A Guest post from Sanil Sonalkar
The RBI's monetary policy announcement on 3rd May, 2011 seems to have thrown a spanner in the works and upset the calculations of most analysts who had reasons to believe that the Sensex had a smart chance of crossing the 20,000 barrier. We are now trading at considerably lower levels & some blue-chip counters are dangerously close to their 52-week lows. Yesterday's relief rally can be partially attributed to the positive election results and partially to short-covering in many of the counters. In the aftermath of the policy announcement & the assembly election results, we need to take a holistic view of the political & economic situation and its likely impact on our markets. I have managed to identify the following important cues for the coming days :-
(1) Interest rate sensitives are bound to be under some pressure for the time being at least. Under such circumstances, traditionally, investors would look at parking funds in safer havens such as FMCG, Pharma & IT which are not directly impacted. FMCG, in particular, would be a reasonably safe bet, but purely for investors who are looking at just capital protection and not-so-great returns. Banks, which have borne the brunt of the rate hikes, are now looking relatively cheaper. A contrarian buy would be to accumulate good private banking stocks at the current lower levels in a phased manner. My sense is that some more rate hikes are imminent in the coming months but once this peaks out, expect a significant rally in these banking stocks.
(2)There is good news for depositors of bank deposits on two counts :- firstly, you would get 0.5% higher on your savings bank account, which would induce investors to park some additional surplus funds here ; secondly, some banks have now started giving higher returns on short-term FD's (upto 1 year) - HDFC Bank being a prime example. Investors, who are wary of the extreme volatility that is currently present in equity markets would do well by capitalising on the higher interest rates by adding to their bank deposits portfolio. (this is
again for people who are just looking at capital protection and are willing to sacrifice on higher post-tax returns).
(3) The yellow metal - gold seems to have lost some of its lustre over the past few days. With Akshaya Tritiya out of the way, movement here is likely to remain subdued, and even some minor corrections cannot be ruled out. A prudent move would be to go through the GOLD ETF route and make systematic investments in a phased manner and never in a lumpsum.
(4) Firms primarily based out of West Bengal are likely to benefit on account of the change in the regime. People are now expecting some growth and development in this region and possibly fresh investments might also get an impetus. ITC is a classic example of an organisation which could immensely benefit from the political developments. Existing investors could consider adding to their portfolio while new investors could consider some exposure towards this stock.
Saturday, May 14, 2011
Sunday, May 8, 2011
Important Week Coming up
It was a big week gone by. The RBI hiked rates by 50 basis points and the markets tanked by 3.4 pc. Gold and Silver along with other commodities fell. The next week is of even more significance. The Election Results will be out next Friday. That would determine the path Markets take.
1. The RBI hiked rates by 50 basis points. This was more than expected and the markets tanked.Expect Banks and Autos to be under strain. The Auto sales dipped for April ad expect this trend to continue.
2. The Petrol prices should be hiked this week. Expect a Rs 3-4 hike in both petrol and diesel prices.
3. The Elections will be out on Friday. West Bengal, Kerala and Assam to the Congress. Tamil Nadu to Jayalalitha. If the Congress fail to win WB or Kerala expect further tanking.
4. Lets take the entire fall from 6339 as a fall out of which we are commencing the Third Wave down.
Wave 1 was 6339 to 5177 - a fall of 1162 points
Wave 2 5177 - 5944 - a rise of 767 points or a 66 pc retracement.
Wave 3 should be a fall of 1162 or 1882 points.
This gives us targets of 4782 or 4062. 4786 was an important bottom made in May last year.
5. Take a look at the weekly charts.A close below 5500 should invite further shorts.
6.The 200 EMA and 200 DMA are upward resistances. They come at 5628 and 5750. The Retracement levels of this fall comes to 5638, 5694 and 5754 which should be resistance marks.
7. Fresh shorts below 5476 or if Nifty fails to move above 5593-5600 levels.
1. The RBI hiked rates by 50 basis points. This was more than expected and the markets tanked.Expect Banks and Autos to be under strain. The Auto sales dipped for April ad expect this trend to continue.
2. The Petrol prices should be hiked this week. Expect a Rs 3-4 hike in both petrol and diesel prices.
3. The Elections will be out on Friday. West Bengal, Kerala and Assam to the Congress. Tamil Nadu to Jayalalitha. If the Congress fail to win WB or Kerala expect further tanking.
4. Lets take the entire fall from 6339 as a fall out of which we are commencing the Third Wave down.
Wave 1 was 6339 to 5177 - a fall of 1162 points
Wave 2 5177 - 5944 - a rise of 767 points or a 66 pc retracement.
Wave 3 should be a fall of 1162 or 1882 points.
