX – India

17,200

17,373

 -173

* = live intra-day.

Except for Apple and Google, the rest of economy is decelerating in United States, and yet the market is moving higher.

Currency:

Pair/Index

27 Apr 2012

23 Apr 2012

CHANGE

Comments

US$ Index

79.121

79.286

-0.1650

Euro/US$

1.3187

1.3189

-0.0002

Rs/US$

52.60

52.02

0.5800

Observation (Currency):

Despite pressure on Euro zone, Euro is relatively stable and Indian rupee is weakening day after day. The Tax related norms being insisted on by the Government of India is acting as a disincentive for FII to remain invested in India. If Vodafone is forced to pay the tax, for the income they never made, the FDI flow will be severely affected.

Interest Rates (US$)

 

LIBOR 1M 0.23975 LIBOR 3M 0.46615 LIBOR 6M 0.7319 LIBOR 1Y 1.0487
T 1M T 3M 0.09 T 1Y 0.16 T 2Y 0.25
FED Target 0.25 T 5Y 0.79 T 10Y 1.90 T 30Y 3.08

No change in interest rates front.

Commodities

Item

27 Apr 2012

23 Apr 2012

Change

Current OI

23 Apr 2012 OI

Change

Oil (WTI- USA)

104.09

103.87

0.22

287,856

287856

Oil (Brent) …

119.59

118.00

1.59

0

Gold …

1,655.60

1,643.00

12.60

218,865

228,867

-10002

Silver …

31.08

31.65

-0.57

51,500

43,777

7723

Palladium …

670.60

675.80

-5.20

19,752

20,683

-931

Platinum …

1,567

1,578

-11.00

38,811

38,777

34

Observation (Commodities)

  1. While Oil is moving independently due to physical demand, which make the paper derivative trades less important, rest of commodities are showing softness. The Gold is bouncing back on every fall but it is nevertheless weak. The most weakest candidate is Silver where the short interest has risen by 7700 contracts or by 18% in last 4 days. It is likely that Silver may be hammered down again soon. That will be the time to pick up the Silver. While many will say that Silver and Gold may test the bear market soon on technical ground., there is no argument. In India, the only thing that support the prices is the weaker rupee. Otherwise, Silver would have been trading at about Rs 43,000. Be careful while dealing in Silver because the storm is developing in the epicenter United States.

 

Stocks: Our Observations and Comments

    1. While the indexes are near same level, the Stocks are still losing momentum. Most stocks are losing money. RCOM has corrected by over Rs. 10 in last few sessions. Looks like that the company is facing debt financing problems and cost of financing pressure. Watch this stock – although it is risky stock, it is coming closer to become attractive buy.
    2. Arvind is firm. Buy some
    3. Ashok Leyland is breaking out on top. It is entering new trading range on the upside.
    4. Oil and gas stocks are weaker. Our favorite Essar Oil is also weaker.
    5. Petronet is finally coming closure to our Buy level. This stock was advised originally to buy at Rs 121 but it was consistently trading over Rs 160 level. I have to evaluate this counter again due to change in gas related policy. I will cover this stock this Sunday
    6. ITC has risen by 25% in last two months. It is now overpriced now. So it is time to take profit mildly.
    7. Almost all our favorites are weaker. We will cover them all in Monday edition.

 

Special Situation:

  1. None today

Something Right, Something Wrong….

Everyday is dynamic. Some events, news or policies are right having beneficial effects on the stock, sector or economy and some are wrong hurting the same categories. These are explained briefly. For detailed view, refer to other appropriate sections for which reference is made here with a link, if possible.

  1. None today

 

SWAPS:(All in Rupees)

Following swaps are suggested to maximize gains on the capital. The idea is to get out of stagnating or weakening sectors into growth or strengthening sectors

SECTOR SWAP

From

 

To

 

Reason

None today

 

STOCK SWAP

Following situations are suggested. The idea is to sell the overpriced stocks and switch the proceeds to underpriced stocks or those stocks which gained or regained favors of the investors. These are not necessarily long term recommendations. Read the comments with the following tables to make sure that you understand what you are going to do.

SELL

@< or >

BUY

@< or >

Reasons

None today

Kalidas One Liner

    • None today. Wait for our Monday edition.

 


OVER

 


 

 

Attention All Readers

Due to sudden demise of one of my closest family members (Selarka family) in Hong Kong, I am unable to post the scheduled Stock Observatory column today. I am also unable to post replies to the readers in Confused Mind Clear Answers column for the last few days.

The Stock Observatory column will however appear tomorrow. I will also clear all pending replies to the Readers tomorrow. Kindly excuse me for some delay.

Anil Selarka (Kalidas), the Author
April 25, 2012  US Time
USA

Stock Observatory India

Ref: ISO/12/67 of 2012-04-23 Monday, India Time 9.30 am)

Overnight Events and Effects:

  1. Latest figures show that the consumer spending rosé in US and that paced the recovery with GDP projected to rise at the pace of 2.5%. US economy is mainly measured by the spending by the consumers, whether those savings are from debt or own savings, does not matter. When I read the latest news in our local daily yesterday, I learnt that most banks have deferred the mortgage foreclosure, obviously due to pressure from FED, to paint rosy picture on the housing front. The prices are still declining in most metropolitan areas in United States.
  2. Again Europe is in the picture. Spain is the nodal point. IMF agreed to enlarge the funds by $430 billions, mostly from G20 nations. Only UK and Australia have pledged some support. Most of emerging countries are silent, so also major FOREX holders like China. US has not pledged any support, and in fact exhorted Europe naming it as relatively richer region to contribute more. So, Europe has to pledge more to help themselves. In other words, one hand gives away, other takes them away. No one knows what is really going on. In any case, so much of money printed will find its way into IMF, so excess liquidity from US gets transferred to Europe.
  3. French electoral result should be out soon, so we may have to wait for a couple of days more. This is the first round of the Election. The real election will take place on May 6. Almost all analysts at the instance of vested interests, have been naming one after the other nation in Europe as potential trouble spot. They are now talking about Spain and Italy, and then god knows who next will be. Whatever said and done, US has been able to deflect all its troubles overseas, mainly in Europe and UK. It can not afford to antagonize the UK but nothing wrong in wrecking Europeans whose Euro is the major alternative to dollar supremacy.
  4. While they say that US economy is improving, with consumer spending on rise, the reports contradictorily suggest that China is slowing and its imports are falling more than expected. So if China is not supplying to increased demand of consumers in US, Europeans are slowing down, Japan is not supplying any more, who else is supplying them when even domestic production is not enough to offset China? Either China figures are wrong or drum beating of US economy recovering are wrong. In short, most of the news of late from every governmental source are confusing and no longer reliable. The markets however, read the figures as they are, so the markets the world over are getting supported by lower interest rates.
  5. In India, Government finally permitted the 3 Airlines to import ATF directly. The news is still sketchy. The reports suggest that the domestic airlines are negotiating with the Oil Marketing companies in this regard. What they have to negotiate if they were to import ATF directly. Further, the mere getting permission is not enough. It is a common knowledge that most airlines in India are not able to pay even wages to their employees. In that case, which major supplier in Middle East will agree to supply ATF directly to domestic airlines? When they were supplying to OMC, they were sure that they were dealing with the government of India indirectly and that GOI will stand guarantee their obligations. NOW, that guarantee will no longer be available. Their trading risk increases, so they will demand tougher payment terms or even advance payment of the imports. So, while the news on the face of it appear bullish for the domestic airlines, which has recently caused hefty rise in their stock prices, in reality they are bad news. We will know that within 30 days that major oil suppliers are not willing to supply ATF to Jet, Spicejet, Kingfisher and also Air India (which has not received the approval as yet because no one will supply them ATF in its own name). Except for Kingfisher, we would sell rest of the airline stocks for the time being. The real effect of the news is negative.

US & Asian Markets today

INDEX

23 Apr 2012

19 Apr 2012

CHANGE

COMMENTS
Dow Jones USA

13,029

13,033

-4

NASDAQ

3,000

3,032

-32

NIKKEI – Japan

9,557

9,612

 -55

Hang Sang -HK

20,840

20,860

 -20

SENSEX – India

17,373

17,395

 -22

* = live intra-day.

