Stock Observatory 2013 4Q (Oct – Dec)

 

Stock Observatory – Fourth Quarter 2013 (October-December) –
Published at about 10:00 AM Indian Time.

We start from today last quarter’s Stock Observatory. While comments are welcome, the Author may not reply but will note them for enhancing the utility of this popular column in future.

Please bear with me for a few days as I am yet to come to full grip to information source since a few of them have changed. Many sources are reporting only price changes and not volume. for me, the volume with price change is very important tool, so as not to make any mistake.


 

Dear Readers,

New format will be finalized within 2 days. I will try to implement new format on Thursday, India time. Until that time, there will be no more update.

Kalidas
November 18,2013 (India Time)


 

IMPORTANT CHANGE IN STOCK OBSERVATORY COLUMN

I would like to inform the Readers that from Monday onwards, Daily Stock Observatory column will be devoted exclusively to Indian Stocks. All other observations on global market movements will be phased out from Daily Column, unless some important events take place outside India. This format will be changed over a period of few weeks after encountering the reaction from Readers what do they want.

The present format will continue only in Weekend edition that will be released on Sunday, Morning at about 11:00 AM  India time so that Readers would be equipped with the knowledge of global events over the past week to guide them in trading on following Monday.

During weekend, appearing on Sunday Morning will be another spreadsheet that will contain all stocks that were recommended earlier, their present prices and prospects and current recommended actions. This will avoid further enquiries in CMCA Column. The idea is to inform the Readers the latest status of our past recommendations. The first of such spreadsheet will appear on 24 November, 2013 (Sunday) India Time.

There will be no edition of Stock Observatory today. You will see it in revised format on Monday India time in early morning hours preferably before opening of the markets.

KALIDAS
USA, 14 Nov 2013 (15 Nov 13, Friday, India Time)


Stock Observatory India

Ref: ISO/13/20 of Wednesday, 13 November 2013, at 10.30 am – India Time)

 

US & Asian Markets today

* = live intra-day. Dow Jones and NASDAQ are quoted closing price of previous day

Description

Current

Previous

Change

52W High

52W Low

USA          

Dow Jones Index

15,750.67

15,783.10

-32.43

S&P 500

1,767.69

1,771.89

-4.20

NASDAQ

3,918.86

3,919.79

-0.93

ASIA

Japan NIKKEI

14,575.00

14,588.68

-13.68

Hong Kong (HSI)

22,586.80

22,901.45

-314.65

India – SENSEX

20,251.21

20,283.20

-31.99

India – NIFTY

6,003.55

6,019.85

-16.30

Overnight Events and Effects:

USA:

  1. US market fell slightly in response to one of the FED governor’s statement that tapering may start from next month. Most economists disagree – they time tables to March, 14. Even if the tapering takes place, it would be largely symbolic – most expect the bond buying to drop from current $85 billions to $70 billions, that is, just $15 billions per month. The real decision will be known on December 17/18 FED meeting.
  2. While USD index fell, the precious metals dropped due to FED tightening talks. Gold dropped to $1270 and Silver to less than $21 level. Metals were generally weak.

EUROPE/ASIA:

  1. Asian stocks dropped due to China’s plenum did not disclose any financial reform. Hong Kong index dropped by as much 300 points today. Banks and other financials were otherwise major losers. In any case, the property dominated Hong Kong is finding no direction due to massive duty on property transactions on larger or luxury properties which has dampened the demand materially. These are pointers that reflect major correction may be in offing in property market. However, Hong Kong is always resilient in its policy, so let us see where the things go and how far. At the moment,not much correction appear to be in store.
  2. While most Asian countries are raising interest rates, last one was Indonesia, to contain inflation, European Union surprised the market by lowering the rates to contain the slowing inflation, that is, EU wants the inflation to go higher which is at the moment at almost 50% of target range. So Asian countries want lower inflation, and European wants higher inflation. US does not say anything. It is just watching the show.

INDIA:

  1. Essar Oil wants to sell more oil in domestic market because the export margin is very low.
  2. Credit boom is ending and with that the growth in emerging market, says the bloomberg report. If the interest rates rise globally, even slightly, the Asian markets may get less allocation with the result that the markets may fall.
  3. Consumer inflation accelerated in India to 10.9%, says the report which was released after the close of the market yesterday. The market today will be softer in response. RBI may continue to keep the rates higher. So long as the rates remain higher, the chances of real growth rising are less. Higher rates are hurting housing, auto sales, and lot of other interest rate sensitive sectors.
  4. Bank of India was removed from MSCI Index (Morgan Stanley Capital Index) for Asia. Tech Mahindra is included. The funds will be selling some holding in BOI , so for some time, the BOI stock may remain under pressure. It is still my favorite. When BOI regains its growth, it will come back into MSCI Index. For the time being, it is out.
  5. China is increasing its Iron Ore imports to its highest level on record. Its import increased 43% . When the world demand is faltering, what China is doing with so much of iron? Are they using it to make more armaments? Higher imports by China may please Indian steel makers because they will find the steel prices will stop falling due to sudden demand.

Currency:

Currency Pair

Current

Previous

Change

52W High

52W Low

USD INDEX

81.105

81.136

-0.0310

Euro ($ per Euro)

1.3443

1.3438

0.0005

Rupees (per $)

63.72

63.72

0.0000

Observation (Currency):

US $ continues to remain strong due to tapering talks. Indian Rupee fell most during last week due to tapering talks in USA and fear of losing several billons of dollars from FII. Euro gained however. It is the only currency that is behaving rationally after months of hiatus.

 

NRI may use the current rates to send their first installments of dollar into India. This is the time to start sending more $ to India. They may defer the $ sending into three steps spaced apart 15 days each. So that any wild move can benefit them.

 

Interest Rates (US$)

LIBOR

Current

Previous

Change

52W High

52W Low

1M LIBOR

0.1685

0.1685

0.0000

3M LIBOR

0.2393

0.2393

0.0000

6M LIBOR

0.3548

0.3545

0.0003

12M LIBOR

0.5905

0.5950

-0.0045

US TREASURY

Current

Previous

Change

52W High

52W Low

FED Target Rates

0.25%

0.2500

FED Funds Rate

0.0000

FED Discount Rate

0.0000

Market Rates

3M T NOTES

0.06

0.06

0.0000

6M T BILLS

0.10

0.10

0.0000

12M T BILLS

0.11

0.10

0.0100

2Y T BILLS

0.33

0.35

-0.0200

5Y T BILLS

1.44

1.46

-0.0200

10Y T BILLS

2.75

2.81

-0.0600

30Y T BILLS

3.83

3.74

0.0900

LIBOR rates remained same but they were not indicators as the rates begin to rise in USA today after FED governor’s comment. The Treasury rates were higher, with more gains in longer term rates which are used for housing markets.

 

Commodities

OI= Open Interest;

COMMODITIES $

Current

Previous

Change

Day Volume

Previous Volume

Current OI

Previous OI

Change OI

Oil -WTI (US)

93.52

95.45

-1.93

80,545

242,567

250,508

-7,941

Oil- BRENT (UK)

105.81

106.40

-0.59

4,925

16,553

14,909

1,644

Precious Metals $

Gold

1,271.20

1,281.10

-9.90

98,952

176,937

187,855

-10,918

Platinum

1,439.60

1,432.40

7.20

8,111

53,114

53,805

-691

Silver

20.78

21.28

-0.50

27,544

58,392

63,045

-4,653

Palladium

742.35

754.55

-12.20

3,613

34,949

35,114

-165

Observation (Commodities)

It is all tapering talks that brought the precious metals down. It is really good time to buy Gold and Silver now. This is the correction that we were waiting for. I would re-start my buying of silver from today in overseas centers.

 

Reducing open interest suggest that “contracts roll over” into future months is taking place, otherwise the prices may not fall with short covering.

Stocks: Our Observations and Comments

    1. Tech Mahindra is brought into MSCI index, as result of which it rose smartly yesterday. It latest quarterly suggest that its business is growing in all segments. Tech Mahindra – formerly Satyam, has finally vindicated our recommendations which we first made at Rs 60 and below. It was exchanged into Tech Mahindara at ratio of 8.5 to 1, so that equivalent cost is Rs 510 against current market price of Rs 1,685 – that is – nearly 200% gain.
    2. Same will happen to those who hold IOC.
    3. Bank of India might falter a bit due to its exclusion from MSCI Index. When the index stock is out, the fund usually lighten up on such stocks and buy the incoming stock to maintain their funds performance in line with index.
    4.  CPI is higher to 10.9%, so which stocks will gain? Food related stocks of course. ITC, H Lever, Brittainia might gain as result since they can raise the end prices quickly.
    5. Ashok Leyland reported loss of Rs 25 crores which was less than previous quarter but it is still a loss. The stock is correcting, so buy it after observing for a few days. We would prefer to buy when it falls below Rs 14, and most preferably at about Rs 12.35-85 level. Not sure we will get that price.

 

Special Situation:

  1. Silver is within our buying range overseas. In India, due to weakening of Rupee the price drop may not be much.
  2. Gold is also due for snapping up. These are the two metals that I prefer to buy when the equity market is riding through the roof.
  3. Start watching Metal sector closely. The opportunities may appear suddenly. We do like Sterlite, Hindalco at current prices.

 

Sorry, we missed an edition yesterday due to some sudden work we encountered. Kalidas, 12 Nov, 2013


Stock Observatory India

Ref: ISO/13/19 of Monday, 11. November 2013, at 11.00am – India Time)

 

US & Asian Markets today

* = live intra-day. Dow Jones and NASDAQ are quoted closing price of previous day

Description

Current

Previous

Change

52W High

52W Low

USA          

Dow Jones Index

15,761.78

15,593.98

167.80

S&P 500

1,770.61

1,747.15

23.46

NASDAQ

3,918.40

3,857.33

61.07

ASIA

Japan NIKKEI

14,249.20

14,086.75

162.45

Hong Kong (HSI)

22,759.70

22,744.43

15.27

India – SENSEX

20,595.63

20,525.11

70.52

India – NIFTY

6,112.65

6,084.55

28.10

Overnight Events and Effects:

USA:

  1. Massive rally in Dow Jones after Job Report. JR showed gain of 204,000 jobs against 100,000 expected, that is, twice high. At the same time, temporarily workers laid off were 448,000 in October against 60,000 in September. The Unemployment Rate went up from 7.2% to 7.3%. They are paradoxical reports. How could Unemployment rate go up when the jobs gained were almost twice? Similarly how could temporary workers lose almost 700% more than previous month. The numbers are obviously presented in distorted way to push up the market which rosé massive 164 points immediately after job report.
  2. The USD Index fell on expectation that the tapering may start from March, 2014. It had effect of pushing dollar index higher, treasury prices to fall. It was all over same “push and pull mechanism” adopted by vested authorities. When they find that USD Index is going down to almost 2 years low, they push it up by talking up dollar with tapering news. Only 10 days ago, FED was sending feelers through its loyal followers that rate tightening may start in January, and now they postpone to March, 2014.
  3. The strategy they have been following for last few months is to talk up the dollar with tapering talks so that it may rise. And the stocks usually fall due to such talks, so they come up with the feelers following days that QE policy may continue for some more time suggesting that tapering may not happen after all.
  4. And when the dollar rises, the oil falls and it brings down almost all commodities like Gold.
  5. We may see some actions on Monday as the markets are closed for now on Sunday here
  6. How long such games would be continued, we do not know. We know for sure that it is the Interest rates that will ultimately assert themselves. Such situation may arise when some major institution collapses. We are looking all around… but there is no lead.

 

EUROPE/ASIA:

Asian markets were subdued to negative due to such tapering news. Europe and Asia love QE policy to continue so that more and more money continue to flow through emerging market. Asia is export oriented region, so it loves when the USD goes up (so that their currencies weaken)

 

INDIA:

  1. It was reported that Government of India may divest stakes in state run companies to reduce the budget deficit by US$ 2.3 Billions or Rs 14,000 crores. IOC or Indian Oil Corporation is being talked about to reduce government stake by 10%. Current market price is Rs 212 but the offer price may be slightly lower.
  2. Rupee fell by over 1% but was more due to general fall in global currencies against USD due to job report and re-surfacing of tapering talks. We do not read more than this
  3. NRI may send more money to India in slow and sustained manner so that they can average up the rupee rates. Interest rates are relatively high in India and very low overseas.
  4. RIL is in news again. It is reported that Government may allow higher Gas prices from current $4.20 to $8.4 with guarantee in production. We now feel that RIL may not come down much and it has

Currency:

Currency Pair

Current

Previous

Change

52W High

52W Low

USD INDEX

81.237

0.031

81.2060

Euro ($ per Euro)

1.3362

1.3359

0.0003

Rupees (per $)

63.17

62.50

0.6700

Observation (Currency):

US$ is stable with slightly weakening bias. Indian Rupee is relatively stable, though it does weaken by 1% to 2% in daily trade but without giving any decisive lead.

 

Interest Rates (US$)

LIBOR

Current

Previous

Change

52W High

52W Low

1M LIBOR

0.1685

0.1675

0.0010

3M LIBOR

0.2394

0.2389

0.0005

6M LIBOR

0.3545

0.3543

0.0002

12M LIBOR

0.5948

0.5970

-0.0022

US TREASURY

Current

Previous

Change

52W High

52W Low

FED Target Rates

0.0000

FED Funds Rate

0.0000

FED Discount Rate

0.0000

Market Rates

3M T NOTES

0.05

0.04

0.0100

6M T BILLS

0.09

0.07

0.0200

12M T BILLS

0.10

0.10

0.0000

2Y T BILLS

0.31

0.34

-0.0300

5Y T BILLS

1.41

1.42

-0.0100

10Y T BILLS

2.75

2.82

-0.0700

30Y T BILLS

3.85

3.74

0.1100

Rates moved in narrow range. Do not read much into rates today.

 

Commodities

OI= Open Interest;

COMMODITIES $

Current

Previous

Change

Day Volume

Previous Volume

Current OI

Previous OI

Change OI

Oil -WTI (US)

94.68

94.60

0.08

241,690

250,508

315,014

-64,506

Oil- BRENT (UK)

105.57

105.12

0.45

13

14,909

14,973

-64

Precious Metals $

Gold

1,284.60

1,308.50

-23.90

182,695

187,855

198,626

-10,771

Platinum

1,442.90

1,456.80

-13.90

11,519

53,805

52,988

817

Silver

21.32

21.66

-0.34

51,495

63,045

71,319

-8,274

Palladium

757.90

759.15

-1.25

5,743

35,114

34,798

316

 

Observation (Commodities)

Oil: Dollar strength brought down oil prices. Many talk about oil prices falling to $90 or less very soon. We also find that traders are buying back their short contracts. Since fall in spot prices can not happen when open interest is reduced, it means that the traders were buying back short period contracts and sell long dated one. It is also possible that Arabs OPEC  might step into soon to curtails the production to support the oil prices.

 

Gold, silver and Platinum fell in sympathy with oil and higher dollars. The metal markets in general were also lower.

 

Some players advise that gold may fall to $1000 or so. It is because Goldman Sachs advised such predictions some time ago. Prior to release of such predictions, the concerned brokers take short position in those contracts at higher prices. When their predictions hit the market, the prices are depressed and they turn to profits.

 

It does appear that very large banks or brokers are pro actively following above policies. Small players can not dictate such price trend. So, one of such banks or brokers has to fail suddenly to cause upheavels in the market. It will be then when the commodity markets will start shooting up. It is time to take position in Gold, Silver, Oil especially after there is sudden fall in the prices.

 

Stocks: Our Observations and Comments

  1. IOC: may fall marginally due to GOI’s intention to sell its 10% stake. It is time to buy this stock now (near 10% from lowest) because when the placements are done finally, the IOC stock would gain by at least 5% to 10%. The divestment of stake also will benefit.
  2. Silver: It is not falling as much as it used to before. NRIs may buy overseas, and in India too, the local investors may buy this metals.
  3. IOC is at Rs 212 level, so also Bank of India is there near same price level. Which is good choice? In short term of 6 to 8 months, BOI may perform better than IOC. BOI is also a very fast mover. Those who bought IOC for prices below Rs 235 may sell some of them and swap into IOC. The reason is that losses in IOC may not be much (about 8%) which can be easily covered in fast moving BOI. If your cost of IOC is above Rs 360, better stay with the stock and buy more at current level.
  4. RIL may turn out to be very good buy now. Its EPS may significantly increase due to doubling of gas prices by GOI. Watch this RIL and we feel that it might be re-assessed for better. We believe that the

 

Special Situation:

  1. Buy Silver – overseas or out of india
  2. Buy RIL in correction. Gas price rise when made effective is the timing to buy this stock. It s nearly two years of consolidation is over. RIL is one of the strongest buy.

Stock Observatory India

Ref: ISO/13/18 of Thursday, 7 November, 2013, at 11.00am – India Time)

 

US & Asian Markets today

* = live intra-day. Dow Jones and NASDAQ are quoted closing price of previous day

Description

Current

Previous

Change

52W High

52W Low

USA          

Dow Jones Index

15,746.88

15,618.22

128.66

S&P 500

1,770.49

1,762.97

7.52

NASDAQ

3,931.08

3,940.49

-9.41

ASIA

 

Japan NIKKEI

14,265.30

14,337.27

-71.97

Hong Kong (HSI)

22,883.80

23,036.90

-153.10

India – SENSEX

21,004.54

21,034.29

-29.75

India – NIFTY

6,228.90

6,215.15

13.75

Overnight Events and Effects:

USA:

    1. Strong market. Microsoft rallied most by 4%. It is breaking out on upside.
    2. Twitter raised $1.8 Billions, price came out on top. One of the best timing to come public.
    3. Dollar slightly lower, Speculation that FED stimulus will continue to promote recovery.
    4. Dow is all time high. It is now in new territory. Asian markets are however lower. Tech stocks were soft.
    5. Leading indicators advanced 0.7% against 0.6% expected. 75% of423 S&P companies reported higher earnings, a bullish sign.
    6. Most emerging markets fell, because over 50% companies missed the Analysts’s earnings. In other words, while US appears to be prospering, emerging markets were declining.

 

EUROPE/ASIA:

  1. Asian stocks fell more due to poor earnings report.

INDIA:

    1. Stocks fell, BANKEX fell for the third day in a row to give up the recent gains. May be it is time to move some money into banking stocks.