This gives us targets of 4782 or 4062. 4786 was an important bottom made in May last year.
5. Take a look at the weekly charts.A close below 5500 should invite further shorts.
6.The 200 EMA and 200 DMA are upward resistances. They come at 5628 and 5750. The Retracement levels of this fall comes to 5638, 5694 and 5754 which should be resistance marks.
7. Fresh shorts below 5476 or if Nifty fails to move above 5593-5600 levels.
Wednesday, May 4, 2011
Chart for the Day:Sigificance of 200 DMA and 200 EMA
Have a look at the charts. A re-test should be on the cards. 5632 and then quite possibly 5750. We wait and we watch.
Sunday, May 1, 2011
May is key Month for the Markets
May has historically seen wild swings in the year when there have been key Election Results. Lets have a look at the data for the past 10 years. Also, we have the RBI policy to contend with on Tuesday.
1. There have been Lok Sabha Elections in 2004 and 2009. Assembly elections in 2006. The results have been declared in May and there have been wild swings. Dips of 28 pc in 2004 and 18 pc in 2006 ad 30 pc rise in May 2009.
2. We have the election results coming in on May 13th 2011. Tamil Nadu looks a lost cause for DMK and Congress, Assam and West Bengal in Congress kitty and Kerala is undecided. If the Congress look more than Tamil Nadu, then the ruling party looks to be shaken. They have frittered away the legacy of the win in 2009.
3. The April close of 5750 becomes a key level now. Long above it and short below it could be 1 formula one can use.
4. The 200 DMA at 5748 and 200 EMA at 5632 are key levels.No longs below these key levels.
5. Even in the years, the markets have tanked big time in 2004 and 2006, the highs have been substantially above the closing price of April.
What do we infer from all this? The falls have all been electoral news driven. Hence its better to be short only below the April closing and hedged shorts on the election result day.
Gold has been rising and has given a breakout from the key 1500 dollars and ounce levels.
1. There have been Lok Sabha Elections in 2004 and 2009. Assembly elections in 2006. The results have been declared in May and there have been wild swings. Dips of 28 pc in 2004 and 18 pc in 2006 ad 30 pc rise in May 2009.
2. We have the election results coming in on May 13th 2011. Tamil Nadu looks a lost cause for DMK and Congress, Assam and West Bengal in Congress kitty and Kerala is undecided. If the Congress look more than Tamil Nadu, then the ruling party looks to be shaken. They have frittered away the legacy of the win in 2009.
3. The April close of 5750 becomes a key level now. Long above it and short below it could be 1 formula one can use.
4. The 200 DMA at 5748 and 200 EMA at 5632 are key levels.No longs below these key levels.
5. Even in the years, the markets have tanked big time in 2004 and 2006, the highs have been substantially above the closing price of April.
What do we infer from all this? The falls have all been electoral news driven. Hence its better to be short only below the April closing and hedged shorts on the election result day.
Gold has been rising and has given a breakout from the key 1500 dollars and ounce levels.
Saturday, April 30, 2011
Key Events Next Week - Guest Post
Key Events - Next Week - Sanil Sonalkar
Keep an eye on two important events in the next week which may have some impact on one's portfolio :
(1) RBI's monetary policy announcement on Tuesday : this should keep rate sensitive sectors like banks buzzing with activity as a 25 bps hike is widely expected by most analysts. This may also be a good time for long-term investors to accumulate blue-chip private banking stocks at lower levels since last week was not a particularly good one (case in point is Axis Bank which lost 12% over 5 trading sessions). This sector might continue to remain under some pressure for some time, but every dip could be construed as a buying opportunity for the long-term.
(2) Akshaya Tritiya on Friday : gold is scaling new highs almost every single week and this may continue as generally there would be increase in demand during this event. Gold is also considered a safe haven by experts and the safest bet against inflation. Also, yearly returns from gold have been better than asset classes such as equity & debt. Gold ETF's are also gaining popularity. Also, this would give a portfolio the much-needed diversification.
Keep an eye on two important events in the next week which may have some impact on one's portfolio :
(1) RBI's monetary policy announcement on Tuesday : this should keep rate sensitive sectors like banks buzzing with activity as a 25 bps hike is widely expected by most analysts. This may also be a good time for long-term investors to accumulate blue-chip private banking stocks at lower levels since last week was not a particularly good one (case in point is Axis Bank which lost 12% over 5 trading sessions). This sector might continue to remain under some pressure for some time, but every dip could be construed as a buying opportunity for the long-term.
(2) Akshaya Tritiya on Friday : gold is scaling new highs almost every single week and this may continue as generally there would be increase in demand during this event. Gold is also considered a safe haven by experts and the safest bet against inflation. Also, yearly returns from gold have been better than asset classes such as equity & debt. Gold ETF's are also gaining popularity. Also, this would give a portfolio the much-needed diversification.