Nothing significant in above numbers. The markets are where they were 4 days ago. They go up one day and down on following day. The net level remain same. It is difficult to make money in such scenario.

Currency:

Pair/Index

23 Apr 2012

19 Apr 2012

CHANGE

Comments

US$ Index

79.286

79.592

-0.3060

Euro/US$

1.3189

1.3119

0.0070

Rs/US$

52.02

51.92

0.1000

Observation (Currency):

While Euro gained due to G20 pledge of $450 billions for Europe, no one knows where the money will come from. When the rich nations are not willing donors, who will be supplying so much of funds to IMF?

 

As result, the Dollar is gaining slightly which makes commodity prices, including Gold and Silver weaker. Since Rupee is trading weaker at lower bands, the gold and silver prices are getting supported in India. Since most currencies are relatively weaker against US dollars, the gold and silver prices in their respective countries are supported in their local currencies, same way it is happening in India.

 

Gold, Silver and Palladium are the place to go for investment, little by little. One can also buy Platinum as hedge, but we do not believe in such hedge strategy. What is the point of making money at one place and losing at other? There is no net gain in following hedging strategy.

 

No end in sight for Rupee to get firmer. However, lower interest rates may help the Indian stocks to become firmer, but profit taking in bonds by FII will make them leave the Indian scene. They will not invest as much money in equity as they are investing in bonds.

Interest Rates (US$)

LIBOR 1M 0.23975 LIBOR 3M 0.46615 LIBOR 6M 0.7319 LIBOR 1Y 1.0487
T 1M T 3M 0.07 T 1Y 0.16 T 2Y 0.26
FED Target 0.25 T 5Y 0.84 T 10Y 1.96 T 30Y 3.12

The interest rates are stable to weaker, which supports the equity prices in US. All eyes are on Corporate earnings especially Apple.

Commodities

Item

23 Apr 2012

19 Apr 2012

Change

Current OI

19/04/12 OI

Change

Oil (WTI- USA)

103.10

-103.10

273,436

-273436

Oil (Brent) …

117.93

-117.93

0

Gold …

1,643.00

1,641.80

1.20

228,867

223,690

5177

Silver …

31.65

31.54

0.11

43,777

40,337

3440

Palladium …

675.80

659.25

16.55

20,683

20,735

-52

Platinum …

1,578

1,584

-6.00

38,777

38,693

84

Observation (Commodities)

  1. Only Palladium is strong (as we observed in previous report). Gold is weaker too with short position increasing, suggesting there may be some sharp fall soon. Silver is more stable than gold but that too is shorted aggressively. In short, Gold and Silver in $ terms are weaker but in local terms they are maintaining their level.

Stocks: Our Observations and Comments

  1. We have to wait for the last Quarter’s result and also Annual result for most key corporate.
  2. Ashok Leyland : We see strong volume growth in this counter. We did suggest to buy this stock on any correction. While the Auto Industry’s fundamentals are not as strong, the recent lower interest rates may spur some buying on this counter. The latest available quarterly numbers were not so encouraging, yet this counter still shows strength. We will nevertheless buy some shares now, but more strongly only when the stock falls below Rs 26.50 or about
  3. Kingfisher is better buy than others at the moment in same sector. We get the impression that something is happening in this company for which positive announcement may be forthcoming soon. It is still a risky share, but worth assuming some risk.
  4. Allied Digital Services: The stock corrected almost 10% from recent high, but the rise was too rapid. While its sales were down in previous quarter by about 8%, the profits remain almost same, and for last 9 months, the EPS grew to Rs 3.33 (9 months). The Net profit for whole year may work out to Rs 4.25 or about. The stock is therefore trading at near 7 times P/E. We believe that most downside is over for this stock, and with market appearing firmer due to rate cut, we would hold on to this stock until final result is out
  5. IFCI: We did suggest buying this counter at Rs 41+ a few days ago. It is now at Rs 43.55. Its final numbers were good. Its EPS being at Rs 9+, it is one of the cheapest and safest Finance shares. One may buy it in any correction and if you are holding for long, better enjoy the ride. We are still favour this stock as Buy.
  6. Reliance surprised us by reporting better numbers. Its sales were not affected by closure of its refinery, which is bit strange. We would remove this stock from our caution list and place it back on Buy list. One need not sell this stock now for the time being.
  7. Essar Oil and Essar Shipping: We await their final numbers and also their interim. At the moment, Essar Shipping is more firmer than Essar Oil which is buffeted by lot of negative news, publicity and comments.
  8. Mahindra Satyam: Maintaining good strength. In spite of latest claim by one fund, which may take long time for adjudication, it is worth holding, and even buying more of this stock. With Rupee going down, its earning more dollar denominated, interest rates lower and merger process being cleared on most fronts, this is the stock we will own more. One may limit his investment budget to 8% of total investment, and not over 10,000 shares at the most at current value. Its future business look better after consolidation.
  9. PFS: Gets firmer after every fall, which suggesting that some one is accumulating this stock very well. It is worth buying below Rs 18. However, the volume being small, we will prefer to add more in correction. The upper target is around Rs 25.50. The downside is limited to Rs 15.85 at the moment.
  10. Arvind Mills: Buy this stock with upward target at Rs 108. It has very limited downside.
  11. Ambuja Cements: In spite of weaker infrastructure, this company is showing tremendous improvement in sales. Its revenue has risen more than 20% and it is almost a debt free company. Not very cheap share, but it is not expensive either. We are buyer of this stock in any market correction that may drag down this stock to Rs 148 region. Even now, it is a good to add some position. Upward target is Rs 210.
  12. Tata Global Beverage: It is getting lot of strength of late. It will be one of the very good share in consumer goods sector. It will add lot of more earnings when its Starbuck venture goes into stream after June 2012.
  13. Sterlite Industries: At Rs 108, it is a safer bet to enter and reap lots of profits in next 6 months or so. It is good level to make an entry with upside judged at Rs 142 in short term and Rs 180 in 12 months time.

Special Situation:

  1. None

Something Right, Something Wrong….

Everyday is dynamic. Some events, news or policies are right having beneficial effects on the stock, sector or economy and some are wrong hurting the same categories. These are explained briefly. For detailed view, refer to other appropriate sections for which reference is made here with a link, if possible.

  1. No comments today

SWAPS:(All in Rupees)

Following swaps are suggested to maximize gains on the capital. The idea is to get out of stagnating or weakening sectors into growth or strengthening sectors

SECTOR SWAP

From

 

To

 

Reason

None. Stay where you are for a few more days

 

STOCK SWAP

Following situations are suggested. The idea is to sell the overpriced stocks and switch the proceeds to underpriced stocks or those stocks which gained or regained favors of the investors. These are not necessarily long term recommendations. Read the comments with the following tables to make sure that you understand what you are going to do.

SELL

@< or >

BUY

@< or >

Reasons

None today

Kalidas One Liner

    • None today

OVER


 


 

 

Stock Observatory India

Ref: ISO/12/66 of 2012-04-19, Thursday, India Time 10.30 am)

Overnight Events and Effects:

  1. Dow up in last 3 days. The earnings optimism faded after relatively poor show by Intel and IBM who were hurt by one of their major markets – Europe. Housing start and Factory production also declined. All in all, the Dow is gaining at the expense of Europe and London. The only strength in US economy is in tech sector, which rosé due to the stupendous rise in sales by Apple and positive outlook of Googles. Online sales are rising in US, suggesting good show later by UPS, FEDEX, DHL and TNT (bid by UPS recently). We can only say that the US economy is still mired in recession, and it is just talked up by the brokers to protect their business.
  2. Warren Buffet has admitted to have cancer but not so serious enough. However, cancer is a cancer who does not spare anybody including Buffet. He must have been knowing this disease for quite some time due to which he was keen to chose the heir apparent for his empire. It has become a reality now.
  3. China is bent on lowering CRR ratio. RBI of India lowered the rates by 0.5% (as expected and commented by us as early on 16/4 – read our previous reports). It was good to know that RBI lowered the interest rates. It has caused rise in Bond prices which encouraged FII to sell the bonds to take profit with the result that Rupee lost to become 51.925, lowest in recent months.
  4. Spain is again in the news. Its bad loans are rising, and its yield has risen to 5.82%. highest in recent months. Nevertheless, Euro and GBP rosé by nearly 0.5%, which is not very significant movements. The trend is still not clear.