 

Currency:

Currency Pair

Current

Previous

Change

52W High

52W Low

USD INDEX

80.503

80.5330

-0.0300

Euro ($ per Euro)

1.3515

1.3512

0.0003

Rupees (per $)

62.5000

61.6400

0.8600

Observation (Currency):

US$ is stable with slightly weakening bias. Indian Rupee is relatively stable, though it does weaken by 1% to 2% in daily trade but without giving any decisive lead.

 

Rupee fell steeply, rising to 62.50 from 61.64. Precise reasons not known. There is sme erratic behaviour in Rupee movement. When so much of FII money is coming in, who is selling so much to cause such steep weakness?

Interest Rates (US$)

LIBOR

Current

Previous

Change

52W High

52W Low

1M LIBOR

0.1685

0.1685

0.0000

3M LIBOR

0.2386

0.2377

0.0009

6M LIBOR

0.3537

0.3516

0.0021

12M LIBOR

0.5975

0.5961

0.0014

US TREASURY

Current

Previous

Change

52W High

52W Low

FED Target Rates

0.25

0.25

0.0000

FED Funds Rate

0.0000

FED Discount Rate

0.0000

Market Rates

3M T NOTES

0.05

0.05

0.0000

6M T BILLS

0.08

0.08

0.0000

12M T BILLS

0.09

0.10

-0.0100

2Y T BILLS

0.29

0.30

-0.0100

5Y T BILLS

1.32

1.38

-0.0600

10Y T BILLS

2.64

2.66

-0.0200

30Y T BILLS

3.77

3.76

0.0100

 

LIBOR rates were little higher in spite of speculation of easy money policy continuing. Treasury fell suggesting up tick in demand. Nothing attracts more attention.

 

Commodities

OI= Open Interest;

COMMODITIES $

Current

Previous

Change

Day Volume

Previous Volume

Current OI

Previous OI

Change OI

Oil -WTI (US)

94.80

93.94

0.86

226,454

3

315,014

325,052

-10,038

Oil- BRENT (UK)

105.24

105.15

0.09

5,619

7,029

14,973

15,195

-222

Precious Metals $      

Gold

1,317.80

1,308.10

9.70

99,655

78,535

198,626

200,002

-1,376

Platinum

1,467.40

1,450.00

17.40

5,948

5,116

52,988

53,013

-25

Silver

21.77

21.64

0.13

26,047

22,164

71,319

71,986

-667

Palladium

764.35

750.30

14.05

6,675

4,612

34,798

34,740

58

 

Observation (Commodities)

OIL is still weaker. Gold rose a little, but Platinum and Palladium rose strongly. Palladium is racing towards 52W high. Short interest also fell suggesing stronger market for commodities.

 

Stocks: Our Observations and Comments

Tech stocks: almost all showing stronger sales in US markets. Tech Mahindra reportedly rumored to show 3% gain in sales. TCS is also very strong on the back of new clients from United States. I think the time is approaching slowly to reduce the position in this sector.

Gati is a stock to watch. After a long time, it showed revenue and profit growth. It may enter Cold Storage business soon, and also owns large fleet of refer vehicles. Follow this stock strongly. It is a recovery play.

Harley Davidson, America’s costliest motor cycle, is trying to enter India to sell lower end models. Its success will introduce an element of competition and also improvement of quality.

Two wheelers are most defensive segment in Indian economy.

 

Fidality is buying into Jubilant Foods, suggesting growth phase for this innovative food chain.

We would suggest switching into some high quality banking stocks from bit over priced Tech sector. Still it is not a good time to sell tech stocks at the moment.

Special Situation:

  1. None today.

 

OVER

 


Stock Observatory India

Ref: ISO/13/17 of Wednesday, 6 November, 2013, at 11.00am – India Time)

 US & Asian Markets today

* = live intra-day. Dow Jones and NASDAQ are quoted closing price of previous day

Description

Current

Previous

Change

52W High

52W Low

USA          

Dow Jones Index

15,618.22

15,639.12

-20.90

S&P 500

1,762.97

1,767.93

-4.96

NASDAQ

3,940.49

3,936.59

3.90

ASIA

 

 

0.00

Japan NIKKEI

14,383.90

14,250.52

133.38

Hong Kong (HSI)

23,102.60

23,038.93

63.67

India – SENSEX

21,002.33

20,977.28

25.05

India – NIFTY

6,254.25

6,253.15

1.10

Overnight Events and Effects:

USA:

  1. Almost entire world is mortgaged to FED statements being made here and there by various officials. It is not only Bernanke who is speaking, but of late various governors are making statements such as John Williams (FED Governor, San Francisco), Mr. Powell, Mr. Jeffrey Lacker (Richmond) etc. When the leader does not speak, and let others make noises, it means that the leader deliberately allow others to speak which he could not due to fear of losing credibility. It was also reported today that Bernanke continued with his QE policy because his recent statement alarmed the Housing Industry which lost its sales by 7%.
  2. FED’s bond buying program mainly related to buying of bonds of Fannie Mae, Freddie Mae and Ginni Mae. If FED does not buy back, who will their bonds, and day will not be far off when these semi-government institutions will become bankrupt. In order that these institutions do not fail, FED can not stop buying their bonds from the market.

EUROPE/ASIA:

None

INDIA:

  1. FII continue to remain Net Buyers for 21 days in a row, suggesting their cavalier approach. They seem to ignore almost all ominous signs – slow GDP, highest CPI (inflation), higher PPI, higher Wholesale Price Index (WPI), higher Interest rates, rising NPA in banks etc. Hell with those factors, they will take care of themselves. “Behti ganga me hath dho lo” meaning “do not fight the trend and go well with the current”. So long as FII money remains, the markets may remain buoyant, especially the top 30 Sensex stocks. The only growth sectors – Software and FMCG sector. The rotational switch will force them to buy banking and finance stocks and some others.
  2. The weakest sectors are Banking, Finance, Power, Infra structures, Real estate and Construction. A common factor among them is the excessive leveraging and higher interest rates that bog them down.

Currency:

Currency Pair

Current

Previous

Change

52W High

52W Low

USD INDEX

80.5330

80.6900

-0.1570

Euro ($ per Euro)

1.3514

1.3502

0.0012

Rupees (per $)

61.8500

61.6500

0.2000

Observation (Currency):

US$ is stable with slightly weakening bias. Indian Rupee is relatively stable, though it does weaken by 1% to 2% in daily trade but without giving any decisive lead.

 

Interest Rates (US$)

LIBOR

Current

Previous

Change

52W High

52W Low

1M LIBOR

0.1685

0.1685

0.0000

3M LIBOR

0.2377

0.2381

-0.0004

6M LIBOR

0.3516

0.3528

-0.0012

12M LIBOR

0.5961

0.5971

-0.0010

US TREASURY

Current

Previous

Change

52W High

52W Low

FED Target Rates

0.25

0.25

0.00

FED Funds Rate

0.00

FED Discount Rate

0.00

Market Rates

3M T NOTES

0.05

0.04

0.01

6M T BILLS

0.00

12M T BILLS

0.10

0.08

0.02

2Y T BILLS

0.30

0.30

0.00

5Y T BILLS

1.38

1.35

0.03

10Y T BILLS

2.66

2.60

0.06

30Y T BILLS

3.76

3.69

0.07

LIBOR rates are stable to lower with stable bias. They react to almost daily statement from FED quarters whether or not and when the tapering may happen. If the rates begin to go up damaging housing sector, FED starts lamenting weaker growth and promises to buy back more bonds and when USD starts tumbling, he begins to talk up the dollar

 

TREASURY rates are higher for 5Y, 10Y and 30Y scale which is worrying the FED. Even so, the rates are within normal range of fluctuations. No clear trend is emerging on Interest Rate front.

 

One thing is clear – FED wants to keep the various Mae (Fannie, Freddie and Ginnie Mae and do not forget Sallie Mae) alive. If they fail (and they are all bankrupt)it will cause adverse reactions. If you want to find the trouble signs, look no further than various Mae quoted above.

 

Commodities

OI= Open Interest;

COMMODITIES $

Current

Previous

Change

Day Volume

Change Volume

Current OI

Previous OI

Change OI

Oil -WTI (US)

93.94

3.37

90.57

3

3

325,052

332,364

-7,312

Oil- BRENT (UK)

106.05

105.33

0.72

7,029

7,029

15,195

16,095

-900

Precious Metals $                

Gold

1,313.50

1,308.10

5.40

78,535

78,535

200,002

202,446

-2,444

Platinum

1,454.06

1,450.00

4.06

5,116

5,116

53,013

53,388

-375

Silver

21.69

21.64

0.05

22,164

22,164

71,986

72,751

-765

Palladium

751.65

750.30

1.35

4,612

4,612

34,740

34,562

178

 

Observation (Commodities)

  1. Higher dollar caused the commodities to react to lower levels. However, lower prices do not result in higher Open Interest which is going on declining. (See the above table). In almost every commodity, the Short Interest was dwindling suggesting that short term players do not want to sit on the open position and start closing down or squaring off the short positions.
  2. There was heavy profit taking in OIL Western Taxas. Almost 7312 contracts were closed out. Gold contracts also reduced by 2444 contracts. Silver was subdued. Palladium was the only metal where the short sellers were active. It is tug of war

Stocks: Our Observations and Comments

    1. IT sector is too strong to go against for the time being.
    2. RCOM lost its subscriber base by almost 8% (losing 10.46 millions customers) whereas Idea gained over 1 million new subscribers. It is a huge loss in single month which is unbelievable. No one loses millions of subscribers in single month. It is stated that RCOM de-activated over 10 Million subscribers who were unprofitable and low yielding. There is something wrong in the accounting at RCOM. Even Bharati numbers are becoming questionable every day. Idea is turning out to be second largest Telco company. We may hear a lot in next few days what is going at RCOM
    3. TCS is going strong on all cylinders. It has landed up a new contract from banking related software solution from one of the strongest contender in Western United States (California region). It does look like there are even more gains ahead in TCS. One may delay the booking the profits for the time being.
    4. Banking and Finance sector stocks are digesting recent gains. Andhra Bank which we recommended here at Rs 54 level, is now at Rs 68 which is still cheap. However, one may buy more in correction. IFCI too has rallied to Rs 25.70 and we have to see whether it is getting banking license in near future. In all probability, it will get the license because it is on par with IDBI, other term lending institution. It is time to buy more of IFCI until the banking license decision is taken and informed to the market.
    5. Ashok Leyland is consolidating at higher level of Rs 17.80 which was suggested in this column at Rs 12 and again at Rs 14. While its numbers may not be very encouraging, it does appear that the Auto financing is still going strong. I receive almost daily email from various banks offering Auto financing within 24 hours without any process fees. I am a strong buyer of Ashok Leyland. Another reason for AL is that the southern states are still prospering from strong IT sector growth. The money when comes into the pocket, goes out to buy homes and auto finally – the only big ticket items.
    6. Bank of India, now at Rs 234 is still my favorite stock which was suggested at around Rs 184 only two weeks ago. Such large banks have their earnings leveraged to higher turnover, which is why never ever underestimate well managed banks. I trust Bank of India more that State Bank of India due to former’s business minded approach. Bank of Baroda is another efficient bank in PSU banks.
    7. Hindustan Copper has moved up from high 60s to near Rs 77 and it is still in my favored list. The only negative is its liquidity. When the market turns south, such illiquid stocks suffer more due to lack of buyers. But in any case, the downside is relatively less.
    8. I still like the metal stocks in India especially due to weaker rupee. When the dollar prices of ferrous and non ferrous metals go higher, the effect on domestic prices are even more stronger that overseas counterparts due to doubling of effect of currency weakness.

 

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.

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

While some sectors like FMCG and Software stocks look pricey, they still have some room to go higher due to strong market locally and overseas and no evil signs or indicators shaping up in near future. However, if some one wants to take profit, take a shot at some banking stocks and also at Auto financing companies.

 

Oil stocks are still in the bottom and we are very strong in buying this sector even at the cost of selling favorite sectors like Software and FMCG. Selling about 15% of those stocks would get almost double the stocks of banking and finance stocks.

 

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
Following observations are made by following number of news items in print, media or television. Not much comments are necessary. It is enough to write just one line. Who has time in the morning hours to read essay or long comments?

  • Writing is on wall – British Prime Minister has finally recognized the strength of Modi.
  • I think for the first time in several years that RBI is finally coming up to its real potential.
  • Mr. Chidambaram is thinking more of monetary policy than financial policy which is his forte.
  • Our President Pranab Mukherji is no longer heard or seen anywhere in media.
  • Indian cricket and bollywood are shaping out fast for the better, with 2014 expected better than 2013 (Calendar year)

Kalidas Chopai

Following special short recommendations are made in respect of Indian stocks trading in Bombay (BSE & NSE). If current market price is not appropriate, the entry points are given which may be valid only for 2 months from the date of this recommendation. We write only CHOPAI or Four Liners in the style of famous philosopher cum poet – Sant Kabir – whose chopai are just legendary. We are of course no match to the learned poet, but nothing wrong in following his illustrious path.

PEP = Preferred Entry Point; A= Actual; E = Expected; P1 = Projected; P2 = Projected

Stock   CMP Rs PEP CMP
None today
Ref. No. 13/KC/00 Date: 2013.10.28 SENSEX at NIFTY at
EPS (A)2012-13 EPS (E)2013-14 EPS (P1)2014-15 EPS (P2)2015-16
Financial Data Link Bar ChartLink
Target 3M Target 6M Target 12M Target 18M

 

OVER


 

 

 

Stock Observatory India

Ref: ISO/13/16 of Tuesday, 5 November, 2013, at 11:00 am – India Time)

 

US & Asian Markets today

* = live intra-day. Dow Jones and NASDAQ are quoted closing price of previous day

INDEX

CURRENT

OVERNIGHT

CHANGE

COMMENTS
Dow Jones USA

15,639

15,616

23

NASDAQ

3,936

3,922

14

NIKKEI – Japan*

14,179

14,202

 -23

Hang Sang -HK*

23,016

23,190

 -174

Weak even after strong HSBC result
SENSEX – India*

21,046

21,239

 -193

Opened weak.

Overnight Events and Effects:

USA:

No great news from United States home front. Blackberry is facing troubles and its CEO is being ousted. Telecom sector is keeping strong profile.

EUROPE/ASIA:

Nothing special. Euro gained a little to close above 1.35

 

INDIA:

Diwali celebration kept the market closed.

Currency:

Pair/Index

LATEST

PREVIOUS

CHANGE

Comments

US$ Index

80.571

80.756

-0.1850

Correction, Profit taking
Euro/US$

1.3508

1.3480

0.0028

Rebounding after sudden dip
Rs/US$

61.73

61.73

0.0000

Markets closed yesterday

Observation (Currency):

Fisher (FED) effect to die down. The USD index fell, Euro rose and Gold also rose.

Nothing can be said about Rupee because of Diwali holiday in India. The market may open today. There were news that Oil Marketing Companies might buy $ for import trade purposes which might weaken the Rupee. We expect Rupee to trade higher due to more inflow and demand for stocks.

Interest Rates (US$)

LIBOR 1M

0.1685

LIBOR 3M

0.2381

LIBOR 6M

0.3527

LIBOR 1Y

0.5971

T 1M

T 3M

0.04

T 1Y

0.08

T 2Y

0.30

FED Target

0.25

T 5Y

1.35

T 10Y

2.60

T 30Y

3.69

LIBOR: Nothing significant. Only 3M rates rose whereas others fell. Nothing special

TREASURY: Treasury rates also fell due to higher demand for dollar deniminated debt. However, there were no marked movement.

Commodities

OI= Open Interest;

Item

Latest

PREVIOUS

Change

Volume

Current OI

Previous OI

Change

Oil (WTI- USA)

94.62

94.61

0.01

282,138

332,364

334,537

-2,173

Oil (Brent) …

106.27

106.23

0.04

1

16,095

16,095

0

Gold …

1,314.70

1,313.02

1.68

136,964

202,446

205,564

-3118

Silver …

21.70

21.84

-0.14

35,996

72,751

73,478

-727

Palladium …

749.50

738.25

11.25

5,276

34,562

34,648

-86

Platinum …

1,456.20

1,451.90

4.30

13,032

53,388

53,511

-123

Observation (Commodities)

  1. Oil was lower in USA but firm in London. The gap between US and UK oil prices expanded to $12 from $10 earlier.
  2. Gold recovered slightly in reaction to profit taking in US dollar. Short interest is slowly declining in this metal suggesting uptake in prices in future. Silver is lower, it is weaker than gold. Palladium rose smartly to regain its near $750 level. This metal is just 5% shy of recent high. Platinum is strong. In short, except for Silver, the rest of metals are looking up.
  3. Copper prices also rose in response to lower dollar. Copper is intricately connected to China.

Stocks: Our Observations and Comments

  1. Nothing much today.

Special Situation:

  1. None today.

 

OVER


Stock Observatory India

Ref: ISO/13/15 of Monday, 4 November, 2013, at am – India Time)

 

US & Asian Markets today

* = live intra-day. Dow Jones and NASDAQ are quoted closing price of previous day

INDEX

CURRENT

OVERNIGHT

CHANGE

COMMENTS
Dow Jones USA

15,616

15,546

70

Closed
NASDAQ

3,922

3,920

2

Closed but weaker than Dow
NIKKEI – Japan*

14,202

14,328

 -126

Weak in reaction to QE end possibility
Hang Sang -HK*

23,214

23,249

 -35

As above
SENSEX – India*

21,239

21,196

 43

Closed due to Deepawali

 

Overnight Events and Effects:

USA:

    1. US market was closed at the time FED’s Fisher made the statement in Australia that FED may return to normalcy, meaning that QE policy might be withdrawn and rates may rise. This has effect of boosting the dollar value, and affect the Asian markets to drop in reaction. How could FED withdraw stimulus in the form of bond buying program which amount to as high as $85 Billions per month or nearly $1 trillions equivalent annually?
    2. Read the “Asian Stocks Fall After Fisher Speech on Fed Policy” for full Bloomberg report.
    3. US market may open on Monday – US time (or on Tuesday, Asian time). It may fall in reaction to higher rates (Fed’s hinted tapering actions) thought about by FED (Fisher) statement.
    4. Most analysts expect the market in last two months of the year (November and December) to rise because most holders do not want to sell on expectation that the prices may rise further in 2014. In fact, when the investors are sitting on profits DO NOT sell in November and December to avoid paying taxes on profits. In United States, the actual profits or losses booked before December 2013 ends are qualified for tax treatment. Accrued profit or losses are not eligible for Taxable income inclusion. If the market had been losing most of the year, then only selling is possible during year end when the investors sell the stocks or treasury to book the actual losses to claim tax deduction. They tend to buy back the same sold position when the new year begins in following January. This is known as “January effect” for rising stock prices and “December effect” for falling stock prices if the market was overall loser in last 10 months or so.