Wednesday, April 27, 2011
Do we buy Gold or Silver now?
There is a very famous measure of finding out how expensive Gold and Silver as compared to each other. The Mean is about 50 whereas during extreme times it oscillates between 20 and 80.
What we mean here is how many ounces of silver, 1 ounce of gold will buy. Right now ratio is 33.
If we take price of silver to stabilize at 45 dollars an ounce, then gold should trade at 2250 dollars an ounce.
Conversely, Silver should drop to 31 dollars an ounce to meet its equality historically.
So, what is the conclusion?
We dont know if Silver will rise or fall. But, it clearly implies Gold is a much safer bet compared to Silver.
Sunday, April 24, 2011
Full Year Results and P/E: What do they tell us?
The Full Year Results are pouring in and nothing exciting about the Results from Infy, TCS and Reliance. Gold is at an all-time high and the P/E ratio is at 22.18. What are all these telling us.
1. Lets start off with the P/E ratio. As per data from the NSE, its at 22.18 suggesting that the index is fully valued.It has gone up to a ratio of 28 only twice in 2000 and 2008 culminating in major falls. Nifty P/E at 28 leads to Nifty at 7422.
2. If Nifty corrects from here, fair value comes at 3700 - 3900 band.
3. The Annual results have ranged from just meeting expe3ctations to poor. The Good results are usually declared early. So the Result Season has come and gone.Private Banks have shone and here is a excerpt from Sanil Sonalkar.
Both the leading private sector banks, HDFC Bank & Axis Bank, registered robust Q4 numbers, with each reporting >30% increase in net profits (on a Y-O-Y basis). Dividend payout has also been good with HDFC bank announcing a dividend of Rs. 16.50/- per share while Axis Bank rewarded its shareholders with a dividend of Rs. 14/- per share.
Resurgence in retail demand, a healthy ratio of low-cost CASA deposits & improved NIM's have resulted in such stellar performances. An investor with a reasonably long investment horizon (say 10-20 years)must definitely stay invested in these stocks as these are likely to continue outperforming the rest of the market.
The only sore point is that unlike IT companies, private sector banks never reward shareholders with corporate benefits such as bonus shares, interim dividend and the like (for obvious reasons).
However, stay invested for the long-term.
4. Gold is at an all-time high and Japan is planing to raise fresh debt to aid rebuilding efforts. This makes one cautious on equity as an asset class.
The Markets are in a range and only a breakout above 5944 would lead to fresh upsides and a break below 5650-5735. Till then we continue to grind down in a range.
1. Lets start off with the P/E ratio. As per data from the NSE, its at 22.18 suggesting that the index is fully valued.It has gone up to a ratio of 28 only twice in 2000 and 2008 culminating in major falls. Nifty P/E at 28 leads to Nifty at 7422.
2. If Nifty corrects from here, fair value comes at 3700 - 3900 band.
3. The Annual results have ranged from just meeting expe3ctations to poor. The Good results are usually declared early. So the Result Season has come and gone.Private Banks have shone and here is a excerpt from Sanil Sonalkar.
Both the leading private sector banks, HDFC Bank & Axis Bank, registered robust Q4 numbers, with each reporting >30% increase in net profits (on a Y-O-Y basis). Dividend payout has also been good with HDFC bank announcing a dividend of Rs. 16.50/- per share while Axis Bank rewarded its shareholders with a dividend of Rs. 14/- per share.
Resurgence in retail demand, a healthy ratio of low-cost CASA deposits & improved NIM's have resulted in such stellar performances. An investor with a reasonably long investment horizon (say 10-20 years)must definitely stay invested in these stocks as these are likely to continue outperforming the rest of the market.
The only sore point is that unlike IT companies, private sector banks never reward shareholders with corporate benefits such as bonus shares, interim dividend and the like (for obvious reasons).
However, stay invested for the long-term.
4. Gold is at an all-time high and Japan is planing to raise fresh debt to aid rebuilding efforts. This makes one cautious on equity as an asset class.
The Markets are in a range and only a breakout above 5944 would lead to fresh upsides and a break below 5650-5735. Till then we continue to grind down in a range.
Wednesday, April 20, 2011
Sunday, April 17, 2011
Gold : Whats driving it? - Fundamental and Technical Factors
Gold has jumped up to new all time high of 1486 dollars. Why is Gold rising and what could be the factors driving it?Lets take a look at it Technically and Fundamentally.
1. Gold is an hedge against inflation.Inflation is rising globally and especially in the United States. Rise in crude oil prices is driving inflation. Inflation has lead to a rise in commodity prices and Gold is no different.