 

US & Asian Markets today

INDEX

CURRENT

16 Apr 2012

CHANGE

COMMENTS
Dow Jones USA

13,033

12,860

173

NASDAQ

3,032

3,011

21

NIKKEI – Japan

9,612

9,499

 113

Hang Sang -HK

20,860

20,558

 302

SENSEX – India

17,395

17,094

 301

* = live intra-day.

US markets are affected by lower earnings from bell weather companies like Intel and IBM. While loss in Intel was expected due to higher market share by Apple of late, the loss by IBM was unexpected. Their losses were due to poor markets in Europe.

 

Hong Kong property stocks are under pressure, after new Chief Executive designate indicated that he would be willing to make available more lands to help the urban consumers. The ultra low interest rates are still keeping the property market stable and also inflow of funds from China.

 

In India, the rate cut will come as relief to many developers. However, whether one time rate cut to help the government will be sustained or not due to consistently higher inflation, high oil prices and weaker rupee. Housing Finance stocks like LICHF, HDFC and GICHF may gain, so also other Housing Finance companies. Will the property come down as predicted by us in last October? We still believe so, though some factors are going against our assessments. We would still wait for final result of many developers and will wait until Mid May, 2012 to gauge the final effects.

Currency:

Pair/Index

LATEST

16 Apr 2012

CHANGE

Comments

US$ Index

79.592

80.094

-0.5020

Euro/US$

1.3119

1.3024

0.0095

Rs/US$

51.92

51.66

0.2600

Observation (Currency):

Europe is vacillating in narrow range, and Indian Rupee is distinctly weaker. High inflation, lower exchange rates, does require higher rates but the RBI action is more politically motivated than financial priorities.

 

Interest Rates (US$)

LIBOR 1M 0.23975 LIBOR 3M 0.46615 LIBOR 6M 0.7319 LIBOR 1Y 1.0487
T 1M T 3M 0.07 T 1Y 0.16 T 2Y 0.27
FED Target 0.25 T 5Y 0.84 T 10Y 1.98 T 30Y 3.13

Not much change on Interest rate front.

Commodities

Item

Latest

16 Apr 2012

Change

Current OI

16 Apr 2012 OI

Change

Oil (WTI- USA)

103.10

102.58

0.52

273,436

260,120

13316

Oil (Brent) …

117.93

120.07

-2.14

0

Gold …

1,641.80

1650.2

-8.40

223,690

229,188

-5498

Silver …

31.54

31.33

0.21

40,337

42,433

-2096

Palladium …

659.25

645.20

14.05

20,735

20,549

186

Platinum …

1,584

1,572

12.00

38,693

38,093

600

Observation (Commodities)

  1. The gas (oil or petrol) prices in US gas stations (Petrol Pumps) are heading higher and higher and there is no respite. It looks like that some short sellers are finding difficult to force down the oil prices. Oil prices is the only sector which behaves sanely of late. Other commodities are governed by pro active paper trading.
  2. Palladium was the only commodity which showed real strength in prices. Both Gold and Silver prices are very attractive to make another buy.

Stocks: Our Observations and Comments

  1. Indian stocks have gained due to surprise rate cuts, in fact the magnitude of cuts by 0.5% against market expectation of 0.25%. It looks like that the Indian stocks will remain supported in near future, but too much gains not expected, as everyone believes that           RBI actions were politically motivated rather than economic fundamentals. Nevertheless, Subba Rao finally picked up the courage and lowered the rates as expected by us in last report of 16 April 2012
  2. We believe that the market may remain range bound to 17,200 to 18,200 level. It is still a trading market. Lower rates may help Auto industry, Cements, Steel and some commodities. The market may advance by another 800 points in next 30 days.
  3. The rate cut if sustained will have beneficial effect, however it is too early to say whether the rates may stick. Nevertheless the Bond Market might outperform the equity markets.
  4. We are entering the “Earning Reporting” session. While corporate profits may slow, the effects on markets may be buffeted due to rate cut of 0.5%. The monsoon is only months away which makes the inflation lower to stable to help the market move forward. Except for weaker rupee, other market moving factors are positive. Stay with the market and may be one can increase the investment budget to take advantage of better market scenario.
  5. It is time to lower the investment in defensive stocks slightly and go for some metal stocks like Copper, Aluminum and Steel. Lower rupee acts as spur to these sectors even if the commodity prices in dollar terms are weaker.

Special Situation:

  1. Rate sensitive sectors such as Banks, Finance companies, Real Estates and Auto sectors may perform better. Banks, finance companies and auto sector may outperform others.
  2. RCOM appear to be well priced. It has consolidated at lower level for long, and lower rates may help it on its massive debt. Even 0.5% reduction may help it lower interest burden on Rs 30,000 crore debt by Rs 150 crores.
  3. KFA is showing real strength. We must expect good news soon as soon as Finance Ministry clears the aviation related policies.
  4. Arvind Mill is strategically a good buy, so also some auto stocks like Tata Motors and AshoK Leylands.
  5. Among bank stocks, SBI may gain but the main obstacle is the annual result which may disclose higher provisions. Nevertheless, IFCI, IDBI Bank, Bank of Baroda and SBI may perform better and some trading positions are suggested.
  6. Oil stocks may under perform. Do not buy more for the time being. Instead, trust some leading cement stocks like Ambuja Cements.
  7. Steel stocks may perform better. Stocks like Sterlite, Hindalco are safer bets though. Do not expect more than 10% gain from current level. So take profits in them as soon as the stocks rise by 10 to 12.5% in next few sessions.
  8. Overall the market risk is reduced and it is the earnings that may determine the future direction of the market.

Something Right, Something Wrong….

Everyday is dynamic. Some events, news or policies are right having beneficial effects on the stock, sector or economy and some are wrong hurting the same categories. These are explained briefly. For detailed view, refer to other appropriate sections for which reference is made here with a link, if possible.

  1. RBI’s rate cut was a good move and in right direction.
  2. However, it is the turn of the Finance Ministry to do something soon as follow up measure by reducing Income Tax related raids and treating tax payers like criminals. The government has to trust the business sector more and nothing will be lost in trusting them more at current stage.
  3. The government should abandon its efforts to force Vodafone to pay the tax after the bill is passed by the parliament. This is the most important inhibiting factor from investment angle.
  4. The government should reduce the Income Tax by at least 3% in apparent gesture that may benefit the government itself by enabling it to divest successfully this year. Any loss in revenue will be more than compensated by the return on divestments and more confidence in corporate sector. Lower rates and lower taxes may encourage the corporate sector to raise its earning profiles. The opportunity is still out there, and the time is the most opportune. If the government misses this timing, it will hurt the market badly.

SWAPS:(All in Rupees)

Following swaps are suggested to maximize gains on the capital. The idea is to get out of stagnating or weakening sectors into growth or strengthening sectors

SECTOR SWAP

From

 

To

 

Reason

STOP selling. Ride the rally for the time being

 

STOCK SWAP

Following situations are suggested. The idea is to sell the overpriced stocks and switch the proceeds to underpriced stocks or those stocks which gained or regained favors of the investors. These are not necessarily long term recommendations. Read the comments with the following tables to make sure that you understand what you are going to do.

SELL

@< or >

BUY

@< or >

Reasons

Enjoy the rides in most sectors.

Kalidas One Liner

  • None today.