 

EUROPE/ASIA:

  1. Euro dropped by almost 1.5% in last 1 1/2 days in reaction to “Fed (Fisher’s) hint that normalcy may return soon to FED (meaning Tapering may start and QE might end soon). Euro has been rising for last two weeks steadily and reached almost 1.38 level, before FED tapering news from Fisher halted the rally.
  2. Euro has been gaining mainly due to strong German economy. It will recover soon as soon as knee jerk reaction to Fisher comments ends. Fisher’s statement is not a dictate of FED. Often he is used to make pronouncements to promote USD index.

INDIA:

  1. Rakesh Jhunjhunwala in news again. He has reportedly invested hefty amount in some properties in Mumbai. Moneycontrol attributes a report to him stating that “Market is away from Real High, no bubble seen” suggesting that current BSE high is not enough, and that real high may be coming on its way. He is right because momentum is on his side.
  2. Chidambaram sees “Green shoots” in CAD or Current Account Deficits. He is expecting CAD to come down to $60 billion in 1 year. It is mainly due to less imports of Gold caused by higher import duty.
  3. SENSEX is hitting new and new high mainly due to continued inflow from FII. Even so, more and more small brokers are going bust and closing their shops. Over 500 small brokers have shut their shops. If the market is really bullish, then one should buy “Stock Exchange Seat” from those distressed brokers who have shut their shops. In fact, buying stock exchange seat is one of the best investments at the time of recovery. However, current market rise is due to FII money and FED related events. All other indicators are against the recovery such as high interest rates, higher CAD (Current Account Deficits) and BD (Budget Deficits), rising NPA amongst banks, lower projected GDP growth etc.
  4. However, we can not fight the market if we need to make money. We would use only 30% of the investment money to remain in market and stay with top index stocks, because the second or third line stocks are fraught with real dangers.
  5. Banking stocks in India are rebounding. While NPA is a major negative for this sector, the valuation in super charged bull market makes one take notice of investment in this sector.
  6. After Vodafone, it is now turn of IBM to become victim of Income Tax department who slapped a massive tax demand of Rs 5,357 crores for understating the revenue and expliting the Software Exports numbers. IBM has strongly denied the charge. The report also mentions that IBM has generated the turnover of $3 Billions. If that was so, how could there be a demand for massive Rs 5,357 crores demand which is equal to $900 millions? Such demand if proved flimsy may affect the investment climate. IBM is not a small company and commands very strong ethics wherever it operate. This is a negative development if the allegations are proved frivolous.

 

Currency:

Pair/Index

LATEST

PREVIOUS

CHANGE

Comments

US$ Index

80.756

80.722

0.0340

 

Euro/US$

1.3480

1.373

-0.0250

 

Rs/US$

61.73

61.25

0.4800

 

Observation (Currency):

USD index rose due to FED’s Tapering talk. Euro fell, Rupee also fell in sympathy with other non dollar and Asian currencies. Nevertheless, Rupee is relatively stronger than others. If the stocks sustain the rallies, and expectation of FII inflow is not hampered, we may see the Rupee gaining a bit further. At the moment due to off and on talk on FED tapering, the Rupee may remain range bound within 61 to 63 level with upward bias.

 

Interest Rates (US$)

Libor Rates are of Previous Closing Night

LIBOR 1M

0.1685

LIBOR 3M

0.2378

LIBOR 6M

0.3535

LIBOR 1Y

0.6016

T 1M

T 3M

0.04

T 1Y

0.09

T 2Y

0.31

FED Target T 5Y

1.37

T 10Y

2.62

T 30Y

3.70

  1.  LIBOR Rates overnight do not reflect effects of latest FED statement from Fisher who commented that FED should revert to normalcy soon, hinting that the stimulus package might end soon. This mischievous statement was issued when some key Asian markets were on holiday (India)
  2. It has become a “intentional habit” of FED officials to rig the Forex and Gold market by issuing statement to boost USD index when some key markets are closed on holidays. When the active players are absent, it is easy to manipulate the market.
  3. Whenever the Gold prices start looking up, and USD Index is watering down, such statements are issued to boost the USD Index which affect the Asian markets, Asian and Euro currencies and Gold prices adversely. In short, FED states or hints or maintaining the QE policy for most of the month to boost the US stock and Treasury markets, and then talk down the QE policy (or tightening the monetary policy) to boost USD Index near the end of the month when the contracts become executable.
  4. The Treasury Rates in off United States markets rose and bond prices fell on premises that the Fed might withdrawing QE Stimulus and thereby tighten the monetary policy.
  5. Until now, the rates are following only FED’s manipulative stance and react to the news emanating from Fed quarters. When the market rates start asserting themselves, the real trouble will start in every aspect of capital market – Bond, Equity and Commodity market.

Commodities

OI= Open Interest;

Item

Latest

PREVIOUS

Change

Volume

Current OI

Previous OI

Change

Oil (WTI- USA)

94.76

94.61

0.15

282,538

334,537

359,829

-25,292

Oil (Brent) …

105.91

108.84

-2.93

9,208

16,095

17,371

-1,276

Gold …

1,313.02

1,323.52

-10.50

136,964

205,564

210,712

-5,148

Silver …

21.84

21.87

-0.03

35,996

73,478

75,663

-2,185

Palladium …

738.25

736.85

1.40

5,276

34,648

35,551

-903

Platinum …

1,451.90

1,455.40

-3.50

13,032

53,511

53,357

154

Observation (Commodities)

  1. All commodities dropped in reaction to stronger dollar caused by FED’s Taper Talk and possible withdrawing of stimulus. The most important part of above fall is that it was not accompanied by rise in short interest but serious fall. It means that the short players finally came out to square out their positions. We were hinting at Crude Oil’s rise in short interest for some time, and it worked its way down in price which triggered the recovery of short positions.
  2. Gold was down but its short position too was reduced. Silver fell less sensitively than Gold and its short interest did not come down materially. It does appear that the players are at the moment ignoring the silver for the time being. They are focusing more on WTI Oil (USA) and Gold.
  3. Palladium and Platinum were marginally down with not much volume. Platinum short interest rose, suggesting that it may fall more in coming days.
  4. We still believe that the current fall in Silver prices both in dollar terms and Rupee terms is good opportunity to accumulate this metal up to $23.50 and $ 50,850 level.
  5. Gold is also better bought now and accumulate. There was a tremendous article in Bloomberg predicting Gold to go beyond $2000 in next few months, but the link was lost or withdrawn. It contained the view of famous Marc Faber and Peter Schiff, a leading investor in Gold. I will quote the link tomorrow when I find it. It does appear, and it has happened several times, that a controversial article appear in Bloomberg which is withdrawn after it has become unacceptable to FED or TREASURY officials. I read the full article.

 

Stocks: Our Observations and Comments

  1. Banking Stocks: Finding favour at last. Bank of India, our favorite, was reportedly moved up by 30% in last three sessions. Other banks like Indian Bank, Canara Bank, Andhra Bank also rose by over 10%. If the NPA numbers are really good for Bank of India, then one should buy this back when it runs into profit taking.
  2. We still favour Private banks like Indusind Bank, and even ICICI Bank (We finally turned a small buyer for this bank after about 4 years)
  3. Since Rupee is relatively strong, it is better to wait for buying of Software stocks.
  4. Consumer and Retail stocks are still likely to go higher if latest retail numbers are any indication. Watch these stocks as quoted in newspapers and buy only in correction, since they have already had strong run. Chasing any stock lends into difficult situation later on.

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.

WRONG

  1. A tax demand of Rs 5,357 crores on IBM for allegedly under reporting of revenue. IBM has strong moral ethics and can not violate Indian Tax Laws.
  2. Import duty on Silver has been raised which is negative. India does not import so much of silver to warrant large increase in import duty

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

Software Banking Value investing

 

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
Following observations are made by following number of news items in print, media or television. Not much comments are necessary. It is enough to write just one line. Who has time in the morning hours to read essay or long comments?

  • RBI is undergoing major change for better – finally at last.
  • RBI has to change its focus from Inflation to Growth and reduce interest rates.
  • Higher interest rates ultimately hurts Government of India who has to pay higher interest costs on its massive borrowings
  • Government of India should take advantage of super bull market and reduce its holding in many PSU, unlocking thousands of crores of value and reduce the budget deficits.

 

Kalidas Chopai

Following special short recommendations are made in respect of Indian stocks trading in Bombay (BSE & NSE). If current market price is not appropriate, the entry points are given which may be valid only for 2 months from the date of this recommendation. We write only CHOPAI or Four Liners in the style of famous philosopher cum poet – Sant Kabir – whose chopai are just legendary. We are of course no match to the learned poet, but nothing wrong in following his illustrious path.

PEP = Preferred Entry Point; A= Actual; E = Expected; P1 = Projected; P2 = Projected

Stock   CMP Rs PEP CMP
None todayIn future, the stocks would be recommended here on this line. If the Readers have any comment, please feel free to post so that suitable changes may be made.
Ref. No. 13/KC/00 Date: 2013.10.28 SENSEX at NIFTY at
EPS (A)2012-13 EPS (E)2013-14 EPS (P1)2014-15 EPS (P2)2015-16
Financial Data Link Bar ChartLink
Target 3M Target 6M Target 12M Target 18M

OVER


 

To All READERS,

On the eve of Deepawali  and onset of New Year on the following day, I wish all the Readers “Happy Deepawali and Happy New Year.

It may not be possible for me to exchange Deepawali wishes to all members individually, so please allow me to share my feelings and wishes to all readers through this column.

Kalidas (Anil Selarka)
Aliso Viejo, California, United States
November 2, 2013, Saturday, US time

 

Happy New Year 2070

 


Stock Observatory India

Ref: ISO/13/14 of Thursday, 31 October 2013, at 08:30 am – India Time)

 

US & Asian Markets today

INDEX

CURRENT

PREVIOUS

CHANGE

COMMENTS
Dow Jones USA

15,619

15,681

-62

NASDAQ

3,930

3,952

-22

NIKKEI – Japan*

14,499

14,502

 -3

Hang Sang -HK*

23,304

22,846

 458

SENSEX – India*  21,000

21,033

 -23

* = live intra-day. Dow Jones and NASDAQ are quoted closing price of previous day

Overnight Events and Effects:

USA:

  1. FED reminded me of Yudhisthira of Mahabharat. It informed the market it will continue its Bond Buying binge this month by $85 Billions (that is, Quantitative Easing will continue) but it gave veiled indication that it might start tapering from January onwards (not in clear terms, but just a hint). As result of this statement, Gold dropped third day in a row (though slightly) and interest rate fell. Dow fell however by 62 points – in contrast to published news.
  2. QE to continue will be a good news for India and other emerging markets, because the funds flow may continue over there. In spite of worsening economic climate in India, for example, the market will continue to rise ignoring facts as outdated.
  3. Bank of America stated that legal and settlement costs are set to rise to $5.1 billions due to more mortgage losses related claims are being taken up by Justice Department. Justice department acts opposite of FED who continue to support major money center banks. So far, Bank of America and JP Morgan Chase have announced losses of $10 billions together due to mortgage losses related settlement with the investors (mostly pension funds)
  4. No other major stocks related news on US front.

EUROPE/ASIA:

  1. Euro dropped third day in a row due to temporary strength in USD seen due to recent FED statement, suggesting that while its bond buying program may continue, the tapering may start in January (if the recovery takes hold).
  2. Largest 4 Chinese banks have reported increase in Non Performing Assets or Bad Loans to $54 Billions, highest since 2010.
  3. Hong Kong had strongest rise in its Index in last two months on good earning shows by some index constituents. The index was consolidating for over 2 months with weaker bias. Hong Kong never considered earning improvement as reason to rise, but its strong addiction is to property.

INDIA:

  1. Rate rise by RBI was welcomed by the market posting strong gains due to perception that the rate rise were modest (0.25% against 0.50% expected in some quarters). In India, Rupee is weaker, Inflation is stronger, Bad Loans are on rise, Interest rates on rise, Agriculture prices are set to surge due to excessive rains, weaker corporate earnings except in Software sector, and slowing of GDP growth coupled with massive rise in budgetary deficits. The index is rising more due to external factors such as FED actions here and there, FII Inflows which defeat almost every other negative.
  2. A news that may affect OMC prices in future. Moneycontrol reports that Parik Penal recommended immediate Diesel Price Increase by Rs 5 per liter and decontrol its prices within one year, Rs 4 per liter in Kerosene and Rs 250 per cylinder of LPG. In short, all of our OMC stocks would stand to gain if the government approves the recommendation. Due to election ahead, we are not sure whether government will have gut to do that now. However, writing is on the wall that the prices will be decontrolled within 18 months at the most. In that case, almost all stocks of OMC now trading near 2 years low, will benefit tremendously. It is highly charged political decision, but when we want to invest in stocks, we have to use lowest prices to buy when the major indications show that positive price related news would be forthcoming in about 1 to 2 years. We therefore suggest all readers to watch OMC stocks on daily basis, and go on buying in small increments whenever the markets correct or OMC stocks correct due to any news from government quarters.

 

Currency:

Pair/Index

LATEST

PREVIOUS

CHANGE

Comments

US$ Index

79.72

79.65

0.0700

 

Euro/US$

1.373

1.3733

-0.0003

 

Rs/US$

61.23

61.31

-0.0800

 

Observation (Currency):

Dollar gained a bit on FED feelers that tapering may be on anvil in January 2014 onwards. Euro weakened. Rupee is having strong profile, suggesting it may test the resistance of Rs 60 soon. On downside, Rupee may see support at Rs 63.50 level. At the moment, we see the Rupee momentum on upside due to increased FII flow, and further expectations that it may continue due to continuing Qe2 policy of the FED at least until December 2013.

 

Interest Rates (US$)

LIBOR 1M

0.1680

LIBOR 3M

0.2419

LIBOR 6M

0.3549

LIBOR 1Y

0.6036

T 1M

T 3M

0.04

T 1Y

0.10

T 2Y

0.31

FED Target

0.25

T 5Y

1.31

T 10Y

2.53

T 30Y

3.64

The rates were higher in some short end but lower on longer end. Mainly due to FED news that there could be tapering in January, 2014. As result, the short term rates are more on pressure to go higher, and related bonds to go down a bit. The affected bonds were LIBOR 1M to 3M and Treasury 3M and 6M only. No major news on Interest Rate front.

Commodities

Item

Latest

PREVIOUS

Change

Current OI

Previous OI

Change

Oil (WTI- USA)

96.77

98.20

-1.43

359,829

357,575

2254

Oil (Brent) …

109.86

109.01

0.85

17,371

17,503

-132

Gold …

1,341.30

1,345.50

-4.20

210,712

225,491

-14779

Silver …

22.53

22.98

-0.45

75,663

76,583

-920

Palladium …

749.50

747.05

2.45

35,551

35,558

-7

Platinum …

1,480

1,462

18.00

53,357

53,600

-243

Observation (Commodities)

  1. Gold reacted to FED feelers that tapering may start in 2014. Silver after rising strongly other day, dropped by 2% to give up its gain. In other words, Silver which has been lagging Gold in recent small rally, may try to catch up soon. To overseas buyers, we suggest them to take position slowly up to $23.50 level for the time being. The best strategy is not to chase, but to buy in correction that may be caused by FED related news. In India too, the Silver prices may gain to Rs 58,500 within 3 months provided Rupee remain at near same level as now. If Rupee gains, then Silver target in Rupee terms may come down to Rs 56000 or about.
  2. Although Gold and Silver dropped in prices, the Short Interest in stead of going up in fact went down, suggesting the smart players are now using opportunity to square up their position whenever there is correction in the prices. When the short sellers begin to reduce their positions, it is a bullish news for the Gold and Silver investors.
  3. Platinum was strong, recovered earlier day losses. Of all metals, Platinum is the strongest. Palladium was stable.
  4. Oil prices were firm on Brent Crude side but weaker in WTI Crude in USA, mainly due to FED feelers on tapering discussed above. We believe that the Oil may regain $100 level soon.

 

Stocks: Our Observations and Comments

    1. Market in India is expected to remain strong. Stronger Rupee suggest that more FII money is coming to India. They have to buy Rupee first before buying stocks.
    2. IDBI Bank: A couple of bad news that may affect the stock price. Its Q2 reported 60% fall in profit due to excess provisioning. Its bad loans rose and NPA now amount to almost 4.9%. On operational front however, its Interest Income rose 19% which is a good sign. Another news though credit positive but equity dilutive is the Government of India’s approval to infuse capital by Rs 1800 crores (inclusive of premium). We do not know how the Government will structure the deal, but if they use market rate, then 30 crore shares may be issued anew, and if Par Rate is used, then almost 180 crore shares may be issued. One may await for market to digest the news and then consider buying in three stages – 20% now, 30% on correction and balance when the positive news start hitting the screen. That is, if you intend to buy say 5000 shares, you will buy 1000 now, 1500 more on correction and balance 2500 only when the negative news have stopped and positive news on earning front begin to emerge. Not easy for Retail investors, but we will cover more later in the stock specific recommendations. Please note that NPA is just provision, and once the situation begin to improve, NPA will be written bank so that the profit numbers would look more that rosy at that time. This applies to all banks, not only IDBI Bank
    3. We are bullish on Aluminum sector in 2014. We therefore like HINDALCO. It is trading at Rs 113.50 with low of Rs 85+ in August 2013, about two months ago. Current rally is more general market driven, rather than stock specific news. We do not think that the stock may see the lowest level of Rs 85, so would consider within our buying range between Rs 92 and 103. It is high quality stock, available at attractive valuations.