OVER

 

Stock Observatory India

Ref: ISO/12/65 of 2012-04-16, Monday, India Time 10.30 am)

Overnight Events and Effects:

  1. Spain troubles are still lingering in the market. The pressure on Euro is unabated, and the first round of battle between Euro and dollar is won by Dollar. The Europeans are just naive enough not to understand who is the real troubleshooter.
  2. Dow Jones is not able to maintain the level of 13,000. It is vacillating between 12800 to 13200 for some time now. While the unemployment is shown to be falling, the real reason is the way the unemployment figures are being reported. Orange County register, a leading daily of Orange County California where I am living at the moment, reported that the numbers of unemployed persons are excluded if they stopped looking for the jobs (because they are not getting any response). Thus, the real unemployment is much higher than reported by the statistics published by the Labour Department.
  3. Almost all countries are resorting to fraudulent compilation of the statistics to boost the hope of declining economy. Only other day, the Finance Ministry in India admitted having overestimated the IIP data to over 6% against actual of just 1.1% to show that the economy is really expanding whereas the facts are otherwise. They are resorting to these measures because they feel that the whole world is doing the same thing. One wrong does not make other wrong right, but they feel that when every country is resorting to wrong numbers, nothing wrong in joining them.
  4. RBI’s Subbarao met the Prime Minister and Finance Minister ahead of policy declaration tomorrow. The OMC declared lower ATF prices for Airlines, which tend to show that the RBI may lower the interest rates tomorrow to boost the confidence in the economy and to boost the GDP. While they say that GDP is rising even at 6.9%, the facts are otherwise. IIP number would not have slumped to 1.1% from over 6% if the economy was really advancing. In all probability, the GDP growth in India has come down to less than 4.5% or even 4% which was forecast by us as early as in last October 2011 when we gave the sale call that India’s GDP may decline to less than 4%. We are on track, and actual numbers will be known when finalized numbers of GDP become known at the end of this month.
  5. Infosys numbers were not appreciated by the market, although there is real growth in the company’s business. Most analysts predict slow down in sales and also contraction in margin by at least 2% from current 29% enjoyed by Infosys. There is no doubt that the revenue, profit, employees and clients have risen in last 12 months. A company can not satisfy the overbullish analysts. After all, who knows the business of the company most – the analysts or the company management itself. In any case, Infosys was relatively expensive stock and present sharp correction may offer buy opportunity. Nevertheless, we still believe that TCS and Satyam are better choice than Infosys but some position in Infosys is recommended despite higher valuations. Bearish market always beat down even slightest disappointment of any company.

US & Asian Markets today

INDEX

16 Apr 2012

12 Apr 2012

CHANGE

COMMENTS
Dow Jones USA

12,860

12,805

55

NASDAQ

3,011

3,016

-5

NIKKEI – Japan

9,499

9,471

 28

Hang Sang -HK

20,558

20,180

 378

SENSEX – India

17,094

17,199

 -105

* = live intra-day.

Currency:

Pair/Index

16 Apr 2012

12 Apr 2012

CHANGE

Comments

US$ Index

80.094

79.641

0.4530

Euro/US$

1.3024

1.3132

-0.0108

Rs/US$

51.66

51.34

0.3200

Observation (Currency):

Dollar is maintaining strength due to problems with Spanish yield. Unless the Euro backs to 1.35 level, the pressure on Euro will continue. Rupee is weaker and getting weaker day by day. It does look like that it may break the critical support and may head to 53.50 level. The current weakness is due to multiple reasons – one real strength in dollar due to weakness of spanish bonds and another, real slowdown of Indian economy. The FII are really losing interest in Indian market. They invest more in debt market rather than equity market due to yield

Interest Rates (US$)

LIBOR 1M 0.23795 LIBOR 3M 0.46615 LIBOR 6M 0.7319 LIBOR 1Y 1.0487
T 1M T 3M 0.08 T 1Y 0.17 T 2Y 0.27
FED Target 0.25 T 5Y 0.84 T 10Y 1.98 T 30Y 3.13

The trend in US for interest rates is still lower, after showing bouts of increases of late. This situation may continue for some more time, but we still believe that the time is coming soon that interest rates the world over may begin to rise after 4 years of hiatus.

Commodities

Item

16 Apr 12

12 Apr 2012

Change

Current OI

12 Apr 12 OI

Change

Oil (WTI- USA)

102.58

102.59

-0.01

260,120

NA

260120

Oil (Brent) …

120.07

120.32

-0.25

0

Gold …

1650.2

1659.5

-9.30

229,188

232,444

-3256

Silver …

31.33

31.58

-0.25

42,433

46,084

-3651

Palladium …

645.20

638.85

6.35

20,549

20,196

353

Platinum …

1,572

1,591

-19.00

38,093

38,035

58

Observation (Commodities)

  1. Same old game. The commodity prices are being hammered down in short spell of just 10 minutes as usual. The paper game is very active in US. The real spot markets are different than the future prices. How long this will last, we can not anticipate now.

Stocks: Our Observations and Comments

  1. RBI may cut rates by 0.25% to 0.50% in tomorrow’s announcement. This feeling is stemmed from recent meeting between RBI Governor and PM/FM only on Saturday. He is under pressure to cut the rates or he will be replaced, appears to be the message of the Finance Minister to the RBI Chief. For once, we may agree with the FM even if he is wrong. The real actions lie with the Finance Minister but he is not showing any promise or remorse for virtually killing the economy with wrong actions and hard handed approach by the Income Tax department on corporate sector.

Special Situation:

  1. None today

Something Right, Something Wrong….

Everyday is dynamic. Some events, news or policies are right having beneficial effects on the stock, sector or economy and some are wrong hurting the same categories. These are explained briefly. For detailed view, refer to other appropriate sections for which reference is made here with a link, if possible.

  1. None today

SWAPS:(All in Rupees)

Following swaps are suggested to maximize gains on the capital. The idea is to get out of stagnating or weakening sectors into growth or strengthening sectors

SECTOR SWAP

From

 

To

 

Reason

Real Estate, Auto Software Weaker rupee

 

STOCK SWAP

Following situations are suggested. The idea is to sell the overpriced stocks and switch the proceeds to underpriced stocks or those stocks which gained or regained favors of the investors. These are not necessarily long term recommendations. Read the comments with the following tables to make sure that you understand what you are going to do.

SELL

@< or >

BUY

@< or >

Reasons

None today

Kalidas One Liner

  • None today

OVER

Stock Observatory India

Ref: ISO/12/64 of 2012-04-12, Thursday, India Time 10.30 am) 

Overnight Events and Effects:

  1. Dow lose over 255 points, including today’s gain of 89 points due to poor earnings from US banks. It was stated that their trading revenues fell and loan books also declined from $4.24 trillions to $4.04 trillions, that is, by $200 billions. Strange indeed. The economy is said to be expanding @2% on US economy size of $16 trillions. That is, when the economy expanded by $320 billions (2% or $16 trillions), why did bank’s loan book fell by $200 billions instead of rising by $84 billions? (2% of $4.24 trillions). The figures do not tally. It again confirms our opinion that US economy is still stagnating with downward bias. In fact, US economy is in recession whatever the government statistics may say.
  2. FED maintains double talks. It says that the economy is improving but at the same time would like to continue with easing policy, that is, go on issuing credits by deficit financing. It also goes on buying Treasury Bonds at short end and selling T Bonds at long end. Such double talks resulted in fall of dollar and rise in a few Asian currencies.
  3. Euro troubles continue to weigh on the market. Greece is forgotten, and now it is the turn of Spain, followed by Italy. None of these countries have sold gold in spite of heavy pressure on them. They would sell other currencies, but not Gold. This displeased the FED and US treasury whose persistent attempts to force European nations to sell gold have failed.
  4. China is still having 8.4% growth, though slower than 8.9% about 3 months ago. Asian countries reported strong growth in exports by 10% to 14% from Indonesia to Malaysia. One of the major growth in Asia is double accounting of exports by Apple who is reporting strong sales. These units are made in China and Malaysia who report as exports from their countries, and at the same time, US shows total sales by US companies as contributors to the growth, that includes Apple.
  5. We do not believe that China could have a growth of 8.4% now. Its base has risen so much over last 20 years that the growth of 8.4% is nearly impossible. If the base is 10, it is possible to have growth of 8%, that is, rise by 0.80, but when the base is 100 or 200, it is impossible to have growth rate of 8.4% or unit rise of 8.4 (100% of value 20 years ago) or 16.8
  6. There is no change in credit markets except Spain’s yield has risen which prompted ECB to buy more bonds to contain the soaring yield. In short, the battle between Euro and Dollar is going on without any shots being heard.

 

US & Asian Markets today

INDEX

12 Apr 2012

9 Apr 2012

CHANGE

COMMENTS
Dow Jones USA

12,805

13,060

-255

NASDAQ

3,016

3,080

-64

NIKKEI – Japan

9,471

9,586

 -115

Hang Sang -HK

20,180

20,593

 -413

SENSEX – India

17,199

17,335

 -136

* = live intra-day.

Currency:

Pair/Index

12 Apr 2012

 9 Apr 2012

CHANGE

Comments

US$ Index

79.641

80.000

-0.3590

Euro/US$

1.3132

1.3061

0.0071

Rs/US$

51.34

51.37

-0.0300

Observation (Currency):

.

Interest Rates (US$)

LIBOR 1M

0.24125

LIBOR 3M

0.46915

LIBOR 6M

0.7334

LIBOR 1Y 1.0507
T 1M T 3M 0.08 T 1Y 0.18 T 2Y 0.29
FED Target 0.25 T 5Y 0.87 T 10Y 2.03 T 30Y 3.19

Commodities

Item

12 Apr 2012

9 Apr 2012

Change

12 APR OI

9 Apr 2012 OI

Change

Oil (WTI- USA)

102.59

103.31

-0.72

300,729

-300729

Oil (Brent) …

120.32

111.40

8.92

0

Gold …

1659.5

1630

29.50

232,444

230,959

1485

Silver …

31.58

31.73

-0.15

46,084

49,281

-3197

Palladium …

638.85

644.80

-5.95

20,196

19,935

261

Platinum …

1,591

1607

-16.00

38,035

37,694

341

Observation (Commodities)

Indian Stocks: Our Observations and Comments

  1. Bloomberg reported “India’s cabinet yesterday decided to invoke a constitutional provision under which President Pratibha Devisingh Patil can ask the Supreme Court to clarify some parts of its order canceling the licenses.”. This is the first salvo in a war with the Supreme Court. Manmohan singh’s government is under intense pressure from the countries of canceled licenses company from Norway (Telenor), UK (vodafone), Malaysia and now Russia, to set right the situation failing which those countries may take punitive actions against India and may restrict Investment flows into this country.
  2. The way Pranab Mukherji is behaving of late, it gives the impression that he gets full support from higher ups in managing finance in spite of certain raucus measures which are detrimental to the nations’ interest. His actions to make Income Tax retrospective from 1962, his proposal to tax the overseas companies deal involving assets in India, cancellation of 3G licenses, proposal to impose heavy fines on Indraprashtha Gas Limited that may wipe off the entire positive net worth of the company with one stroke, are all anti-business measures that will slide India into bureaucrat’s Raj. Corruption may rise and the corporations may be operating in dark without any certainty of laws governing them.
  3. Rupee is still falling, now trading near 3 months lows. All eyes are on anticipated meeting of RBI in mid April where many expect the rates to fall.
  4. All eyes are on Airline sector where rumours abound that Mukesh Ambani may come in as white knight to save Kingfisher Airlines. It is possible because Mallya could find cash to pay the salaries of all employees, and also pay the tax demand. Such deep pocket items may suggest that he got some cash from top investors. The down side risk of KFA is reduced considerably. We should expect some news very soon.
  5. FMCG sector is the only saving grace of Indian market. Almost every stock in this sector has risen to all time high. The stocks like Goldrej Consumers, ITC, Hindustan Lever, Marica, other retailers etc. We believe that this is the sector worth investing in when the market corrects significantly.
  6. During last 12 months, the Index has seen only 1 time high and 23 times low. In other words, we are in slowing market in India. It is time not to talk about the market but the individual stocks. We consider High Tech (Softwares), Gas, FMCG and Pharmaceuticals the only sectors where one can gain good bargains.

Special Situation:

  1. Kingfisher Airlines – expect good news at anytime soon. It is risky stock b ut worth buying
  2. ITC – still a good price to invest. It has risen by only 15% in last 6 months. It is a solid cash cow company.
  3. GSPL is at very attractive level. While some analysts at Edelwise are advising sale, we remain steadfast to maintain “Strong Buy” rating for this counter
  4. Essar Oil is on last leg of lower prices. Its result, especially sequential quarter, should show significant improvements in its earnings.
  5. Essar shipping is up by 10% from recent low, is still going to make significant money in next 18 months time frame. Trade the stock only after it breaches the level of Rs 41. Until such time just accumulate it.
  6. Hindalco and Sterlite appear to be at good price. Weaker rupee cause rise in Aluminum prices in India and as such, metal stocks like above two + Tata Steel should perform well.

Something Right, Something Wrong….

Everyday is dynamic. Some events, news or policies are right having beneficial effects on the stock, sector or economy and some are wrong hurting the same categories. These are explained briefly. For detailed view, refer to other appropriate sections for which reference is made here with a link, if possible.

  1. None today

SWAPS:(All in Rupees)

Following swaps are suggested to maximize gains on the capital. The idea is to get out of stagnating or weakening sectors into growth or strengthening sectors

SECTOR SWAP

From

 

To

 

Reason

None

 

STOCK SWAP

Following situations are suggested. The idea is to sell the overpriced stocks and switch the proceeds to underpriced stocks or those stocks which gained or regained favors of the investors. These are not necessarily long term recommendations. Read the comments with the following tables to make sure that you understand what you are going to do.

SELL

@< or >

BUY

@< or >

Reasons

None today

 

Kalidas One Liner

    • None today

Over

Stock Observatory India

Ref: ISO/12/63 of 2012-04-09, Monday, India Time 9.30 am)

Overnight Events and Effects:

  1. It was a game of statistics and massive play in oil, gold and platinum derivatives. US added fewer jobs at 120,000 against expected 205,000. So one day the job rises above average and next day it averages down. Whenever the oil rises more than 5%, the job figures are watered down. Whenever the gold gains by $80 in few sessions, the job number increases so as to expect stronger economy and lower gold prices. The game has become so serious and dangerous that one does not know which direction the markets are going to go one day or other. It has become giant casino. Read our comments under commodities to know what is going on in the commodity markets.
  2. The reports suggest that the Treasury supply is shrinking that is the demand for treasury is rising to keep the yield (interest rates) lower.
  3. Euro is pushed down at the same time. The war between Euro and US$ is going on without being reported in any quarter. It is a silent war. When it will break into noisy one, we do not know. At the moment, Euro is pushed down, dollar is pushed up and massive short position in oil is taken or created by almost 45,000 contracts or 45 million barrels of oil is on short side. Since the dollar is pushed up, there might be attempts to push down oil by massive 10% in few days but only in paper markets in USA. The Brent Crude, the physical market remain firm and less volatile.
  4. Banks can not live without proprietary trades. JP Morgan is caught on wrong foot with its main trader Bruno Iksil is reported to have entered into extremely large derivative bets reminiscent of proprietary trades. Some senators have questioned such transactions as being made with subsidized money from FED to the JP morgan bank, though on the paper it may seem to be bank’s own money. The banks are trying to overtake the rules framed under Volcker’s rules under Dodd Frank Act prohibiting such bets. It goes without saying that such large bets by JP Morgan are done at the behest of FED, that is, credit derivative markets are highly influenced by FED and its sponsored agencies.

US & Asian Markets today

INDEX

CURRENT

5 Apr 2012

CHANGE

COMMENTS
Dow Jones USA

13,060

13,075

-15

NASDAQ

3,080

3,069

11

NIKKEI – Japan

9,586

9,688

 -102

Hang Sang -HK

20,593

20,791

 -198

SENSEX – India

17,335

17,486

 -151

* = live intra-day.

Currency:

Pair/Index

LATEST

5 Apr 2012

CHANGE

Comments

US$ Index

80.000

79.650

0.3500

Stronger
Euro/US$

1.3061

1.3156

-0.0095

Weaker over 3 sessions
Rs/US$

51.37

51.18

0.1900

Getting lower every day

Observation (Currency):

Commodity currencies are under pressure such as Australian dollar. Indian Rupee is trending lower andy may soon break on the downside. With such lower exchange rates, the prospects of higher oil prices in India may raise the specter of inflation. Before they do, it is likely that the RBI might be forced to lower rates during this month to help Pranab Mukherji meet his growth objectives.