 

Special Situation:

  1. None today.

 

OVER

 


Stock Observatory India

Ref: ISO/13/13 of Wednesday, 30 October 2013, at 08:30 am – India Time)

 

US & Asian Markets today

INDEX

CURRENT

PREVIOUS

CHANGE

COMMENTS
Dow Jones USA

15,681

15,569

112

NASDAQ

3,952

3,940

12

NIKKEI – Japan*

14,458

14,326

 132

Hang Sang -HK*

22,979

22,847

 132

SENSEX – India*

20,929

20,929

 0

* = live intra-day. Dow Jones and NASDAQ are quoted closing price of previous day

Overnight Events and Effects:

USA: Strong market due to stronger dollar. May not sustain though. Apple is facing heat from Samsung, its profits are down, though not substantially. It is just perception that Apple may have to bite the Samsung bullet soon.

 

EUROPE/ASIA:

Nothing significant to note.

INDIA:

See under Indian stocks.

 

Currency:

Pair/Index

LATEST

PREVIOUS

CHANGE

Comments

US$ Index

79.65

79.61

0.0400

Strong
Euro/US$

1.3733

1.3779

-0.0046

Rs/US$

61.31

61.54

-0.2300

Observation (Currency):

 

 

Interest Rates (US$)

LIBOR 1M

0.1680

LIBOR 3M

0.2374

LIBOR 6M

0.3554

LIBOR 1Y

0.6051

T 1M

T 3M

0.04%

T 1Y

0.10%

T 2Y

0.31%

FED Target T 5Y

1.26%

T 10Y

2.50%

T 30Y

3.61%

LIBOR: More actions on upside in 3M and 6M where the rates rose after a long time and significantly. If it holds, and gains further, there may be troubled signs to the money market. The rates for 1M and 12M remained unchanged. However, more critical rates in banking sector are 3M and 6M based on which borrowers’ rates are set. Watch this from now on for some signs for corrections in equity markets.

 

US Treasury: Only 3M funds rates doubled from previous day, matching LIBOR rise. Other rates were nearly same to lower on 5Y, 10y and 30Y maturities. Can we draw conclusion? Not yet. Some demand for $ resulted in lower rates, meaning funds came in for medium maturities. It is also inferred that there was sell off in 3M notes/bonds so that yield rose there. One reason for rise in US equity was again the talk that FED may taper soon, which caused the short term rates to spike, gold to fall and USD to rise. If USD is bought, it has to be invested in treasury (if funds arrived from Asian/European countries). The spike could be derivative related, because we never know the volume in any currency since they trade in OTC market.

 

Commodities

Item

Latest

PREVIOUS

Change

Current OI

Previous OI

Change

Oil (WTI- USA)

98.20

98.68

-0.48

357,575

360,037

-2462

Oil (Brent) …

109.01

109.61

-0.60

17,503

17,336

167

Gold …

1,345.50

1352.20

-6.70

225,491

227,039

-1548

Silver …

22.50

22.54

-0.04

76,583

77,102

-519

Palladium …

747.05

750.45

-3.40

35,558

35,233

325

Platinum …

1,462

1,472.90

-10.90

53,600

54,090

-490

Observation (Commodities)

  1. OIL: Although oil fell, the short interest was lower by 2452 contracts, a corollary to falling price. Normally, fall in price should be accompanied by higher short position
  2. GOLD: Was pushed down in morning trades when it opened at 1316 against previous close of 1352 (that is down by $36 or nearly 3%) However, it recovered swiftly to close at 1,345 with a loss of just $6.70. It means that morning trades were false trades engineered by some interested brokers or market players to adjust their books. Further, Gold was sentimentally down on resurfaced talks ot FED tapering, because dollar was sinking and needed some support from FED. It was just an oral support, to talk up the dollar when it was close to trading near two years low.
  3. SILVER: corrected by just 4 cents, because Silver did not give company to gold during last 5 days when it (gold) was rising. Short interest came down suggesting that Silver prices may gain in coming sessions. Silver is still within our buying range (upto $25.85)
  4. PALLADIUM: dropped from logical level of $750. In fact, Palladium is tired after hitting $750. Short interest also rose by 325 contracts confirming that the traders were taking short position to make it weaker.
  5. PLATINUM: gave a company to Gold, but it is still stronger than Gold. In spite of falling, the short interest dropped by 490 contracts suggesting that the players did not want to wager the trade against this metal. Expect Platinum to continue to show better performance. However, we are still believer in Gold, because Gold, not Platinum, which is bought by countries to build their FOREX reserve.

In short, our position is to recommend Silver within our buying range, buyer in Gold and hold the position until December (at least last week of November due to expiring contracts scheduled for physical delivery), sell for Palladium and Buy for Platinum.

 

Metals, ferrous and non ferrous, will perform better due to demand returning. Commodity currencies such as Aussie Dollar, Russian Roubles, Canadian dollar and South African Rand to perform better (including Brazil real). However, Canadian Dollar will be safer bet since US may not want to hurt its business partner. We like Aussie dollar more than other currencies. Kiwi dollar too will improve.

 

Stocks: Our Observations and Comments

  1. RIL: No effect on RIL prices in spite of negative news concerning possible demand from Government to return the 5 wells in KG – D6 location. Strong market gave support to RIL prices.
  2. FII: continue to invest more and more. No signs of letting up. Weaker rupee makes their purchases cheaper by at least 15% compared to similar index level in the past.
  3. RBI: may announce its rate decision today. The expectation is rise in repo rate by 0.25% and equivalent drop in Margin facility. RBI also uttered words that the Consumer prices may rise again posing inflation risk. Excessive rain destroyed or damaged kharif crops, especially Soybean in our region Amravati. Vegetable prices may also rise, including Onion since wet weather spells doom for mature onion crop. If Rajan is bold enought to experiment with lower rates, we will give him full marks for right actions at right time.
  4. BANKING STOCKS: May be it it time to take small position in banking stocks due to strong inflow of FII money. They will roll over from profitable position to undervalued sec tor like Banks and finance. We still like Andhra Bank, Bank of India, IDBI Bank, UCO Bank and Bank of Baroda. Among private sector banks, names like Indusind Bank may be preferred.
  5. FINANCE STOCKS: Mahindra Finance, Muthoot Finance and from value point of view, IFCI may be good. The possibility of IFCI getting banking finance may cause re-rating of this stock. Better take anticipatory position into IFCI
  6. OIL Stocks: Except some tactical position in OMC stocks like IOC, HPCL and BPCL, this sector may be avoided due to weaker oil price trend overseas and stronger rupee level. The refiners like OMC are preferred compared to producers like ONGC, CAIRNS etc. We will cover Oil sector very soon.

Special Situation:

  1. Market talks suggest that new FII money will go to spot strong non index stocks to cause rotational switching. There could be profit taking in FMCG sector like HUL, ITC, DABUR but the who will be the winner is difficult to guess. We can only say that the money will travel to Auto sector and Banking Sector.
  2. May be it is good time to buy Gold ETF due to rising trend in gold prices overseas. Rupee may not gain too much, so local rupee effect on Gold will be higher. We do expect the Gold to rise to over Rs 34500 in local terms within 2 months due to wedding seasons ahead.

 

OVER

 


Stock Observatory India

Ref: ISO/13/1x of Tuesday, 29. October 2013, at 10:00 am – India Time)

US & Asian Markets today

INDEX

CURRENT

PREVIOUS

CHANGE

COMMENTS
Dow Jones USA

15,569

15,570

-1

NASDAQ

3,940

3,942

-2

NIKKEI – Japan*

14,376

14,396

 -20

Hang Sang -HK*

22,910

22,807

 103

SENSEX – India*  20,551

20,571

 -20

* = live intra-day. Dow Jones and NASDAQ are quoted closing price of previous day

Overnight Events and Effects:

USA:

    1. Dollar gained a bit with Euro adjusting a little on downside. Gold firm and still moving up. Interest rates are still stable with downward bias. Among the leading stocks, Apple reported significant rise in revenue but its profit did not rise enough with the volume which caused concern to the Analysts following this stock. NASDAQ down marginally, Dow also down marginally. No significant news on economic/monetary or political front. Other markets responded positively. If there is no negative, it is positive news for the Asian markets opening on next day morning when US is sleeping.
    2. Job report is awaited before major moves in the market. The Consumer Confidence Index, a vital and leading indicator, may show that it fell to 5 months low. Actual data is awaited. Another indicator, Retail Sales, may also show no improvement and may be at last 6 month worst level. However, Christmas season is coming closer and also Thanks Giving day. It might give lot of boost to the Retail Sales. I see more hiring signs near the Retails stores seeking temporary workers ahead of holiday seasons.
    3. Nevertheless, most important reading in this Author’s opinion is the Interest rates which are , at short end up to 2 years, are low giving lot of refinancing deals. Unless something happens on the rate fronts, nothing may happen on the downside, but on contrary, stocks may move higher but slowly.
    4. Profits at corporate level are at good level, suggesting no more downside risk for the stocks. If the rates advance only by 2%, almost all profit expectations may begin to falter as most of the balance sheets are still highly leveraged.

 

EUROPE/ASIA:

  1. Malaysia is racing ahead as business friendly nation. It is among top 10 in World Bank’s list. A good show for a Muslim nation. This news must be in the air due to which the currency Ringgit was rising for over last few sessions. Now that the news is out, it may give up some gain.
  2. Confidence in Euro zone is rising. After sterling performance by Germany, France is likely to report higher confidence level. Britain is already advancing on its own. In short, Europe is on rising node. Our expectation of Euro rising to 1.41~1.43 level may materialize in next 2 months, may be before November ends.
  3. Chinese are beginning to invest into British property, says a Bloomberg report. The China added more liquidity in the money market causing lower rates to the cheer of the market. China is going against paper money investment, and placing money in hard assets where the chances of losses are relatively less.
  4. With dollar weakening, the metals and minerals are looking up. More under commodities.

INDIA:

  1. ET suggests that RBI may raise the rates soon in next few days by 0.25% on the funds lent to the banks. At the same time, it may reduce Marginal Finance facility by almost 0.25% to bring down the cost of the funds to the banks. What I do not understand, how RBI expects to lower the cost of funds when it raises the rates on loanable funds to the banks by 0.25%? This is the main reason why the Banks CEO were reluctant to lower the lending rates in their meeting with the Finance Minister.
  2. From the iteration of the RBI Governor, Raghuram Rajan, this Author appears to believe that Mr. Rajan might be the best of the Governors in recent crop of 7 to 8 years. However, the Prime Minister has to remove C Rangarajan from his post of Special Advisor. He was one of the poorest RBI Governor and may give wrong advice to the government.
  3. RBI needs to be bold to reduce the rates, when the market expectations are for higher rates. RBI has to show less concern to budget deficit and inflation for at least temporary period of 6 to 9 months to let his lower rates work through the economy. The markets may gain by at least 5% and funding costs of many borrowers in power and infra field may come down, and also enabling them to raise the money from the capital market. Mr. Rajan is having golden chance to prove himself as “unorthodox governor” and he may well get the attention of Mr. Chidambaram, Finance Minister who want to see the rates lower. When the policy maker (Government) and Monetary Authority (RBI) work together, there is no reason why the economy should not start kicking itself for higher growth.

Currency:

Pair/Index

LATEST

PREVIOUS

CHANGE

Comments

US$ Index

79.38

79.197

0.1830

 

Euro/US$

1.3779

1.3807

-0.0028

 

Rs/US$

61.49

61.44

0.0500

 

Observation (Currency):

None today

Interest Rates (US$)

LIBOR 1M

0.1681

LIBOR 3M

0.2358

LIBOR 6M

0.3538

LIBOR 1Y

0.6056

T 1M

T 3M

0.02%

T 1Y

0.10%

T 2Y

0.30%

FED Target

0.25%

T 5Y

1.29%

T 10Y

2.53%

T 30Y

3.62%

Rates are stable to weaker, positive for the market. The actions are only up to 2 Year maturities and to some extent even 5 year maturities.

Commodities

Item

Latest

PREVIOUS

Change

Current OI

Previous OI

Change

Oil (WTI- USA)

98.68

97.69

0.99

360,037

361,196

-1159

Oil (Brent) …

109.61

106.93

2.68

17,336

17,336

0

Gold …

1352.20

1,352.5

-0.30

227,039

228,905

-1866

Silver …

22.54

22.64

-0.10

77,102

77,834

-732

Palladium …

750.45

747.9

2.55

35,233

35,266

-33

Platinum …

1,472.90

1,455.40

17.50

54,090

NA

54090

Observation (Commodities)

  1. Oil is beginning to go higher. Gold is strong but there is no matching strength in Silver. If the rally in Gold sustains, it is possible that Silver prices may flare up suddenly to Rs 54000 level. If Gold corrects after FED meet, Silver may also correct more even if it has not advanced recently. Use any correction in gold prices as good opportune moment to invest.
  2. To safe players, Gold is the proper commodity to invest. There are many reasons – Government is raising more and more import duty, international prices of gold in dollar terms are rising and third, physical demand for gold may flare up ahead of wedding season.
  3. No comments for other commodities.

Stocks: Our Observations and Comments

  1. Dabur reported lower profits, but this stock is still one of the good one to own for at least next 3 to 5 years. If the stock drops by 5% to 10% for whatever reason, it would be a buying opportunity.
  2. If the rates do rise, the banking stocks and housing stocks may suffer correction. Housing Finance stocks may also show some correction. However, underlying demand for housing is so strong that major correction expected by this Author may not happen soon. Nevertheless, this Author is still looking for correction in housing prices in almost all centers except Bangalore.
  3. RIL, led by Mukesh Ambani, might suffer as Oil Ministry is expected to force the company to surrender five gas fields under KG-D6 blocks valued at over $5.6 billions, and arrange a fresh auction to the parties more amenable to expand fast in this area. The Government is finally bringing regulatory pressure on RIL to behave or get lost. Interesting. Avoid RIL for the time being.
  4. Among the buzzing stocks will be those whose subsidiaries might be vying for Banking License soon to be announced. 26 applicants are short listed and about 5 or 6 might be given the license.
  5. Gold financing stocks may advance due to rise in gold prices overseas and constant level of Rupee which raises the cost of import. One company that stands out is Muthoot Finance. We will cover this company later this week.
  6. Essar Oil is in news today. It reported losses of Rs 71 crores mainly due to heavy forex losses of Rs 770 crores. It looks like that these Forex Losses were book losses due to dollar denominated debt which rosé in rupee terms due to sudden depreciation of Rupee. On operational front, however, the profit rosé and expenses came down (interest cost) – how we do not know because lower interest cost means that some of the rupee debt might have been converted into low interest bearing dollar debt. However, it will lose more on exchange and may save on Interest. Its Refining margin has also come down, mainly due to heavy depreciation of rupee because Gross Refining Margin is usually dollar denominated. We do not think it is right time to buy more of Essar oil at this stage. Hold for a while is our recommendations. However, if Rupee marches ahead and breaching Rs 60 level, then may be future performance may improve. It is difficult to evaluate the companies because their cover operation or swap operation are not disclosable transactions. We have to just guess that the company may be doing right, but in reality the company may have taken wrong actions.

Special Situation:

  1. None today.

OVER

 


Stock Observatory India

Ref: ISO/13/11 of Monday, 28. October 2013, at am – India Time)

 

US & Asian Markets today

INDEX

CURRENT

PREVIOUS

CHANGE

COMMENTS
Dow Jones USA

15,570

15,509

61

Strong, rising again.
NASDAQ

3,942

3,928

14

Techs are still strong
NIKKEI – Japan*

14,239

14,089

 150

Rose after few days of losses
Hang Sang -HK*

22,811

22,700

 111

Rose after few days of losses
SENSEX – India*

20,711

20,683

 28

Strong market depite woes.

* = live intra-day. Dow Jones and NASDAQ are quoted closing price of previous day

Overnight Events and Effects:

USA:

  • JP Morgan Chase agreed to $5.1 Billions settlement with US Federal Housing Agency for having misled investors during housing crisis. Well, the banks usually have very narrow spread of 0.50% on net basis (Interest Received (say 3%)- Interest Paid (say 1.5% on Bonds/Deposits or FED) LESS All expenses including Taxes say 1.0 %).

That is, to recover $5.1 Billion loss, JPMC will have to clock extra turnover of ($5.1 Bln/0.50) * 100 = $ 1.02 Trillion.

 

(The formula is to earn $0.5, it has to clock a gross income turnover of $100 or nearly 200 times the net income. So, to earn $5.1 Billions, it has to clock income turnover of over $ 1,020 Billions (200 x $5.1 Billions) or $1.02 trillions.

 

Now again, if the businesses who pay $3 to the bank towards interest annually, they should borrow $100. that is, nearly 33 times the gross interest paid. In other words, the businesses will have to clock a turnover of $ 34 trillions which is nearly “twice the size of US economy (About $16 Trillions).

 

WOW! That is unbelievable. Where from these banks would generate such money. If it is not from the “income”, then they will have to borrow $5.1 Billions from the market and pay for the settlement. This debt will have to be liquidated sooner or later out of profit or income as per above formula.

 

In other word, most balance sheets of banks are heavily leveraged. In country like India, the Gross Income Spread (Interest Received from the Borrower LESS Interest paid on Deposits or Borrowings from RBI) is about 6% whereas in USA it is much less at just about 2%

 

One day, such eventuality will have to become a reality, When? We do not know because the banks are “concealing these hidden losses by using Interest Swaps or similar derivatives”.

  • Equity market in US was strong on Friday. It is surprising that both equities and gold are moving in same direction. Normally, Gold goes in the opposite direction in 8 out of 10 market behaviour pattern. Let us see now, whether US Index retraces or gold collapses? Yes, Gold future is in the hands of state sponsored hedge funds and large banks who are receiving favors and free money from the Federal Reserve.
  • Bernanke is no longer heard. He is on way out, so no one listens to the old horse. Every one will look up to the new lady as FED Chair Woman.
  • Samsung is moving ahead of Apple in garnering market share in non US markets. Google’s Android is proving more popular than Apples’ IOS 7 system. Microsoft too is doing very well with its Windows 8 system on PC and Mobile phones. In other words, the techs are doing much better than other industries. The electronic small gadgets are so popular and indispensable that the model changes every 6 months and the consumers are forced to replace the older generation with new generation, ensuring constant demand.

 

EUROPE/ASIA:

  1. Barclays report that Hong Kong property prices may drop by massive 30% by end 2015, that is, in 26 months. Impossible, when the price drops, they drop quickly and massively. Descent is always swifter than Ascent. In any case, Hong Kong though its currency tied to USD, can not manage the interest rates as efficiently as US because derivative market in USA is in the hands of FED and US Treasury. They can call the shots, Hong Kong can not emulate it.