Interest Rates (US$)

LIBOR 1M 0.24125 LIBOR 3M 0.46185 LIBOR 6M 0.7334 LIBOR 1Y 1.0485
T 1M T 3M 0.07 T 1Y 0.14 T 2Y 0.33
FED Target 0.25 T 5Y 0.91 T 10Y 2.07 T 30Y 3.22

Not significant change in rates. Still, long end rates are getting firmer.

Commodities

Item

Latest

5 Apr 2012

Change

Current OI

5 Apr 2012 OI

Change

Oil (WTI- USA)

103.31

102.20

1.11

300,729

255,642

45087

Oil (Brent) …

111.40

122.89

-11.49

0

Gold …

1630

1,626

4.00

230,959

237,632

-6673

Silver …

31.73

31.45

0.28

49,281

50,495

-1214

Palladium …

644.80

630.50

14.30

19,935

20,422

-487

Platinum …

1607

1,598.7

8.30

37,694

38,953

-1259

Observation (Commodities)

  1. Since the oil prices at the gas station in United States are rising at frantic pace, the attempts are made by the FED and its illegally sponsored banks to short the oil at the heaviest. The oil prices at the pumps have risen to over $4.50 in California (from $3.30 about 4 months ago), that is, oil prices have risen by over 36% ($1.20 against $3.30 base). This is why massive short position is created in NYMEX in last 3 days
  2. Serious trades were made in platinum at $ 1,530 near day low to close at day high of about $1607 (up by massive $76 or near 5%) during the course of the day. This is suggesting that derivative markets are playing havoc.
  3. Even figures are also misreported. While gold closed at $1630, it was shown trading at $1640 but they were mini trades which are never shown as trend or price indicator. This time, this figure was shown on the exchange so that people take position in rising gold which can be then shorted down by massive 3% in derivative trades.
  4. In short, the derivative markets have become so volatile and so dangerous, that the next crisis is without fail will originate from here. It is obvious that such massive short positions taken by big banks like JP Morgan who are reported to have been taking large derivative positions under proprietary trades at the behest of FED who has           been lending massive short term funds to achieve its manipulated prices of oil and gold. And also Euro
  5. Be careful before plunging into dangerous derivative games on MCX. Better stay with the physical gold market. It was inactive due to Gold dealers strike for over 3 weeks to protest against budgetary taxes and levies on gold trades.

 

Stocks: Our Observations and Comments

  1. GARR rules of Income Tax are playing havoc. The FII are not sure when they will be subjected to           arbitrary taxes. Pranab Mukherji is playing tough with the FII and refuses to roll back the law. This is going to be very tricky issue that might cause FII to leave India en masse. The lower rupee value in futures trades show the FII intentions. The trigger may come when the law is finally passed by the Parliament and it goes thereafter in vacation. This is when the new Tax demand may be raised against Vodafone. This is the most serious matter affecting Indian economy and the stock markets. The downward bias or risk on Indian markets have risen more than in the past.
  2. Mahindra Satyam is reported to have faced a claim from Aberdeen Asset Management for its potential loss on account of its accounting fraud. Why this fund has raised the claim only after 2 years. It was sure that it could not get any money if it was filed earlier. Now that Mahindra Satyam has become a large company with Tech Mahindra merging its assets with Satyam, this fund management company has taken a view that it can now pursue its claim in the court with reasonable chance of success. It is a very large UK based fund but it may not succeed in its claim. However, we can not evaluate this case. So it is a bit of negative news. It is possible that some more funds might be encouraged to file the recovery suit after the Tech Mahindra’s merger with Satyam because the asset base has widened. It is important to keep the Satyam as short term trading stock and do not keep the price target too high.
  3. FMCG sector is the only sector which is going to be in demand and which is expected to perform well. The consumer stocks like HUL, ITC, Merico, Godrej Consumers, Tata Global, Jubillee Food, Dabur may perform well in depressed market that we are in. One may take some position in this sector by lowering emphasis on oil and gas sector (with exception of Petronet)
  4. Essar Oil has lost insurance claim of over Rs 3300 crores. Since such claims are never considered in income stage, the effect is neutral. It is obvious that the govt owned insurance companies want to back out of the claim which they never expected. Profit loss claim are bit unusual for Indian insurance companies. They never thought that such claims will become a reality. They are playing hide and seek game with the insured parties.
  5. Arvind Mills is showing lot of strength of late. The price of below 80 become a buy opportunity. It may be noted that Tata Property has entered into joint venture with Arvind to develop its large land bank in Ahmedabad. The stock is therefore on upward track.
  6. Petronet stock is down today by over Rs 5. Buy some to enter the stock and more on any weakness. We waited too long but the stock did not come down to our desired level.
  7. Ashok Leyland is showing some strength and weakened after hitting Rs 31         . Watch it for a buy. There may be some news we do not know as yet.
  8. RCOM is becoming attractive buy at Rs 83 now. Take some. Upside is capped to 20% fro current level.
  9. ADSL When did it rise so much and so fast. We were suggesting this for some time and only a few days ago it was at Rs 23 or about. Now, it is at near Rs 30 or up by Rs 7 or 30% in last 4 days. However, one may take profit if it rises too fast.
  10. Real Estate sectorb may become a buy within next 45 days. Keep this sector on the radar.
  11. Kingfisher Airlines has reportedly paid the pending salary. When read with large block sale or its purchase by some one, it appears that KFA is close to getting long awaited fund or capital. Although it is very attractive price wise, we find other counters more attractive due to relatively less downside risk. Nevertheless, this risky share has become less risky.
  12. Finance Minister has raised the specter of large bad debts in Indian banking system due to slowing economy. Many banks are heavily leveraged to Real Estate, Infra structure and Power plants. The government is going on subscribing to equities even when it does not have money to invest. It is creating “budget deficits” to subscribe to banks equities.

Special Situation:

  1. None today.

We are not reproducing other columns because they are blank today. May be on Thursday.


OVER

Stock Observatory India

Ref: ISO/12/62 of 2012-04-05, Thursday, India Time 10.30 am)

Overnight Events and Effects:

  1. Again US$-Euro equation. Spanish bond did not do well with yield rising almost 90 basis point. Germany’s production contracted (surprising judging from rise in employment earlier) and expectation of lower unemployment in USA tomorrow. In short, the derivative players are super active, with Credit Default Swaps, that brought financial markets to its knee in 2007, is resurrected, and is playing havoc again in the world markets.
  2. The only item which is not easily manipulated is the Brent Crude Prices which remained at elevated level of near $123 whereas the US WTI Crude prices have dropped by $2.75 in last 3 days.
  3. Service industry in US is expanding over manufacturing. It is used by many as sign of recovering economy.
  4. There was definite leak out of the possible notes by the FED officials. Refer to previous report of 2 April where one can see massive rise in Gold Open Interest by almost 16,500 contracts or equivalent to 1.65 million ounce of gold on short side. The gold dropped very next day by $40 in matter of minutes after FED officials hinted that there may not be need for more stimulus as economy appeared to be recovering. This was used as sign for strong dollar and weak commodity prices. But the most important thing is that the major players took position against gold only on previous day and the gold dropped by massive $60 in two scoops, obviously those players got the headwind of major statement from the FED. In short, the insider trading is taking place on massive scale in United States, especially in futures markets (Comex and Nymex)
  5. In short, we are hostage to the manipulation at the instance of FED and Treasury officials. The reason for shorting gold was to bring pressure on Spain to liquidate huge gold inventory so that massive short position in gold by US treasury is adjusted. It is well known that most of the gold lying in US Treasury or FED is under lien to mostly European nations viz. Spain, Italy and Portugal where the debt troubles have been initiated.
  6. It is clear that Europeans are unable to understand the games in future markets against their currency and Euro Zone. They still foolishly believe that Americans are their best friends whereas the reality is that they are the worst enemy.
  7. Of late, the Supreme Court in India has decided to play soft game with the Government of India. Two major decisions has led us to this conclusion. One was the rejection of Essar Oil appeal for deferment of sales tax and overturning the previous ruling of the Supreme Court, and another the acceptance of appeal against cancellation of licenses by the Supreme Court for telecom related business. When the court has learned that its decision is overruled by the government by devising “retrospective operation” of Income Tax rules from 1962 or dating back by 50 years, it must have come to the conclusion that there was no point in fighting with the ruling government. Otherwise there was nothing to uphold judgment against Essar Oil because the refinery construction was delayed due to Cyclone and Court order against it from the local court. In other words, the Supreme Court has ruled that Essar Oil should have disobeyed the local court ruling and proceeded to construct the refinery.
  8. Almost all Asian markets have fallen, with Australia falling hard due to weakening commodity prices. It also reported trade deficit for the first time.
  9. So what should one do at the moment. Go with the rationale or join the gang of manipulators. The easier option is latter. Do what the United states is doing and support them, appear to be the easiest course. Is this our recommendations, our answer is yes and no. Yes for those who want to take short term position, and no for others.