INDIA:

    1. The foreign investors continue to pour money into Indian stocks. India is the second largest beneficiary of Foreign Investments in equity after Japan in Asia.
    2. Business standard reports that nearly 500 Bombay brokers shut down their shop in India during last 12 months. Is it not surprising that “BSE Index is reaching new high every day, and two brokers per day close down” due to little or no business at all? What does it indicate? The most equity business is now in the hands of largest brokers, funds, pension funds and banks. The small brokers who depend on the retail investors do not earn much since most small investors are deeply in red in their portfolio. The retail investors do not buy Hindustan Lever, Infosys or TCS but they opt for the stocks below Rs 50. Those stocks do not do well.
    3. RBI’s new governor, Raghuram Rajan appears to have started his opening batsman position with few fours and sixes. I do not understand the RBI’s policy. On one hand it raises the “repurchase rate by 0.25%” each time, and at the same time, reduces “Marginal Standing Facility Rate” by 0.25% which is allowed to the banks. In short, he is mimicking the Federal Reserve in United States, to go on imparting liquidity to the market with cheaper funds. The correct policy should be “Either reduce the rate on all fronts or increase them” in order for economic or monetary measure to have real effect. In all fairness, the rates in India are overly inflated, and there is every reason to bring them down to by at least 3% to 4% on all fronts. When the lending rates reduce, the deposit rates too will reduce, so the net profitability of banks may remain same or improve, because NPA will come down. Mr. Rajan does have charisma to take bold steps. Let us see whether he plays aggressively with fours or sixes or just run a single or two, letting most overs to go maiden.

 

 

Currency:

Pair/Index

LATEST

PREVIOUS

CHANGE

Comments

US$ Index

79.197

79.21

-0.0130

 

Euro/US$

1.3807

1.3790

0.0017

 

Rs/US$

61.44

61.46

-0.0200

 

Observation (Currency):

US dollar continues its weakest performance for over two years. The USD index is not going anywhere. Euro is also rising, having broken the barrier of 1.38. As we predicted, it will settle down at 1.41 to 1.43 level after a few hiccups of rally in dollar in the meanwhile. Aussie dollar is also performing well. Most commodity currencies are now in recovery mode. It is for this reason we prefer metals and mining stocks now. Their prices will also rise in terms of US Dollars. It is time to swap some small positions in tech or software stocks and swap into metals and minerals such as steel, Aluminum, copper and related ores. Software stocks too will lose momentum due to rising rupee now. Yes, the software stocks will gain in volume but in Rupee terms they may have to lose or limit overall gains.

Interest Rates (US$)

LIBOR 1M

0.1686

LIBOR 3M

0.2368

LIBOR 6M

0.3539

LIBOR 1Y

0.6057

T 1M

T 3M

0.03%

T 1Y

0.10%

T 2Y

0.30%

FED Target

0.25%

T 5Y

1.29%

T 10Y

2.52%

T 30Y

3.61%

The rates are lower on LIBOR front and so also on US treasury front. The big enemy to market is still silent or hibernating. Until it raises its head, ALL IS WELL on equity front.

 

2 Year Treasury rates are above the short term FED target of 0.25%. In other words, most interest rates swaps business is done at shorter end, keeping the housing rates lower. When 2 year rates rise to 0.5% to 1.0%, then only shorter maturities may rise with the result that Housing Crisis may begin to take shape. At the moment nothing to worry about unless some major institution fails. Who could be we may not know.

Commodities

Item

Latest

PREVIOUS

Change

Current OI

Previous OI

Change

Oil (WTI- USA)

97.69

97.85

-0.16

361,196

356,194

5002

Oil (Brent) …

106.93

106.99

-0.06

17,336

17,935

-599

Gold …

1,352.5

1,350

2.50

228,905

225,091

3814

Silver …

22.64

22.83

-0.19

77,834

76,147

1687

Palladium …

747.9

747.8

0.10

35,266

34,857

409

Platinum …

1,456.20

-1,456.20

54,062

-54062

Observation (Commodities)

  1. Gold is rising but the Open Interest is also rising suggesting some players are selling short at higher level. During the day, the Gold saw the lowest level of 1316 suggesting some short players are trying to establish the level at lower range. On fundamental basis, the gold is showing the signs of rising due to perception that FED easy money policy will stay much longer than expected
  2. Oil was shorted heavily again in USA. However, the price fall was limited.
  3. Silver was less active than gold, so the price fell with open interest rising. Silver is now playing second fiddle. Until Gold consolidates its position at higher level, Silver may not gain much. It is still a strong buy when it is low. Silver buying overseas (not in India) is more suggested due to rising rupee trend.
  4. Palladium is not moving much with the result that short interest is rising. It looks like Palladium is tiring at near $750 level. It is still good time to sell Palladium and swap to Silver (if you have bought Palladium before on our recommendation).
  5. Platinum is still strong due to higher uptake in Auto sector where this metal is used as catalyst.

Indian Stocks: Our Observations and Comments

  1. FII are strong buyers. Rising rupee also helps them gain more on currency also apart from stocks. Indian market may remain more on upside than downside. Yes, onion prices are going above Rs 90 per kg in some places, raising the spectre of inflation, but most FII are chicken and meat eaters and detest onion anyway. (just kidding)
  2. Time to swap some small position from Softwares to other sectors such as Metals, Auto and Banking sector in that order. Since oil prices are going no where, coal prices in India may remain under control. Avoid coal based stocks for the time being except its leader – Coal India
  3. L&T could be short term good buy since more FII money is getting into this scrip, and LIC India holds over 16% stake into this company. LIC is usually a long term investor, so it may not sell this stock even when the market goes lower. The less supply of this scrip augurs well for L&T, even if the infra structures are in weak territory. Its order position is still strong. At current market price of Rs 967, the stock could go to Rs 1185 to 1200 level in next two or three months. If one can buy in correction at around Rs 920 level, downside could be reduced by 5%. Since the trend is upward, buying even at current level may not hurt much.
  4. It is better to stay with large cap stocks than small ones when the market is trading near high. Good bargains are still available in metal sector and Auto sector. Ashok Leyland is one of them.
  5. Among finance sector, the auto financiers like Bajaj Finance and M&M Financials are suggesed. Both of their parents are doing well, so their in house business is pretty strong.

Special Situation:

  1.  None today.

 

 



Stock Observatory India

Ref: ISO/13/10 of Friday, 25 October 2013, 10:00 AM)

 

Overnight Events and Effects:

  1. “Central Banks Drop Tightening Talk as Easy Money Goes On” was the title to leading story on Bloomberg, and it tells all. There is no growth anywhere except perhaps in Germany and South Korea, budget deficits swell everywhere, and Central Banks are printing more money to keep the rates down to all time low, which move support stock prices, bonds and Housing markets everywhere.
  2. US markets rose due to good numbers from Microsoft. Apple or No Apple, Microsoft has its own place in windows, and its profit surged 17%, signifying its strong hold on corporate sector, and success of Windows 8 system.
  3. Indications given again that the US interest rates will be on hold for some more time, and until Bernanke is out of FED physically, no major moves are expected during transition. The world gets breather and almost all major markets are in advance mode.
  4. Bad news in Japan – CPI Index is moving up. How long Japan will keep its rates to zero, we do not know. Its trillion dollar deficit will play havoc on deficit numbers if the rates rise even slightly.
  5. India is having second largest Foreign Funds Inflow after Japan. The world is finally taking notice of India, regardless of inflation, slow growth and corruption. At the moment, the market in India, except some reactionary moves to outside events, is likely to hang around.

US & Asian Markets today

INDEX

CURRENT

PREVIOUS

CHANGE

COMMENTS
Dow Jones USA

15,509

15,414

95

Mild rebound, Low rates
NASDAQ

3,928

3,904

24

Strong after Microsoft shines
NIKKEI – Japan

14,312

14,486

 -174

Reaction to CPI numbers
Hang Sang -HK

22,805

22,836

 -31

Weak. Bad news on property
SENSEX – India

20,725

20,768

 -43

Stable due to large FII inflow.

* = live intra-day.

Bad news in Japan where CPI numbers rose for fourth month in a row. Hong Kong reported slowest sale of properties since 1996, with only a few transactions completed. It is possible that Hong Kong Property debacle may lead the global routes in future.

 

Currency:

Pair/Index

LATEST

PREVIOUS

CHANGE

Comments

US$ Index

79.21

79.21

0.0000

Stable to weak bias
Euro/US$

1.3790

1.3787

0.0003

Strong, may rise further to 1.42
Rs/US$

61.46

61.52

-0.0600

Stable due to weak dollar

Observation (Currency):

US Dollar near two years low. It seems that big players are finally realizing that money printing has to stop in near future. Euro is at its strongest level. Rupee is stable due to dollar default, not the strength of the Rupee.

 

Interest Rates (US$)

LIBOR 1M

0.1710

LIBOR 3M

0.2381

LIBOR 6M

0.3562

LIBOR 1Y

0.6066

T 1M

T 3M

0.04%

T 1Y

0.07%

T 2Y

0.10%

FED Target

0.25%

T 5Y

0.30%

T 10Y

2.51%

T 30Y

3.60%

No major moves noticed.

 

Commodities

Item

Latest

PREVIOUS

Change

Current OI

Previous OI

Change

Oil (WTI- USA)

97.11

96.86

0.25

356,194

347,314

8880

Oil (Brent) …

106.99

107.80

-0.81

17,935

18,886

-951

Gold …

1,350

1,334.00

16.00

225,091

225,084

7

Silver …

22.83

22.617

0.21

76,147

77,094

-947

Palladium …

747.8

746.10

1.70

34,857

35,029

-172

Platinum …

1,456.20

1,439.60

16.60

54,062

54,747

-685

Observation (Commodities)

  1. We commented before some weird moves on Gold front. Even today, the market opened near 1300 level and then rose swiftly. It appears someone is trying to manipulate the Gold prices on opening. Gold is gaining due to dollar default and FED’s intention not to taper easing. The bond buying may continue, and over $500 billions will be absorbed in the budget deficit in next 6 months. Gold is no doubt strong, having passed $1335 level convincingly.
  2. Silver is not so strong as Gold. Since Gold is likely stay strong for a few months now, Silver may begin to show strength later. I thing any correction in Silver may be a strong buy opportunity.
  3. Oil is showing strong surge in Open Interest position. Gold despite strong rise, there was no reduction in open interest, in fact they rose slightly. A bit surprising.
  4. Huge short positions are created on WTI Oil front. We doubt oil may stay low for long time due to weaker dollar.
  5. Silver is not so strong. Palladium is stable to strong and Platinum prices are rising due to strong demand.

 

Stocks: Our Observations and Comments

    1. Due to dollar weakness expected to continue for some more time, it may be a good time to start buying metal stocks, such as Steel, Aluminum and Copper. Rise in their dollar prices may translate into gain in India if only Rupee does not rise. Otherwise, rise in metal prices may be capped to the extent of Rupee recovery.
    2. I do not understand why Jet Airways lose so much of money in spite of higher traffics? The company is still not out of the wood at least. Allow it to weaken before buying.
    3. Since the market is at high end, we do not suggest position into illiquid stocks. Better stay with large cap stocks and leaders rather than small or medium sized companies.
    4. Banking stocks does offer good opportunity. But we believe that the negative news and rising NPA has not been played out in the prices. Some more bad news must come from banking sector. Watch this sector for a buy or new positions. Not at the moment.
    5. Auto sector will continue to flourish. We have to pick up the bargain in this sector.

 

Special Situation:

  1. None today.

I am not physically well today, so I will shorten today’s note. I should be fine tomorrow, just need some rest today.


 

Stock Observatory India

Ref: ISO/13/09 of Thursday, 24. October 2013, 11:30 AM)

Overnight Events and Effects:

USA

  1. Most central banks have given up the “tightening talk” and FED too gave indication that it will continue with its Bond Buying program @ $84 Billions per month, until it sees the evidence that the economy has improved. The lower rate policy therefore will continue until Mid March 2014, so unless some trigger news hit the market, we may hope to see the equity markets the world over still gaining more.
  2. In spite of continuous stimulus, there are no real signs of economies improving. Thus, most of $84 billions per month do nothing to help, but instead, the economy continues its slow path to recession.
  3. Europeans are doing somewhat better than US. British economy is acting independently and shows some signs of economic revival. With no negative news coming from UK, the British Pound may gain by at least 3%.
  4. With FED’s continued buying of bonds, and increasing the budget deficits, it is likely that Congress will face more daunting task due to almost $500 Billions rise in budgetary deficits since its Debt Ceiling agreement this month. In short, the US deficits are rising at the clip of $1 trillions per year. It looks likely that after water, only dollar will have more liquidity. The USD is poised for big decline unless FED experts come out with some real surprise.

 

EUROPE:

  1. Europe is incredibly strong, with Germany shining under the moon light. Euro is surging ahead, and it does look like it may hit 1.41 level soon. With that, Gold and Silver prices too may shine. The commodity currencies Aussie dollar, Canadian dollar and South African Rand (along with Russian Rouble) are poised to charge.
  2. Chinese currency is incredibly strong. Chinese Yuan and Euro are shining currencies and perhaps strongest.
  3. All advanced markets are following leader US in keeping the interest rates low. No government or Central Bank wants to raise the specter of rate increase. Let us all travel in same train. Swim and Sink together.
  4. Almost all markets are so strong on equity front, that the chances of severe correction are rising. The only preventing factor is the readiness of Central Bank to keep the rates low near to zero. In that case, what would be the trigger?

INDIA

  1. The market is incredibly strong, mainly due to Software stocks, after spate of results from the stable of TCS, Infosys, HCL and Wipro beat the street expectations. The main driver for Software sector is not the quantitative growth but massive depreciation of rupee by almost 20% in last 12 months. Your weakness is my strength, says Software companies to Rupee.
  2. Banks are rising finally mainly due to strong flow of $ into the Indian market. Everything is rising – Budget deficits, trade deficits, inflation, CPI Index, Wholesale Price Index, properties, Non Performing Assets etc. And yet, there is no growth. According to this author, Growth may rebound only after it has dropped to 3.5% and stays above that number for at least 6 months.

US & Asian Markets today

INDEX

CURRENT

PREVIOUS

CHANGE

COMMENTS
Dow Jones USA

15,414

15,468

-54

Weak except tech stocks
NASDAQ

3,904

3,929

-25

Weak but not so strongly
NIKKEI – Japan

14,350*

14,426*

 -76

Hang Sang -HK

22,796*

23,000*

 -204

SENSEX – India

20,969*

20,768*

 201

* = live intra-day.

Asian markets dropped steeply yesterday and they continued to fall today. Not a good sign. Us markets may also go lower tomorrow in response to global weakness. Only lower Oil prices may help the US market tomorrow.

Currency:

Pair/Index

LATEST

PREVIOUS

CHANGE

Comments

US$ Index

79.21

79.28

-0.0700

Weak
Euro/US$

1.3787

1.3790

-0.0003

Strong
Rs/US$

61.52

61.61

-0.0900

Firm bias with more inflow coming

Observation (Currency):

Dollar is showing very weak sign., It is almost last two years low level vs. Other major currencies.

Interest Rates (US$)

LIBOR 1M

0.1720

LIBOR 3M

0.2384

LIBOR 6M

0.3557

LIBOR 1Y

0.6086

T 1M

T 3M

0.03%

T 1Y

0.10%

T 2Y

0.31%

FED Target

T 5Y

1.28%

T 10Y

2.50%

T 30Y

3.58%

The rates are lower again on almost all fronts, LIBOR and also US domestic. It appears that Fed after printing more notes is asking the funds to go to London and depress the interest rates, so that ALL IS WELL.

 

Commodities

Item

Latest

PREVIOUS

Change

Current OI

Previous OI

Change

Oil (WTI- USA)

96.86

98.30

-1.44

347,314

365,790

-18476

Oil (Brent) …

107.80

109.97

-2.17

18,886

18886

Gold …

1,334.00

1,342.60

-8.60

225,084

223,465

1619

Silver …

22.617

22.798

-0.18

77,094

77,096

-2

Palladium …

746.10

752.90

-6.80

35,029

34,745

284

Platinum …

1,439.60

1450.70

-11.10

54,747

55,383

-636

Observation (Commodities)

  1. Commodities may rise, with Gold slated to rise strongly. It has passed the level of $1335 again and if it holds at that level, we may see further gain to $1385. Still, the Gold is still in negative territory. It has to rise above $1535 to enter the bull phase again. $1585 will be critical level for Gold to re-enter the bull market.
  2. If the Rupee does not improve ever after dollar debacle, we may see the Gold prices in India to rise beyong Rs 36,500 level.
  3. Silver may not go higher than Rs 58,000 during same period. In dollar terms, Silver has to clear major hurdle at $26.50 level and then again at $29.35 level.
  4. Gold may rise and Platinum may fall. Palladium will act independently. To us, Gold and Silver may be bought selling Palladium and Platinum.

 

Stocks: Our Observations and Comments

  1. Many contend that Banking stocks are near the bottom and attractive buy. When the banking stocks are near low when the market is near 3 year high, it shows that the problems of the banking are not sorted out. We will let the noisy tune to play out on banking front.
  2. While the planes are flying up in the air, their stocks are dipping into the ocean a few fathoms deep. Except Indigo Airlines, most international airliners are still major losers., Look at Jet Airways, Air India, King Fisher and Spicejet and draw your own conclusions.
  3. Judging by the momentum, the SENSEX may hit 23,500 if nothing happens in the global markets negatively.
  4. Although India is the best performer amongst all markets in India, most investors are still losing money. It is a market of large cap stocks – no further down.
  5. While Passenger car segment may not do that well, the commercial sector and farm sector might report good numbers. With Monsoon close to ending, and Kharif crops about to come to the market in less than 3 weeks time, Tractor demand and medium duty vehicles may perform better. Two wheelers may continue to do well due to on set of baby boomers. Ashok Leyland, Force motors, Eicher, Escorts etc may perform better in next 6 months.