US & Asian Markets today

INDEX

CURRENT

2 Apr 2012

CHANGE

COMMENTS

Dow Jones USA

13,075

13,264

-189

NASDAQ

3,069

3,119

-50

NIKKEI – Japan

9,728

10,068*

 -340

Hang Sang -HK

20,525

20,620

 -95

SENSEX – India

17,478

 -17478

* = live intra-day.

Dow jones is not a real indicator. The main indicator is US dollar, Oil and Precious metals.

Currency:

Pair/Index

LATEST

2 Apr 2012

CHANGE

Comments

US$ Index

79.650

78.733

0.9170

Euro/US$

1.3156

1.3344

-0.0188

Rs/US$

51.18

50.81

0.3700

Observation (Currency):

Dollar gained against Euro on the back of weaker Spanish auction. The way the gold prices were hammered, it appears that Spain might be forced to liquidate its position of gold sometime later. If they sell, then only the lien on gold holding could be lifted.

 

Interest Rates (US$)

 

LIBOR 1M 0.24125 LIBOR 3M 0.46815 LIBOR 6M 0.7334 LIBOR 1Y 1.0485
T 1M T 3M 0.07 T 1Y 0.19 T 2Y 0.35
FED Target 0.25 T 5Y 1.04 T 10Y 2.23 T 30Y 3.36

FED issued the statement by borrowing the phrase from Yudhisthira of Mahabharat fame. “Naro va kunj rova”. FED now says that the economy is recovering but also that not strong enough not to withdraw Zero Rate policy. Speak both ways and confuse every one.

The interest rates therefore remained same, as it was not clear whether the rates would be lowered or not. Of course, there is no way to go down but only up.

Commodities

Item

Latest

2 Apr 2012

Change

Current OI

2 Apr 2012 OI

Change

Oil (WTI- USA)

102.20

104.95

-2.75

255,642

276,454

-20812

Oil (Brent) …

122.89

112.45

10.44

0

Gold …

1,626

1,682.10

-56.10

237,632

236,850

782

Silver …

31.45

33.09

-1.64

50,495

48,806

1689

Palladium …

630.50

661.70

-31.20

20,422

19,884

538

Platinum …

1,598.7

1,670.30

-71.60

38,953

39,107

-154

Observation (Commodities)

  1. We were right in making this column biweekly which accurately predicts the short term events. Only other day, massive rise in gold open interest was taken and very following day after FED officials hint, the gold prices collapsed by $40 in less than 10 minutes just before the close. We mentioned earlier that the manipulators arrive near the closing stages and dictate the prices in massive swoop. It can not be done unless the FED has hinted what it was going to say to the faithful speculators on previous days which encouraged them to take massive short position. They were rewarded on the following day. This is a clear case of insider trading but in Commodity market, not on regular exchange like NYSE and NASDAQ governed by SEC. Commodity markets are governed by CFTC or Commodity Futures Trade Commission.
  2. Should one buy the gold and other commodities or stay away and buy only dollar? Well, that major game players are hinting at you to follow their actions. We remain steadfast on increasing position in gold and Silver on massive falls because the opposite force is also coming back strongly whenever the prices fall steeply. Further, physical markets are dictating on future trades as well, especially near the end of settlement period. This period is still away which helps the trading player to play havoc because there are no delivery compulsions.

 

Stocks: Our Observations and Comments

  1. We have decided to make some changes in our strong oil portfolio of mainly OMC. Since the markets are weak, the only sector which look strong is the Consumer goods or FMCG sector. We have to find suitable candidates in this sector. We find lot of strength in the following stocks.
  2. Godrej Consumers, ITC, Hindustan Lever, Brittania, Dabur, Tata Global,
  3. Petronet, Satyam Computer, TCS, HCL Technology and UCO Bank.
  4. Essar Oil dropped due to Supreme Court’s rejection of its appeal. It is a neutral event so the present fall is only temporary. It is not going to affect is earnings. We suggest adding more after 2 days – let this news be digested first by the market.
  5. Most software stocks are showing signs of revival due to persistent weakness in Rupee.

Special Situation:

  1. Satyam Computer is getting into 80s. With rupee being at the weakest point, this stock might gain more. The volume is also rising steadily. Better stay long and may be add more in any day’s correction because the Satyam is now in upward trend.
  2. Huge volume was seen on previous day for Kingfisher Airlines. Over 52 million sharea have traded on the upside. The stock was up 11% nearly. We should get some positive news soon. Star Investment sold its 2.2% stake, but the important thing is that the stake was also bought by some one in spite of negative news. The stake sale was not done at heavily discounted prices, which means that some one is accumulating the stake slowly.,
  3. Ashok Leyland is also keeping strong profiles and breaking into new grounds.
  4. Arvind Mills is also our pick but only in weakness to Rs 76 to 78

Something Right, Something Wrong….

Everyday is dynamic. Some events, news or policies are right having beneficial effects on the stock, sector or economy and some are wrong hurting the same categories. These are explained briefly. For detailed view, refer to other appropriate sections for which reference is made here with a link, if possible.

  1. None today

SWAPS:(All in Rupees)

Following swaps are suggested to maximize gains on the capital. The idea is to get out of stagnating or weakening sectors into growth or strengthening sectors

SECTOR SWAP

From

 

To

 

Reason

Energy Sector Consumer durables

 

STOCK SWAP

Following situations are suggested. The idea is to sell the overpriced stocks and switch the proceeds to underpriced stocks or those stocks which gained or regained favors of the investors. These are not necessarily long term recommendations. Read the comments with the following tables to make sure that you understand what you are going to do.

SELL

@< or >

BUY

@< or >

Reasons

None today

Kalidas One Liner

    • None today

 


Kalidas Chopai

PEP = Preferred Entry Point; How to use the following table?

Finding PEP is always difficult. So, it is advisable to use first point of entry so as not to miss the stock. It so happens that the stock goes down after your purchase, so you buy more on downside (2nd entry) and then stop. When the stock begins to go higher, and is up by at least 12% to 15%, with target still far away, you make third entry on the upside because upward trend is reasonably established. Similarly, while selling always get hold of first exit point. If the stock goes higher, sell some more to average up your selling price. Now stop. When the stock begins to go down after hitting recent top, you sell immediately at the bid price because the stock may develop downtrend. Never be cheesy while buying and never be greedy while selling. Money is in your pocket when you sell. Always smile first before buying or selling. Only large hearted investors make money all the time.