Special Situation:

  1. None today.

 

Stock Observatory India

Ref: ISO/13/08 of Wednesday, 23. October 2013, at 11:30 AM India time)

 

Overnight Events and Effects:

OVERSEAS (USA)

  1. Yet again on and off switch at the control board of FED. The indications are given by the FED that it may postpone tapering or tightening the rates by at least 3 months, meaning the QE measures would continue. When the issue of budget deficit comes up, FED starts issuing feelers to the market that it may not continue buying back bonds to impart liquidity. Such actions have effect of increasing budget deficits. FED has been buying almost $83 billions every month or about $ 1 trillions per year to impart liquidity, so that interest rates do not rise. When the agreement on debt ceiling reached, and no more issues on debt front for at least 3 to 4 months, FED switched on the talks that it may continue buying back bonds to impart liquidity in the market. The reason is that if the rates do rise, Housing market will simply crumble, the bank would fail en masses, and dollar would drop, with the result that inflation would perk up at strongest level.
  2. When the issue of debt ceiling flares up in February, FED will send feelers that it may start tapering (or it will stop or lessen its bond buying program). Again, when the agreement is reached in February on Debt Ceiling front, it will reverse its position and send out the feelers that QE will continue, so that interest rates would ease to help the housing and auto sector.
  3. In other words, the rise in interest rates by at least 3% points will be taken as cut off point for the bullish market. Everyone feels that the rates will never be allowed to go higher, but that is when the terror strikes.
  4. One of the largest Hedge Funds in United States, is likely to close down its UK operation first, and may be more in USA in future. The fund, originated by Steve Cohen, was considered to be $14.5 billion dollar fund. The fund faces prosecution by US Authorities for actively soliciting “insider trading”, promoting its traders to seek the insider info to enter the profitable trades, shows in clear terms what Gekko (Michael Douglas showed in Wall Street) told the his broker (Charlie Sheen) that information is key to making money, not the fundamentals. If there are no “insider trading ”, the excitement would die down, the tips will stop floating around, and the investors would become restless for knowing nothing to enter the rings.
  5. The fund, called SAC Capital Advisors LP – a $14 Billion Hedge Fund, would close down due to successful prosecution in USA, for carrying out insider trading since 20 years. The Chief or Pioneer of this fund, Steve Cohen, might be fined $1.8 billion as part of settlement. From where such large payment would come from. Not only that where this “fine money” goes to? The billions of dollars of fines collected by authorities never get into the pockets of the investors, so where do they go? No one knows that.

OVERSEAS (Hong Kong)

  1. One of the savviest investors of all time in Hong Kong, Billionaire Li Ka Shing (85), has finally seemed to have developed negative vision on Hong Kong economy, property market and growth. He is now heading to Europe. Mr. Li was so intelligent that he never ventured into US market, knowing fully well that he can not make money here. The property magnet of Hong Kong never invested into the property market of United States – what does it indicate? The property is in his blood, but his DNA does not permit him to invest in US properties. His only investment was Priceline which was successful. In short, the moves by Li to sell off or spin off retail ventures such as Watson and Park In Shop clearly indicates that he is getting out of Hong Kong to venture into Europe. Mr Li is now 85 years old, and this author doubts his ability to manoever moves in Europe at this advanced age.

DOMESTIC (INDIA)

  1. The golden meeting between FM Chidambaram and Banks Executive did not go well. FM wanted the banks to reduce interest rates by at least few %, whereas the banks politely said NO. The cost of funding is very high, says the banks. Even if the RBI reduces the rates, the banks can not lower the lending rates. REASONS: it is not high or low interest rates, but the rising tide of NPA is hurting the banks a lot. When the bank does not receive one quarter’s interest, say just 3% (presuming lending rates are 12%), it will have to classify the entire 100% loan as NPA and remove it from the normal lending group, losing interest income altogether. It is absurd notion but the pig heads in Finance Ministry and RBI do not understand the significance. What RBI and FM have to do is to change the definition of NPA, so that banks do not have to put off the even good loans as NPA.
  2. WIPRO came out with glossy numbers. It highlighted that Software sector would be the most profitable and dependable sector for growth for many years to come.
  3. Let us see what this Author Kalidas thought and where he went wrong. Kalidas was right in perception that India’s growth would come down and properties may collapse or correct severely. The property did not collapse nor did it correct severely, but it slowed down a lot. Kalidas thought that Rupee would rise to less than Rs 31-33 level at least, but he never expected depreciation by 25%. Because of his perception of rising rupee, Kalidas never wished to enter the software sector. Well, Rupee plunged due to economic mismanagement by RBI and Finance Ministry. The banks found Property as saving icon to ensure dependable interest income, so the markets never got corrected significantly. One thing Kalidas learnt was “Never Bet Against Indian Government on currency moves”. When the Government is hell bent on making Rupee weak, do not bet against it, because there is no free market.
  4. Wholesale Price Inflation is still high above 6.4%, so the chances of rates tending lower are less. While Kalidas understand that near Zero interest rates in advanced markets like USA, UK and Europe could support the housing sector, how rates of nearly 10% to 12%, could support the market at high? It still does not make any sense.

 

US & Asian Markets today

INDEX

CURRENT

PREVIOUS

CHANGE

COMMENTS
Dow Jones USA

15,468

15,392

76

Strong; Buying started
NASDAQ

3,929

3,918

11

Weaker than Dow
NIKKEI – Japan

14,614*

14,713

 -99

Profit taking
Hang Sang -HK

23,312*

23,329

 -17

Profit taking started
SENSEX – India

20,782*

20,837

 -55

Profit taking.

* = live intra-day.

Currency:

Pair/Index

LATEST

PREVIOUS

CHANGE

Comments

US$ Index

79.21

79.73

-0.5200

Euro/US$

1.3778

1.3669

0.0109

Rs/US$

61.45

61.68

-0.2300

Observation (Currency):

Dollar dropped due to fear of lower rates caused by FED intention not to taper it. Euro surged to its strongest level, thanks to solid German economy. Rupee was not affected even when the dollar moved lower. Aussie dollar has started rising strongly. Sterling was firm to slightly weaker. In fact, ZERO interest rate has become a great stabilising factor in currency market.

Interest Rates (US$)

LIBOR 1M

0.17%

LIBOR 3M

0.2383

LIBOR 6M

0.3584%

LIBOR 1Y

0.6126%

T 1M

T 3M

0.03%

T 1Y

0.10%

T 2Y

0.29%

FED Target

0.25%

T 5Y

1.26%

T 10Y

2.49%

T 30Y

3.59%

Rates were stable on LIBOR front, but domestically in US, the rates were whwcked down in derivative segment. Nowadays, the only dictating market is “Futures market” not the delivery based Spot market.

Commodities

Item

Latest

PREVIOUS

Change

Current OI

Previous OI

Change

Oil (WTI- USA)

98.30

99.40

-1.10

365,790

351,350

14440

Oil (Brent) …

109.97

109.64

0.33

18,517

-18517

Gold …

1,342.60

1315.80

26.80

223,465

222,977

488

Silver …

22.798

22.278

0.52

77,096

75,231

1865

Palladium …

752.90

750.25

2.65

34,745

34,373

372

Platinum …

1450.70

1438.6

12.10

55,383

55,287

96

Observation (Commodities)

  1. Oil prices in USA dropped sharply due to breach of psychological barrier of $100 which we predicted two days ago. The surprising thing is, Oil prices in US dropped by 1.4% whereas it rose in London market by 0.33%. This was anomaly in the market.
  2. All commodities behaved strangely. Gold moved up solidly by 2%, but short interest did not reduce, but went up. It was a war between Spot bulls and future bears.
  3. Same thing goes for Silver as well, but normally rabbit metal slowed its pace and rose almost same % as gold. Normally, silver moves almost twice rate that of gold.
  4. Palladium was slow but the Platinum rose by 1%. In almost every future market in commodities, the future market showed rise in Open Interest, that is, the players took higher and higher short position. If the market continue to go higher, short players will have to pay very high price. Commodities is a sector that might cause one of the strong indicator for crash. Watch this sector strongly. Either short interest has to come down or the higher prices have to correct severely. Let us see where the things go from now on. This market reacted to possibility that the FED might stay away from tapering or that more notes would be printed to cause deficit to go even higher and higher.

Stocks: Our Observations and Comments

  1. Nothing much today. We reserve the comments for tomorrow.

Special Situation:

  1. None today.

 

Stock Observatory India

Ref: ISO/13/07 of Tuesday, 22. October 2013, 12:30 pm)

 

Overnight Events and Effects:

  1. Dollar gained a little, WTI Oil prices (US prices) fell below $100. No other news
  2. Dow Jones was little changed. NASDAQ was stronger again for second day in row.
  3. Asian markets up, with Hong Kong rising more than others.
  4. Wild news have started appearing, with some experts predicting “Death of Euro” in 2016 onwards. Just a speculation.

US & Asian Markets today

INDEX

CURRENT

PREVIOUS

CHANGE

COMMENTS
Dow Jones USA

15,392

15,400

-8

Weak to stable. No direction
NASDAQ

3,918

3,913

5

Stronger than Dow
NIKKEI – Japan

14,713

14,699

 14

Firm to higher
Hang Sang -HK

23,329

23,220

 109

Firm to higher. Stronger dollar
SENSEX – India

20,837

20,772

 65

Firm to higher.

* = live intra-day.

Currency:

Pair/Index

LATEST

PREVIOUS

CHANGE

Comments

US$ Index

79.73

79.68

0.0500

Higher
Euro/US$

1.3669

1.3683

-0.0014

Slightly weaker
Rs/US$

61.68

61.53

0.1500

Observation (Currency):

USD was stable to mildly higher. Euro stable. Rupee weaker. British Pound weaker after recent gains.

Interest Rates (US$)

LIBOR 1M

0.17

LIBOR 3M

0.2386

LIBOR 6M

0.3584

LIBOR 1Y

0.6131

T 1M

T 3M

0.05%

T 1Y

0.11%

T 2Y

0.31%

FED Target

0.25%

T 5Y

1.35%

T 10Y

2.60%

T 30Y

3.67%

 

Rates slightly lower, due to rising treasury demand caused by slower stocks. Nothing special here at this time.

 

Commodities

Item

Latest

PREVIOUS

Change

Current OI

Previous OI

Change

Oil (WTI- USA)

99.40

100.83

-1.43

351,350

352,082

-732

Oil (Brent) …

109.64

109.94

-0.30

18,517

18,517

0

Gold …

1315.80

1314.60

1.20

222,977

225,844

-2867

Silver …

22.278

21.91

0.37

75,231

75,957

-726

Palladium …

750.25

740.65

9.60

34,373

34,418

-45

Platinum …

1438.6

1,438

0.60

55,287

55,454

-167

Observation (Commodities)

  1. Oil weaker, Gold firm, Silver stronger, Palladium very strong followed Platinum.
  2. Good to take profit in Palladium and switch the proceeds to Gold, Silver and others.
  3. In future markets, the short position was reduced as seen from reducing open interest. Still no major rally was seen.

 

 

Stocks: Our Observations and Comments

  1. Inflation factor may soon get focus due to faster climbing of Onion prices. In Delhi, onion prices rosé to Rs 90 and may touch Rs 100 any time soon. India is finally entering “Onion Economy”. There is no onion shortage anywhere in the world, except India.
  2. After good show by Infosys, TCS and HCL, focus is on WIPRO. Expect solid numbers.
  3. Syntex Industries continues to rise on heavy turnover. A good company sold off miserably is now back in action. We will take position in this stock when the stock retreats by at least 30% from current level. The stock gained over 60% in last 11 sessions.
  4. It is worth taking larger position in OMC Stocks like IOC, HPCL, BPCL and ONGC. They are near bottom and downside risk is less. Government policy is now more amenable to OMC
  5. The market is otherwise too high. Except for software stocks, it is better to sell other sectors and stay liquid for a while.

Special Situation:

  1. None today.

 

Stock Observatory India

Ref: ISO/13/06 of Monday, 21 October 2013, 09:30 AM)

 

Overnight Events and Effects:

  1. US market was closed but Asian and Indian market rise smartly, almost trading at near 2 or 3 years high. Among developed market, UK posted good growth numbers, giving rise to impression that worst is over for Britain. Among European nations, Germany reported 7% rise in collection of taxes, suggesting the economy there is on strong rebound and corporates are more confident than ever.
  2. In USA, there are no more news except the reaction to Debt Ceiling agreement. While on paper the agreement looks good, the reaction is adverse behind the screen as seen from the rise in gold and silver prices, and also stable oil prices. The traders are simply reversing the position taken ahead of announcement of debt ceiling agreement.
  3. Google is doing better than Apple nowadays. Tech stocks are better than any other sector in United States. Same goes for India, where Software stocks are star performer during last 12 months.
  4. Almost everywhere, the interest rates are near all time low. Most governments are still busy printing more and more notes, which is why most of the markets are not showing no sign of trouble. More notes, means more liquidity, so the monetary crisis is no longer felt. We are trying to figure out the trouble spots or indicators that we must watch to have advanced sign of severe correction.
  5. It must be noted that wrong can not continue for long. True the entire global economy is in the hands of Central Banks of respective nations, who are busy in keeping their interest rates low, and hopes at least of growth alive.

 

US & Asian Markets today

INDEX

CURRENT

PREVIOUS

CHANGE

COMMENTS
Dow Jones USA

15,400

15,372

28

Stable to weaker
NASDAQ

3,913

3,862

51

Tech are strongly placed.
NIKKEI – Japan

14,669*

14,560

 109

Unpredictable.
Hang Sang -HK

23,481*

23,340

 141

Mimicking US. Very strong.
SENSEX – India

NA

20,883

 -20883

Huge rise due to global picture.

* = live intra-day.

The markets may see some technical correction, not severe sell off as yet. The trigger event is nowhere seen or felt. The main driver of the markets is “extremely low interest rates”. No government in the world want to see the interest rates higher, because almost every government is having huge deficit back home. Any hint of higher rates will cause debt to swell beyond acceptable limit. Only major corporate failure like Lehman Brothers will usher in the severe market correction. At the moment, no corporate of similar scale is lined up for default. Ride the rally and if possible, sell out 40% of current portfolio and invest in Silver or Gold as insurance.

 

Currency:

Pair/Index

LATEST

PREVIOUS

CHANGE

Comments

US$ Index

79.68

79.72

-0.0400

Weak but stable, downward bias
Euro/US$

1.3683

1.3663

0.0020

Strong, May go higher due to German’s higher tax collections
Rs/US$

61.26

61.16

0.1000

Still sideways. In spite of huge rise in Index, Rupee is not getting higher In spite of inflow. What is going on?

Observation (Currency):

US Dollar index is weak. Debt Ceiling agreement did not engineer demand for USD. Two major components of USD Index – Euro and British Pound, are incredibly strong, which keeps the demand of dollar at timid level. It may be too risky to bet against rejuvenated Euro and British Pound. Aussie dollar is also inching up, so also Kiwi dollar.

 

Interest Rates (US$)

LIBOR 1M

0.1720

LIBOR 3M

0.2406

LIBOR 6M

0.3599

LIBOR 1Y

0.6141

T 1M T 3M

0.03%

T 1Y

0.12%

T 2Y

0.31%

FED Target

0.25%

T 5Y

1.33%

T 10Y

2.59%

T 30Y

3.65%

LIBOR 6 months is a key Inter bank rate which dictates the interest rates. LIBOR rates used to be higher than US domestic rates, which appear to have forced FED to short LIBOR future in London to make it more pliable to its own interest. The future markets are playing havoc. Most of the future products are not delivery based, which is why the markets are being shorted by vested interests without any fear. Future market is the main trouble spot from where the disease will spread. Who fails in future market is anybody’s guess. We are trying to find the early warning signals – but until now we are not so successful.

 

Commodities

Item

Latest

PREVIOUS

Change

Current OI

Previous OI

Change

Oil (WTI- USA)

101.14

101.11

0.03

352,082

339,586

12496

Oil (Brent) …

109.94

109.11

0.83

18,517

18,848

-331

Gold …

1314.60

1,323

-8.40

225,844

221,406

4438

Silver …

21.91

21.95

-0.04

75,957

75,127

830

Palladium …

740.65

740.65

0.00

34,418

33,668

750

Platinum …

1,438

1,438

0.00

55,454

55,824

-370

Observation (Commodities)

  1. Oil stable. Gold and Silver being shorted again as seen from higher opening interests. Palladium and Platinum are stable to strong. It is time to take profit in Palladium and switch to Gold and Silver. Platinum is strong, for some unknown reasons.
  2. Sell Palladium and Platinum and switch to Gold and Silver.

Stocks: Our Observations and Comments

  1. Many stocks are in news and some of them are even showing economic indicators or where the things would be in near future.
  2. Rakesh Jhunjhunwala bought a few properties for Rs 176 crores and capped the transaction with major buy of Dewan Housing, buying 25 lakhs shares. In short, RJ has turned into a “property bull”. We are on opposite camp. When interest rates are high, deficits moving up and up, inflation is also stubbornly high (may moderate due to good monsoon, some people say), the NPA are going to rise beyond 6% from currently 4.5% or about.
  3. The banks are simply trying to support housing sector more and more. I receive email offers from HDFC bank almost every 3 days, suggesting the only sector where the banks find solace and more security is the housing sector. We are bearish on properties not only in India, but everywhere including US, UK, Hong Kong, India and even Japan. The first trouble sign in our opinion may come from Property front. The properties are heavily leveraged, overprices, interest rates artificially low, and demand not so high, if not less.
  4. L&T reported above average numbers.
  5. Software stocks are charging the BSE index higher. Nearly 21% weightage is given by stocks like TCS, Infosys, Wipro. The hard asset sectors are all in downhill. The hard asset sector is one that provide major employment to majority of population. High Tech stocks provide limited employment to masses.

 

Recommended Stocks and Constant Follow up:

This will be a new feature which may also reduce many questions in CMCA column. Here, we will list brief recommendations, and give daily comments on them. We will also mention whether the stock can be bought, sold or held. We will limit the attention to only 12 stocks in all. When the market is severely corrected, then only we will enlarge the list to 20 stocks.

Sector Stock BuySellHold Current Px Within BuyingRange? Target Time Frame / Comments
Banking Andhra Bank Buy 54.60 Yes< 60 108 15 months

ANDHRA BANK:

  • The stock is trading at 64% discount to its book value. EPS is also near Rs 20. The dividend payout is 25% which is lower than other banks. If EPS growth continues, higher dividend pay out is likely in future.
  • One reason for weakness could be its possible exposure to infra sector, and major companies like GVK and GMR (we believe that they are from Andhra Pradesh, so Andhra Bank may have some exposure – we do not have data however).
  • The dividend is 50% or Rs 5 per share based on Rs 10 face value. Based on current MP, the yield is Rs 5/54.60 = nearly 9.15%, which is Bank’s FD rate. By investing into Bank stock, one may earn also Capital gain. While NPA is nearly 4.75%, the overall growth of the business activities is over 20% – in deposits, advances etc.
  • Since this bank stock is not followed on mass scale, a small position is recommended. (Buy budget not over Rs 200,000 or 2.5% of overall portfolio which ever is greater).
  • The risk to dividend is not serious at the moment.

 

Stock Observatory India

Ref: ISO/13/05 of Friday, 18. October 2013, at 11:00 AM India Time)

Overnight Events and Effects:

  1. All is quiet after Debt Ceiling agreement. Still smokes are seen which may flare up in February. Most investors are convinced that US can not go on for ever with its debt ballooning up and up. So far no credible steps are taken to increase the income and reduce the deficit. As such, the future is hazy.
  2. Google reported glossy numbers. It is beyond doubt that Google may surpass Apple which is suffering from its own weakness. Google has strong following in Android market which is advancing at faster rate than Apple. Both are originators, but google does have edge over Apple. I would rather sell Apple and buy Google on this basis.

 

US & Asian Markets today

INDEX

CURRENT

PREVIOUS

CHANGE

COMMENTS
Dow Jones USA

15,372

15,374

-2

Sideways. May improve tomorrow
NASDAQ

3,862

3,840

22

Tech strong due to Google report
NIKKEI – Japan

14,564*

14,587

 -23

Sideways
Hang Sang -HK

23,250

23,096

 154

Positive reaction to Debt news
SENSEX – India

20,568

20,423

 145

Delayed reaction to US debt news

* = live intra-day.

Dow was subdued, but the NASDAQ was strong due to positive news on Google earnings. Other factors like Debt Ceiling agreement played less part in today’s move. When other major earning news are absent, then the factors like Debt Ceiling guide the NASDAQ market. Nothing significant on market front, except that most commodities have rallied, with Soybean rising by nearly 2%, Gold also moved higher, so also Silver.

Currency:

Pair/Index

LATEST

PREVIOUS

CHANGE

Comments

US$ Index

79.72

79.69

0.0300

Euro/US$

1.3663

1.3525

0.0138

Rs/US$

61.16

61.25

-0.0900

Observation (Currency):

Muted reaction to Debt Ceiling news. The only major beneficiary was Treasury market and LIBOR. Euro remained strong, so also British Pound which has appreciated by over 1.5% in last few sessions. Australian dollar is showing signs of strong revival, but against New Zealand dollar, Ausssie is weak. Other emerging market currencies also improved. South African rand improved by 2% in last two days, mainly due to revival of gold prices. Judging by the indication, Aussie dollar may be good to get in on any retracement moves.

 

Interest Rates (US$)

LIBOR 1M

0.1725

LIBOR 3M

0.2420

LIBOR 6M

0.3594

LIBOR 1Y

0.6201

T 1M

T 3M

0.04%

T 1Y

0.13%

T 2Y

0.31%

FED Target T 5Y

1.33%

T 10Y

2.60%

T 30Y

3.67%

LIBOR rates were down on Debt Ceiling agreement – expected since bonds sold out short were being bought back again, lowering the bond yield. US Treasury also rallied strongly, lowering the yield across the board due to short covering of the bonds sold out previous day. Hedge funds obviously reversed the position today. The rally may not sustain long, and may be by Monday, the yield may go higher by at least 50% retracement of today’s move.

 

Housing market may look up better due to lower mortgage rates. As such, housing sector may perform well in US market for next two or three days.

 

US employment report for October, due on 22 October, was delayed till Novermber 7 due to lack of data caused by Government shut down. The data gatherers are now returning to their desk so the date may be ready within two weeks.

 

Commodities

Item

Latest

PREVIOUS

Change

Current OI

Previous OI

Change

Oil (WTI- USA)

100.87

102.49

-1.62

339,586

337,347

2239

Oil (Brent) …

109.11

110.59

-1.48

18,848

18,913

-65

Gold …

1,323

1,284.60

38.40

221,406

225,254

-3848

Silver …

21.95

21.37

0.58

75,127

75,071

56

Palladium …

737.80

713.55

24.25

33,668

33,717

-49

Platinum …

1,434.90

1398.20

36.70

55,824

56,956

-1132

Observation (Commodities)

  1. Oil dropped due to more short position created on Debt Ceiling news. Although USD was weak, oil still dropped, a contrary behavior. Looks like either dollar has to improve or oil has to get back higher. Judging by general commodity prices trend, it does look like that Oil prices may recover by more than 2% in next few sessions. Attempts are being made to lower the psychological barrier of $100 but that may not happen except for very short duration.
  2. Brent was lower in price in spite of buying back of short position, suggesting Oil prices may recover soon. Brent does not trade much in USA
  3. Gold rose over 3%, due to the fear that USD is destined to weaken and trouble to rise again in 4 months due to temporary relief on debt ceiling front. Gold contracts were bought back for second day in row, suggesting that something is brewing on gold front. We have already suggested weird movement in gold prices on the opening for the last two days, so it looks like that Gold is more on rebound than in correction. Most important actions being awaited are those of rating agencies. While S&P and Moody are silent on US Debt ratings, Fitch, the European Rating Agency, has already informed the market that it may lower the ratings. US agencies are in appeasement mode to Obama administration.
  4. Silver, Palladium and Platinum moved in sympathy. In fact, entire commodity market moved higher, which also propelled the commodity based country’s currencies like AUD, CAN$, Rand and Brazil real. Silver rose in spite of more short position taken as evidenced by rise in Open Interest. Platinum and Palladium rallied strongly. Platinum is especially strong. Palladium rose but more due to short covering, whereas Platinum rose due to real demand. May be there are more delivery based trades.
  5. Nevertheless, brief profit taking is likely in precious metals on Friday (US time) when other Asian markets are closed for week end.

Stocks: Our Observations and Comments

  1. Looks like Congress is about to lose the future election. Most pundits are predicting on resounding victory for BJP and expect it to take largest number of seats. Modi is the main driving factor. If Modi does take charge at the center, expect major thrust in the economy and the public sector employee may be scared to death.
  2. China’s growth quickened to 7.3%. I am skeptical to believe the China numbers. No country, with the size of China, can be expected to register over 7% growth on consistent basis. True, about 10 years ago, such was the possibility, but now with higher base, the growth of 7% to 9% is almost impossible. After all, China is “Iron Curtain” economy – and will release its numbers to tailor its wishes. Chinese Government decide what numbers must be read by the outside world.
  3. India’s growth of 4.7% lags behind China by yards. In terms of volume, China is much ahead of India due to its larger economy. Indian growth may slow even more, may be close to 4.2% by March, 2014. This author predicted growth of 4.5% for Indian economy about two years back, when everyone was predicting 9% to double digit growth. So Kalidas was proved right, may be his prediction was delayed by almost 6 months.
  4. While good monsoon is played out for better economic growth, I think that Farm output may suffer due to more untimely rain this time. It is excess rain that may lower the farm output. I have my own farm in Amravati where Soybean yield is expected lower due to untimely rain continuing. If the farm output is less than predicted, the inflation may accelerate, with the result that the growth in Power sector, Housing, Infra structure and auto industry may suffer more. Indian market is racing much ahead of its core fundamentals. It should have been at about 16000 level against nearly 20,500 level, suggesting that the market is overvalued by 20%. If the market does drop by 20% or more, then the talks of recession may set in. Whenever the market drops by 20%, it is a sign of reversal of fortune.. This is what the Chartists say. Kalidas goes more by numbers than charts.
  5. As result of Clause 4, it may not be good time to enter power or infrastructure now. Wait
  6. Anil Ambani is nursing trouble. Now, he wants to sell out entire Road Development sector to reduce the debt. He has debt almost to his neck. He is sinking no doubt, unless some saviour or white knight comes in. Even Mukesh can not help him because the debt of Anil is simply too high to manage. In two years time, Anil might become bankrupt. His all ventures are in trouble – Power (RNRL), Road Infrastructures (RINFRA) and Reliance Telecom due to price wars on mobile front. Avoid Anil Ambani’s companies except for short term play.
  7. L&T is expected to lower profit by 22% in second quarter. When major infra player like L&T coughs up, every one has to take notice. It is a bell weather stock. It shows the kind of troubles that India is in. The best course for India is to take the bold step by reducing the interest rates by 2% in next 6 months, regardless of inflation factors like CPI. If US can lower the rates to almost zero in spite of huge deficits, why not India reduce the rates from 8.5% to 6.5%?
  8. Finance stocks are on upward move today but it may be time to sell them in this rally. Finance sector is sum total of bad sectors like Power, Infra, Housing and some part of industries. Bad debts are likely to accelerate in third and fourth quarter. Even the tax collection may suffer except from Software sector collection.
  9. May be it is time to go for Metal stocks like Sterlite, Hindalco and defensive sectors like FMCG – ITC, H-Liver, Dabur and Godrej consumers.
  10. Auto sector may not suffer to the extent feared. Owning a car is a status symbol, and the car does not cost as much as the property.
  11. There may be rotational switch, the software and tech sector may soften in favour of other hard asset sectors. However, software is the backbone of India’s growth, and its main negative – Rupee is not likely to recover much until February, 2014. Focus on major correction in TCS, HCL, and other players. I am not expert in Software sector, so consult some other experts in this field.

Special Situation:

  1. Reserved until Monday

Kalidas One Liner

Reserved until Monday.

 


Stock Observatory India

Ref: ISO/13/04 of Wednesday, 16. October 2013, at 09:30 AM)

Overnight Events and Effects:

  1. US Debt ceiling was raised ending almost 16 days of intense negotiation. The voting was 81Y-18N – not a good indication of its future after 4 months on February 2014. President Obama finally won. He almost decimated the Republicans. His popularity is slated to rise as result.
  2. US markets celebrated the event like there was diwali. Unlike India Americans do not fire crackers (they do guns instead). Main uncertainty was over, so at least this weekend the markets may remain firm with more upside than downside.
  3. World Bank projected India’s growth to 4.7%, lower than 5% of the Government target. It may Indian spirit somewhat but with Golden Dasera ahead day after, the market may remain in buying mood with not much negatives around. Indian market does not seem to care negative news on its home soil, but bothers more what happens in USA.
  4. When the market rises strongly, practically every major stock in the index gains. So there is no indication where the money is going and how much. It is just short term recovery in 200 points rise.

US & Asian Markets today

INDEX

CURRENT

PREVIOUS

CHANGE

COMMENTS
Dow Jones USA

15,374

15,168

206

Strong. A Day of Celebration
NASDAQ

3,840

3,794

46

As above
NIKKEI – Japan

14,618

14,468

 150

Satellite effect
Hang Sang -HK

23,257

23,230

 27

Subdued due to rise previous day
SENSEX – India

Not Open

20,548

NA

Will rise today, economy regardless

* = live intra-day.

Read clause 2 and 4 above.

Currency:

Pair/Index

LATEST

PREVIOUS

CHANGE

Comments

US$ Index

80.391

80.500

-0.1090

 Lower but may gain a bit later
Euro/US$

1.3525

1.3528

-0.0003

 May soften a bit due to strong $
Rs/US$

61.86

61.51

0.3500

 Sideways. Consolidating.

Observation (Currency):

Calm returned, anxiety reduced. It is time to go to rest room, the brokers would say. Not much effect on currency market. Rupee weakened due to comments by World Bank’s lower growth projection to 4.7% from 5.0 expected by the government. Most of the growth anyhow is more due to stock market gains. The real production and physical economy is much worse. 5% growth in $1.8 trillion economy means that GDP may grow by $90 billions or by Rs 558,000 crores. Where this much growth may come from when power consumption is on decline. It means that most growth is from service sector or paper trading like stock markets.

Interest Rates (US$)

LIBOR 1M 0.1755 LIBOR 3M 0.2460 LIBOR 6M  0.3644 LIBOR 1Y 0.6296
T 1M T 3M  0.10% T 1Y 0.13% T 2Y 0.32%
FED Target 0.25 T 5Y  1.37% T 10Y  2.65% T 30Y 3.71%

Treasury yield rosé for up to 2 years, but reduced for 5,10 and 30 Years basis, suggesting the FED loyalist brokers were borrowing short term treasuries and selling medium to long term treasuries to bring down their yield to help the housing market.

Commodities

Item

Latest

PREVIOUS

Change

Current OI

Previous OI

Change

Oil (WTI- USA)

102.49

102.49

0.00

337,347

331,412

5935

Oil (Brent) …

110.59

109.42

1.17

18,913

19,392

-479

Gold …

1,284.60

1281.17

3.43

225,254

229,032

-3778

Silver …

21.37

21.20

0.17

75,071

75,652

-581

Palladium …

713.55

706.30

7.25

33,717

33,736

-19

Platinum …

1398.20

1383.40

14.80

56,956

56,580

376

Observation (Commodities)

  1. Oil stable, palladium also stable. Oil was shorted heavily but there was solid short covering for gold as evidenced by reduction in Open Interest ( it means that the short sellers bought back their short position by massive 3,778 contracts or 377,800 ounces (worth $ 490 millions)
  2. Gold some weird movements again. During intra day sharp movements, the gold opened at $1300 level (+$20) and then moved as high as $1339 level or 3%, but the end of the day (mid afternoon) the gold dropped sharply by 4% giving back entire gain. Who is doing that and why we do not know. It is certain some brokers want to record higher gold price during the day to dress up their client portfolio. Platinum was very firm and Silver did not move up or down much in sympathy with Gold. We were therefore correct yesterday that for the time being the Gold moves higher than Silver.

Stocks: Our Observations and Comments

  1. Except for slower growth numbers by World Bank to 4.7%, there are no economic news for India. This negative will be offset by rise in US index caused by higher debt ceiling. Is it not paradoxical that India, Chidambaram welcome rise in debt ceiling in United states (which is nearly 1o times Indian entire economy) but do not like more deficits in home front? If what US does is alright, and if Indians do, they are not so welcome. These rating agencies are really acting in partisan manner. They have no logic but only hidden agenda
  2. On positive side, Bajaj Auto did well with profit rising 13%. That is, two wheelers are better than four wheelers in India. This favor will continue for at least 5 years or so. Good news for other two wheelers.
  3. Birla’s Hindalco suffered yesterday but may rise today. Metals are generally up elsewhere.
  4. We still maintain buy rating of Andhra Bank, followed by IDBI Bank in that order.
  5. Another stock to watch is Syntex Industries, the Plastic tank maker. With more rains this season, there is demand for storage of water. Its sales should rise. We will cover this stock tomorrow. It is a good company but we have to see their financial.
  6. Tractor manufacturers may perform better this year due to robust monsoon. Farmers may be richer this time, although some parts of the country are negatively affected due to larger than normal rain, especially in wrong season (at Harvest time) which may reduce the crop yield. Wheat and Soybean may suffer most in supply, so their prices may rise somewhat.
  7. Finance stocks may remain weaker thought they may rise today in step with the market trend. Safer bets are still FMCG but it is in expensive category. We still like ITC in spite of nearly 50% rise from our earlier recom last year. We will study this sector in detail this week end and may report on Monday.
  8. $ May gain which may trim the stocks of software, where profit taking may set in. Software stocks react inversely to Rupee value.
  9. Gold will be in buying mood due to Dasera where “shukan gold” may be bought. Silver may also remain in demand. We strongly feel like buying both – Gold and Silver in the ratio of 2:1 in terms of money allocation.

Special Situation:

  1. None today.

Kalidas One Liner

  • We applaud higher debt ceiling for US but detest when it comes to India.
  • Chidambaram no longer looks at the scene within India but takes binoculars to FED.
  • Modi outshines Rahul Gandhi in major states like UP. Yes, congress is on way out.
  • Who is better mom – Italian Sonia Gandhi or Indian “maniben” from Gujarat?
  • Who asked CBI to file FIR against KM Birla – did he refuse political donation this time?

Stock Observatory India

Ref: ISO/13/03 of Wednesday, 16 October 2013, 09:15 AM) India Time

Overnight Events and Effects:

  1. President Obama rejected the Republican proposal. Even the proposal drafted by Democrat and Republican leader fell short of majority in Republican led Senate, which means that the Republicans are in combative mood. It is a tussle between the President, who is asserting himself, and Republican senate members are questioning President’s motive.
  2. The market has all the more discounted the agreement on debt ceiling which may be funded and extended to limited life up to February, 7 2014. However, the market got the wind of troubles on debt ceiling front and has retreated by almost 0.8%, whereas the Gold also rose by $8 against expected decline. Fitch, the European Rating Agency, warned of possible downgrade of US Debt if no debt ceiling agreement is reached, and US defaults third time in last 15 years. S&P and Moody, the American rating agencies, are silent. They are partial and do not want to go against the set the agenda. How could they maintain the debt rating if the country defaults? Same thing happened with Lehman Brothers, which finally resulted in massive sell of its debt and the rating agencies were blamed The rating agencies, though very influential, are not accountable to any country or authority. And still they are being followed widely. It is time the rating agencies are finally controlled in its behavior.
  3. Gold advanced a bit, but it was destined for a fall. If the DC (Debt Ceiling, not Washington DC) is reached, there may be sharp fall and if not reached resulting into default, then it may rise by 5% to 10% in few sessions. So will rise Silver but it may lag behind gold this time.
  4. Stocks, properties are still bullish everywhere. They do not show the sign of any correction because the Central Banks have been printing money everywhere. Show me a single government which has budget surplus and not deficit. If there is deficit, it has to be financed by printing more notes. We are therefore waiting for accident to happen from now on till February 7, 2014 when the present scenario will be played out again, and with more intensity. Next 100 days are therefore fraught with danger.

US & Asian Markets today

INDEX

CURRENT

PREVIOUS

CHANGE

COMMENTS
Dow Jones USA

15,168

15,301

-133

Begins to weaken
NASDAQ

3,794

3,815

-21

Begins to weaken but techs strong
NIKKEI – Japan

14,447*

14,441

 6

Unpredictable. Even God ignorant
Hang Sang -HK

23,219*

23,357

 -138

Good indication of US trouble
SENSEX – India

20,548

 -20548

May show weakness except TCS

* = live intra-day.