Stock   CMP PEP CMP
No comments today.
First Entry 2nd Entry on Downside 3rd Entry on Upside
Comments:
First Sell 2nd Sale on Upside 3rd Sale on Downside
Comments:
Ref. No. 12/KC/20 Date: 2012.mm.dd Target (3M) SENSEX now at

OVER

 


 

 

Stock Observatory India

Ref: ISO/12/61 of 2012-04-02, Tuesday, India Time 9.30 am)

Overnight Events and Effects:

  1. Dow rosé by 52 points on growing confidence and now await for factory orders stats which may show most rise in last 3 months. However, the dollar fell and treasury also moved lower a bit. It is a day of vacillating statistics every day. We therefore compare figures over 3 months at least.
  2. Asian stocks are mixed. One day they move up on growth prospects, and next day go down on lower expectations. It is a daily game of mumbo jumbo. China is certainly slowing down which makes Hang Sang dance to the tune of Beijing news. If China slows down, the end markets like US and Europe also need to go down, not other way round.
  3. For the first time since 1999, S&P 500 has beaten Gold this year. They say that the profit numbers will be upgraded in most of the companies. This may support the stock, and gold prices are supported by Bernanke’s on going printing press. QE 3 may be announced within 30 days.
  4. Indian Prime Minister is getting veiled threat from various trade bodies against raising tax demand on Vodafone on the back of retrospective change in Indian Income Tax Rules. Even Vodafone CEO wrote to the Prime Minister not to enforce tax demand after Supreme Court judgment. Manmohan singh, the Prime Minister, is not going to listen to him because he needs money badly to balance the budget. He is the weakest Prime Minister India has ever had. Sooner he goes, better it is for India
  5. No other international news. Go to Indian section.

US & Asian Markets today

INDEX

CURRENT

PREVIOUS

CHANGE

COMMENTS
Dow Jones USA

13,264

13,212

52

Firm on news on economy
NASDAQ

3,119

3,091

28

As above
NIKKEI – Japan

10,068*

10,110

 -42

Mixed on news on Yen
Hang Sang -HK

20,620

20,718

 -98

Lower on China slowdown news
SENSEX – India

17,478

17,404

 74

Higher but the undertone weaker.

* = live intra-day.

Currency:

Pair/Index

LATEST

PREVIOUS

CHANGE

Comments

US$ Index

78.733

78.767

-0.0340

Slightly lower
Euro/US$

1.3344

1.3320

0.0024

Slightly firmer
Rs/US$

50.81

50.64

0.1700

Continued weak bias.

Observation (Currency):

Euro is stable at the best. Indian Rupee is still weakening. The undercurrent is weak suggesting that the FII inflow into Indian equity may die down soon. Only debt market is favored by FII due to higher yield. However, bond prices may correct more than 5% when the rates are raised. We expect interest rates to rise to 12% on deposits at least. Bank deposit is the best investment at the moment. Stay cash

Interest Rates (US$)

 

LIBOR 1M 0.24125 LIBOR 3M 0.46815 LIBOR 6M 0.7334 LIBOR 1Y 1.0485
T 1M T 3M 0.07 T 1Y 0.17 T 2Y 0.33
FED Target 0.25 T 5Y 1.01 T 10Y 2.19 T 30Y 3.33

No significant movement on rates front.

 

Commodities

 

Item

Latest

Previous

Change

Current OI

Prev OI

Change

Oil (WTI- USA)

104.95

105.23

-0.28

276,454

289,470

-13016

Oil (Brent) …

112.45

112.07

0.38

0

Gold …

1,682.10

1679.80

2.30

236,850

220,352

16498

Silver …

33.09

33.10

-0.01

48,806

51,159

-2353

Palladium …

661.70

658.80

2.90

19,884

19,878

6

Platinum …

1,670.30

1,654.90

15.40

39,107

36,774

2333

Observation (Commodities)

  1. “Jaise the”. Not much movement. Do not read much into Open Interest as the figures are not comparable due to different months used of late.

Stocks: Our Observations and Comments

  1. Vodafone is tightening pressure on Prime Minister and Pranab Mukherji is also tightening nuts and bolts on the Prime Minister as well. Prime Minister knew in advance what havoc retrospective change in tax law may cause, and knowingly allowed Pranab Mukherji to effect change in the law. If Income Tax department throws away the Supreme Court judgment and revive its demand on Vodafone, India may face heavy melt down in days to come. There may not be crash but slow poison effect will continue.
  2. Ratan Tata has gone berserk. He issued confidence boosting statement that he expects Tata group to grow 400% in next few years to make it a $500 billion enterprise. How, we do not know. Which industry will make its turnover rise 400%, we do not know. He has so much of debt that forget $500 billion – he may touch the volume of $50 billions. We have to consider the lower rupee value also. The dollar value will go down by weak rupee. In any case, he has reached the zenith of madness, so we will know in years to come. Good that he is going finally.
  3. Kingfisher received the threat from employees that they would stop working if their wages are not paid today. The company is getting worse and worse day by day. There is no respite. Other Airlines are getting stronger due to higher market shares on account of closure or downsizing of operations of Kingfisher. One has to wait for some more time before buying into this counter. The downside risk is increasing day by day.
  4. Tata’s India Hotels (Taj Group) may remain under pressure due to expiry of lease in New Delhi and the intention of civic body to auction the property in stead of extending the lease. Higher property prices may not stay, appear to be their thinking.
  5. Press Report suggest that the developers in Mumbai are raising borrowings @ 4% per month or 48% per year, a sign of definitive bankruptcy of leading developers engaged in Mumbai. Our original time frame that the property prices may start correcting sharply by May 2012 is gaining credibility. When the monsoon starts, the real estate transaction cools off for at least 3 months, that is, not until October, 2012. A delay of 4 more months mean that the financial cost of leading developers may rise by at least 16% (4 x 4%). The real estate sector is getting closer to crash soon.
  6. Ashok Leyland is getting stronger of late and about to break out on the top. We do not suggest buying now, but be prepared to buy on weakness to Rs 26 or below. There may be some news which may be pushing the stock higher.
  7. Kingfisher is heading into single digits very soon. A good company or airline, widely respected earlier, but now victim of its own success. Be prepared to buy only below Rs 10. If you have bought earlier, you may wait more to buy below Rs 10 or if you are holding any, better be a seller by 30% with a view to buying back later. However, be prepared to sell only in rally (when the stock rallies due to market strength). Nothing is working right for the company.
  8. Hotel Leela is also getting poorer day by day. It has huge debt of over Rs 4000 crores (according to reports). It is trying to sell some of its hotels but very few buyers are found. Weaker rupee is good for this industry provided its debt level is in control. Most of the players in Hotels group are leveraged players – thriving on OPM or other people’s money
  9. Petronet is getting stronger in new bouts of buying. Stay with it and also buy on any retracement below Rs 165 as first entry point. Due to higher oil prices, Gas is becoming an important alternative. We still believe buying both GSPL (70%) and Petronet (30%)
  10. Satyam is also getting stronger. There may not be upside and also downside. We advise readers to stay put with their holding for another 3 months at least.
  11. Due to Iran’s preference to use Indian Currency and UCO bank, we believe that UCO Bank is relatively safer buy compared to other banks. Watch this stock and be prepared to buy on any steep correction.

Special Situation:

  1. None today. Raise cash if you can by selling expensive shares.

 

Something Right, Something Wrong….

Everyday is dynamic. Some events, news or policies are right having beneficial effects on the stock, sector or economy and some are wrong hurting the same categories. These are explained briefly. For detailed view, refer to other appropriate sections for which reference is made here with a link, if possible.

  1. Income Tax law is becoming a deterrent. This is the worst terrorist on Indian scene. Terrible wrong.
  2. Government need to act quickly to set the rates below by at least 2%. Otherwise market rates are showing upward pressure. RBI has to forget the inflation for the time being and lower the rates regardless of economy.

SWAPS:(All in Rupees)

Following swaps are suggested to maximize gains on the capital. The idea is to get out of stagnating or weakening sectors into growth or strengthening sectors

SECTOR SWAP

From

 

To

 

Reason

none

STOCK SWAP

Following situations are suggested. The idea is to sell the overpriced stocks and switch the proceeds to underpriced stocks or those stocks which gained or regained favors of the investors. These are not necessarily long term recommendations. Read the comments with the following tables to make sure that you understand what you are going to do.

SELL

@< or >

BUY

@< or >

Reasons

Any bank >100 UCO bank <81 Iran effect
SBI CMP LICHF CMP Better prospects
RPOWER CMP RCOM CMP Good swap within same group
Reliance 747 CAIRNS or Petronet CMP
L&T CMP TCS CMP Better prospects

Kalidas One Liner

    • None today

OVER

 Posted by at 1:11 pm

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