The markets are finally reacting to potential troubles on DC front. Until now, agreement on Debt Ceiling was taken for granted, just as every relative in Hospital is hopeful of the patients recovery. But the patient finally dies if there is no cure left. So will happen to United States.

Currency:

Pair/Index

LATEST

PREVIOUS

CHANGE

Comments

US$ Index

80.50

80.45

0.0500

Euro/US$

1.3507

1.3512

-0.0005

Rs/US$

61.84

61.55

0.2900

Observation (Currency):

Dollar marginally rebounded, but the reaction was before news release of no agreement on DC. Euro is stable, but Aussie dollar gained finally to close at 0.9515 after initial spike did not sustain. It does appear that major players are about to take position in “metal and mineral based” currencies such AUD, CAN$, South African Rand, Russian Rouble and Brazil Real. China may also gain, and this time, Chinese Yuan may rise to less than 6.00 from 6.10. Chinese Yuan is the only currency in the world which is behaving rationally.

Indian Rupee fell because of fear of rise in RBI rate by 0.25% (whatever form), higher Wholesale Price Index, Higher Consumer Price Index, and lower Power production in spite of rise in capacity. When the power is not in demand, the conclusion is the Industrial activity is slow or ebbing.

Interest Rates (US$)

LIBOR 1M 0.1737 LIBOR 3M 0.2435 LIBOR 6M 0.3634 LIBOR 1Y 0.6291
T 1M T 3M 0.13% T 1Y 0.15% T 2Y 0.36%
FED Target 0.25% T 5Y 1.44% T 10Y 2.74% T 30Y 3.80%

Actions were more focused on longer term rates such as T5Y and T10Y which came off sharply suggesting that the short sellers were active not to let the rates go higher due to possible non agreement on debt ceiling and eventual default. The rates were suppressed by short selling near the end of the day. T5Y came down by massive 0.24% and T10Y by 0.15%/ In several trillion dollar market, such massive fall can not be witnessed in deliverable trades but only on paper trades.

Commodities

Item

Latest

PREVIOUS

Change

Current OI

Previous OI

Change

Oil (WTI- USA)

101.44

101.41

0.03

 331,412

332,556

-1144

Oil (Brent) …

109.45

109.42

0.03

19,392

19,172

220

Gold …

1281

1273

8.00

229,032

230,456

-1424

Silver …

21.32

21.20

0.12

75,652

76,858

-1206

Palladium …

706.30

715.25

-8.95

33,736

33,671

65

Platinum …

1383.4

1375.6

7.80

56,580

56,976

-396

Observation (Commodities)

  1. Gold was suppressed by over $ 23 to crash it to $1250 level during afternoon swift trades, but recovered smartly thereafter to close higher instead of lower. It was first recovery after a 5 days. If debt ceiling talk still falters, it is likely that Gold may rise to $1335 level in 3 sessions of non agreement, otherwise, it may settle at the most$1285. It may be seen that Open Interest in gold dropped by massive 1424 contracts, suggesting that the short sellers are extremely worried of DC Talks and its effect on Gold.
  2. Silver was pressed down in short selling in future market, and it dropped sharply near closing trades at about noon time, to $20.50 but then it recovered in subsequent trades in the after market and onset of Asian market openings in Australia.
  3. Palladium was facing profit taking after lot of rally and higher level. This is one of those rare metal which is very firm of late, due to Russia’s control on production. It is possible that the traders may sell short Palladium and go long or recover short position in Gold and Silver.
  4. Platinum is firm to strong due to higher physical demand. Gold demand is subdued due to India’s negative actions of raising import duty and taxes.

Stocks: Our Observations and Comments

  1. Negative news on Power front. While the capacity rosé by 11.7% last year, the power demand reduced by 6%. I do not know for sure, whether they measure demand in Wattage or in Rupee terms. In any case, it means that both Power and Infrastructure may report lower profit or increase their losses. Power is highly capital intensie item.. The power plant break even at very high level, above 65 to 70% level. So any reduction of demand result in very high losses. Expect lower PPI level in coming month or reporting session.
  2. TCS reported growth on all fronts. It is undoubtedly one of the best company in Software sector, ahead of Infosys. However, its further competition may be from Tech Mahindra and Wipro and Cognizant. There is nothing negative to suggest that TCS profit may come down, so hold on to that position and enjoy the rally. It is relatively safe stock, but use rally to lighten up slowly.
  3. HDFC reported good numbers but the higher profit was more due to lower provisioning. How come HDFC is able to have lower provision than other banks? May be due to its product mix. They are strong in Housing Finance. I almost get two mails a week offering me Housing Loan. Their CASA deposit is also rising increasing its Interest Spread.
  4. Now CBI again – this time they are trying to rope in Kumar Mangalam Birla. The Hindalco stock dropped by 5% which offer a buy opportunity. In fact, one can start buying into metals slowly, not more than 15% in initial purchase.
  5. Banking Stocks are still on Sale. I still like Bank of India, IDBI Bank, Bank of Baroda. One may still wait some more time because many companies are defaulting on debt. I am waiting for some major Housing Construction company (like DLF, Unitech) to fail. The only company doing well is Shobha Developers in Bangalore. I believe that while other cities may show decline, Bangalore may be the only city which may do well in property prices. Bangalore could be regarded as leader because it was first to fall and now first to rise. Like accounting method – FIFI – First In First Out
  6. I still feel that Indian market is overly expensive. None of the major negative is reflected in the stock prices. Deficits are higher, growth is slowing, Rupee is falling, CPI is higher, WPI (Wholesale Price Index) is also rising, defaults are rising, banks are providing higher NPA, and Interest rates are still rising. These are all symptoms of cancerous growth which may cause liver to fail and heart to stop. Stay very selective in stocks for the time being.
  7. RIL is trying to spend over $3 billions on Gas find in India. While its few wells are drying out, why are they going out for more drilling? They can make over $300 million in interest on deposit itself if kept with the bank (provided the money is in Rupees)
  8. A few years ago, about 5 years ago to be exact, when we mentioned that India was not ripe for commodity trades and derivatives. Now look at MCX – it is what I was fearing at that time.
  9. Ashok Leyland was commented by us yesterday or day before. Today’s news suggest that it may vie for Defence contracts. May be they will get the contracts, but will they get the payment in cash from the government? In any case, the stock is due for buying when it below Rs 15, preferably Rs 13.85 to think of buying. It is also good dividend paying company.
  10. Yes, ANDHRA BANK is another good buy, whether market is good or bad. More on this subject tomorrow.

Special Situation:

  1. None today.

ANIL SELARKA (KALIDAS)
October 16, 2013 (India time)


Stock Observatory India

Ref: ISO/13/02 of Tuesday, 15. October 2013)

 Overnight Events and Effects:

  1. US market was less active due to Columbus day. Many businesses were closed, while financial markets were open. Lack of some brokers’ participation causes lesser activities.
  2. No debt ceiling settlements yet. The feelers sent by Senators that some agreement might be reached soon, before Thursday deadline. President Obama is playing hard ball on Republican senators who do not want to be painted villain of peace if the debt ceiling is not raised and the government shuts down in major way, and default on debt. This is third time that US has come near default. Next time however, there will not be negotiation. One should not presume that the deal would be struck like last time. This is perhaps last time that the debt ceiling may be raised reluctantly by Republicans.
  3. The financial markets are quiet, with most players convinced that US will not let itself into default. Debt ceiling agreement is discounted by the market.
  4. Warren Buffet made lot of money in his Goldman’s stake, the Bloomberg reports. He made over $2 Billions. None of his major investee company like Goldman, Bank of America and GE is returning his money, but instead give him new shares (stake) or warrants. In other words, there is no money in their pocket. Trade in papers as most of the assets are being traded for over 3 years now. How long paper trading would continue, it is anybody’s guess.
  5. We will have more activity tomorrow. However, major movements and activity is destined on Friday (10/18) as debt ceiling may be decided during mid night hours.

US & Asian Markets today

INDEX

CURRENT

PREVIOUS

CHANGE

COMMENTS
Dow Jones USA

15,301

15,237

64

Strong
NASDAQ

3,814

3,787

27

Strong
NIKKEI – Japan

14,436*

14,401

 35

Sideways
Hang Sang -HK

23,335*

23,218

 117

Firm
SENSEX – India

20,521*

20,606

 -85

Profit Taking

* = live intra-day.

Due to lower volume, we can not comment much on US market. However, other markets in Asia are relatively firm on expectation of debt ceiling agreement.

Currency:

Pair/Index

LATEST

PREVIOUS

CHANGE

Comments

US$ Index

80.27

80.34

-0.0700

Weak
Euro/US$

1.3569

1.3564

0.0005

Firm
Rs/US$

61.66

61.54

0.1200

Slightly weaker

Observation (Currency):

No major movements except Kiwi dollar is rising against Aussie dollar. They are closely aligned currencies like Indian rupee, Sri Lanka Rupee, Nepalese Rupee and Pakistan Rupee. Indian Rupee was slightly weaker. It is likely that Rupee might try to breach the level of Rs 60 or even 59.10 soon before reverting back higher than Rs 61 now. In any case, the Rupee is relatively firm against major currency like US Dollar. USD Index is also stable to weaker.

Interest Rates (US$)

LIBOR 1M 0.1755 LIBOR 3M 0.2458 LIBOR 6M 0.3644 LIBOR 1Y 0.6316
T 1M T 3M 0.07% T 1Y 0.13% T 2Y 0.35%
FED Target 0.25% T 5Y 1.45% T 10Y 2.72% T 30Y 3.77%

Nothing to comment upon today as the markets are slow in volume due to Columbus day. Let us see where market leads to next day or Wednesday.

Commodities

Item

Latest

PREVIOUS

Change

Current OI

Previous OI

Change

Oil (WTI- USA)

102.48

102.16

0.32

332,556

332,553

3

Oil (Brent) …

109.95

110.24

-0.29

19,173

19173

Gold …

1,277

1,268

9.00

230,456

236,498

-6042

Silver …

21.35

21.16

0.19

76,858

79,202

-2344

Palladium …

715.25

713.30

1.95

33,671

33,704

-33

Platinum …

1383.5

1376.0

7.50

56,976

57,088

-112

Observation (Commodities)

  1. While US market was subdued, other markets were open full time. Something happened to Gold in the morning hours. It opened over $1339 (up by $58 or over 4.5%) but then retreated to $1,277. May be there are isolated trades to establish some price for settlement purpose. However, it does appear that someone wants to boost the price of Gold perhaps he knows something from inside the ring.
  2. Palladium performed well compared to other metals.

Stocks: Our Observations and Comments

  1. RIL may cross Rs 100,000 crore this quarter, first time in any Company’s history. The stock is not moving up much due to RIL’s confrontation with the Government perhaps. Otherwise, RIL is one of the best investment idea in the world. It has tons of cash, and its exports is yielding good profits. Over 65% of its production is exported, and lower rupee translates into more than average profit.
  2. Now it is the turn of CBI to turn screw on Indian corporates. It filed FIR against Aditya Birla group Chairman – Kumar Mangalam Birla. The stock dropped 5% which may offer opportunity to buy. It is extremely well managed company, financially.
  3. TCS result may be too good this time, judging by the performance by other peers. TCS is the only Saving grace for Tata group (and perhaps Starbuck) Tata Global is still a good buy as it has advanced only by 40% compared to fundamentals.
  4. While Bharati Airtel is rising, we have inner feeling that there is something terribly wrong with this company. We may see some really bad news later this year. It does look like Walmart is also knowing something which forced it to get the stake is reduced to almost ZERO.
  5. All power stocks and infra structure socks were down due to marked weakness. We would stay away from this sector for at least 6 months, if not more. However, we may India’s growth story is not likely to make headway, let PM say anything.
  6. Bank stocks were hammered today, due to rising NPA. It is still not time to touch the bank stocks now.
  7. Andhra Bank appear to be at very reasonable price. It is trading at 1/3rd of its book value of Rs 150. It is also a bank that pays good dividend. Its last 9 months EPS is shown to be Rs 15 with one more quarter to go. It has been expanding almost 20% over last two years. It pays good dividend of 50% or Rs 5 per share or nearly 25% pay out of its profit. If the dividend pay out remain same, the current dividend yield comes to nearly 9%, close to deposit rates. It is better to keep money in its share rather than in the bank because of additional advantage of capital appreciation. Yes, the NPA are also over 4%, and with many infrastructure companies having been based in Andhra Pradesh, NPA may rise even more. Nevertheless, it is a nationalized bank, so i would wager a bet on this bank, followed by IDBI Bank.

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

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 Finance stock <120 Andhra Bank Rs 55 Better prospects and dividend.

Kalidas One Liner

None today.


 

Stock Observatory India

Ref: ISO/13/01 of 2013-10-14, Monday, India Time 12.00 pm)

 Overnight Events and Effects:

  1. Stalemet between Senates (Republicans) and President Obama continues. The authority to borrow ends on October 17, and if no agreement is reached, the first official default may result on October 22 or about. Most leading brokers like Goldman and Morgan Stanley expect agreement to reach within next 3 days.
  2. Normally, Gold should have sped up on “debt default” talks, but it has gone down a lot during last few days, by almost 7%. If the agreement is reached, it may go down again on dollar gaining strength. In short, Gold is now in the hands of Bear Cartels.
  3. The matter of debt default is a very serious one and if there was any other country, its currency and stocks would have gone down by at least 10% if not more, but this is after United States who controls “Chicago Futures markets”. It is the derivatives that is calling shots. When the derivative may collapse, we do not know as yet. It is too complex matter to predict.
  4. Although economic growth is slowing everywhere, the stocks are rising everywhere to near all time high. This is extremely risky situation – either stocks have to come down or the growth has to resume. If we believe that stocks lead the indicators by at least 6 months, we should expect growth to resume soon. This author believes that there is no real recovery everywhere, and therefore consider the stocks fully priced or even overpriced.
  5. Bernanke gone and Yellen comes in. The eyes are on the new lady. Bernanke may still continue until the transition process ends.

 

US & Asian Markets today

INDEX

CURRENT

PREVIOUS

CHANGE

COMMENTS
Dow Jones USA

15,237

15,126

111

Strong
NASDAQ

3,790

3,760

30

Strong
NIKKEI – Japan

14,404*

14,195

 209

Strong
Hang Sang -HK

23,218*

22,955

 263

Strong
SENSEX – India

20,569*

20,529

 40

Strong, may rally more

* = live intra-day.

US market may remain open on Columbus Day. However, many players may be absent. Almost all markets are higher which forced Gold to go lower again. Gold’s movement of late behaves inversely of dollar and world equity market.

Currency:

Pair/Index

LATEST

PREVIOUS

CHANGE

Comments

US$ Index

80.291

80.283

0.0080

Euro/US$

1.3563

1.3562

0.0001

Rs/US$

61.18

61.09

0.0900

Observation (Currency):

Dollar Index is near same level. It is hovering between 79.5 to 80.5 for quite long. Main reason for stability is weaker British Pound because Euro is remaining same. Debt default is not posing threat at the moment. We are surprised at this contrary movement. When bad news hits, Dollar Index brushed it off, and if good news come in the index rebounds on upside. In other words, the major players are ensuring that dollar remains in demands.

Interest Rates (US$)

LIBOR 1M 0.1740 LIBOR 3M 0.2436 LIBOR 6M 0.3634 LIBOR 1Y 0.6276
T 1M T 3M 0.06 T 1Y 0.13 T 2Y 0.35
FED Target 0.25 T 5Y 1.42 T 10Y 2.69 T 30Y 3.75

Rates are stable. No effect yet on possible debt default or no agreement on debt ceiling front. In India too the rates are stable with not much effect seen on huge cyclone on East India.

Commodities

Item

Latest

PREVIOUS

Change

Current OI

Previous OI

Change

Oil (WTI- USA)

101.80

102.06

-0.26

332,553

332,553

0

Oil (Brent) …

110.42

110.91

-0.49

0

Gold …

1275

1272

3.00

236,498

236,498

0

Silver …

21.13

21.25

-0.12

79,202

79,202

0

Palladium …

713.35

713.50

-0.15

33,704

33,704

0

Platinum …

1376

1396

-20.00

57,088

57,088

0

Observation (Commodities)

  1. Gold is weak. The main brokers like Goldman are fanning out bearish comments. Some say, Gold may touch down to $1200 level. Even debt default prospect does not create higher demand.
  2. Silver follows Gold. It is more weaker relatively than Gold.
  3. Palladium is the best metal so far this year, followed by Platinum.
  4. We are near buying point for Gold and Silver, with more on Silver. No specific level yet, but current level of $21 is good entry point.

Indian Stocks: Our Observations and Comments

  1. IT stocks and Tech stocks are strongest sector whereas the metal is the weakest. The metals are reacting to three main factors – Strong dollar (vs. Non Indian currency), stable rupee and weaker infra sales. TCS result is awaited which we expect more on strong side. TCS continues to outperform other peers. Hold on to it for a while.
  2. At the moment of writing this, the Advancing stocks (1657) are leading Declining stocks (1344) and unchanged are 697. The market is bullish, hell with the economy.
  3. Bank of Baroda is seeing double top in last 30 days. It is trading at 5.3 times P/E but the prospect of higher NPA is pinning the stock down. BOB is one of the strongest Indian banks in nationalised bank sector. However, we think that Indusind Bank is much better bet than other banks.
  4. Watch Ashok Leyland. We advised a client to buy it when it was near Rs 12 +. It has gone up by nearly 45% from near low. Buy it when it is below Rs 15, preferably in 14.50 level. Some market correction may bring it down, so keep the patience.
  5. Software and Pharma stocks are relatively safer bet now. They have volume growth, margin though lower is still good, and weaker rupee overall confirms higher EPS for these companies. They are the saving grace of the market.
  6. Metal sector is amongst weakest. Poor infra structures, construction sector and lower overseas prices due to firm dollar ensure weakness in this sector. If the market weakens for any reason, we would buy into this sector. We will study the specific stocks and will advise in two days.
  7. Gold and Silver are still weak overseas. If there is debt agreement, they may still go lower a bit. May be at that time, one may buy these metals. Even current level is considered by me to be good entry point for long term investors. The short term trading investors may wait for a few days to see meaningful correction on overseas market.

Special Situation:

  1. None today.

Kalidas One Liner

  • Why Chidambaram is making almost daily statement on Fed’s tapering effect?

Kalidas, October 14, 2013 (India Time)
USA

 Posted by at 2:25 pm

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