2. Gold was supposed to be the currency against which national currencies were linked.Countries went off the Gold Standard and printed their currencies without anything solid to back it. As the currencies become worthless pieces, people look towards safety and hence Gold is in demand.
3. All the National Banks have begun buying quantities of physical gold. Gold is a finite quantity available and this is driving up prices.
4. Eurozone default is becoming more and more likely. First Greece, then Ireland and now Portugal. The countries going under are getting bigger and Gold is an instrument of safety. Spain will be the next one to watch for.
5. 1 ounce of gold = 15 barrels of oil. By that logic, Gold should touch 1800 dollars.
6. Quantitative Easing - 2 comes to an end in June 2011. QE- 3 means more liquidity or collapse. Either way, it bodes well for Gold.
As long as there is uncertainty in the world, gold prices will continue to rise.In 2 years Silver went from Rs 15000 to Rs 63000 per kg and I do not see any reason why Gold prices cannot go upto Rs 60000 for 10 grams in the next 2 years.
Every portfolio must have 20 pc of Gold in it. These are uncertain times.
That was the Fundamental side of Gold.
Lakshmi has done a Technical Analysis at below link. She is one of the finest Technical Analysts, I know and her targets are usually met.
http://vipreetinvestments.blogspot.com/2011/04/gold-rush-is-it-time-to-rush-out.html
Also, have a look at my post, in June 2010 when Gold was at 1250 dollars an ounce. We are on the right track.
http://money-manthan.blogspot.com/2010/06/gold-as-investment.html
1. Gold is an hedge against inflation.Inflation is rising globally and especially in the United States. Rise in crude oil prices is driving inflation. Inflation has lead to a rise in commodity prices and Gold is no different.
2. Gold was supposed to be the currency against which national currencies were linked.Countries went off the Gold Standard and printed their currencies without anything solid to back it. As the currencies become worthless pieces, people look towards safety and hence Gold is in demand.
3. All the National Banks have begun buying quantities of physical gold. Gold is a finite quantity available and this is driving up prices.
4. Eurozone default is becoming more and more likely. First Greece, then Ireland and now Portugal. The countries going under are getting bigger and Gold is an instrument of safety. Spain will be the next one to watch for.
5. 1 ounce of gold = 15 barrels of oil. By that logic, Gold should touch 1800 dollars.
6. Quantitative Easing - 2 comes to an end in June 2011. QE- 3 means more liquidity or collapse. Either way, it bodes well for Gold.
As long as there is uncertainty in the world, gold prices will continue to rise.In 2 years Silver went from Rs 15000 to Rs 63000 per kg and I do not see any reason why Gold prices cannot go upto Rs 60000 for 10 grams in the next 2 years.
Every portfolio must have 20 pc of Gold in it. These are uncertain times.
That was the Fundamental side of Gold.
Lakshmi has done a Technical Analysis at below link. She is one of the finest Technical Analysts, I know and her targets are usually met.
http://vipreetinvestments.blogspot.com/2011/04/gold-rush-is-it-time-to-rush-out.html
Also, have a look at my post, in June 2010 when Gold was at 1250 dollars an ounce. We are on the right track.
http://money-manthan.blogspot.com/2010/06/gold-as-investment.html
Markets Next Week: A Fundamental look at Things
Its the Results season and already Infosys has hit a road block. The Markets tanked on Friday and lets have a look at what could be the road ahead for the markets.
1. Infosys had a double whammy. Poor results and Mohandas Pai leaving the company. Infosys is a company built on processes and too much is being made of a departure of a certain Individual. The knee-jerk reaction also is significant in highlighting the dangers of a personality cult.
2. More worrying is the drop in Margins to 29 pc. Infy is well known for high Margins of 33 pc for all these many years. Infosys has grown to a particular size. Where will the next phase of growth come from is the main question. There are several worrying questions like, how does the non linear growth come from. By non-linear, I mean that revenue and profits should not be linked to manpower growth. Putting it simply, it means getting high value businesses like Consulting where the billing rates are more.
3. On a revenue growth comparison, TCS and Cognizant are pulling ahead of Wipro and Infosys. I believe this is a cyclical phenomenon and one cannot write of Infy yet. Infy will now become a value stock like HUL and not a growth stock. A solid rock in one's portfolio but not the dazzling star.
4. Crude continues to boil over, gold and silver prices continue to zoom. The European cockroaches are coming out again. A Spanish default and Gold could cross 1800 dollars.
5. Oil imports continue to bleed our economy and the government waits for elections to get over. Inflation continues to rise and expect a 50 basis points hike soon in the interest rates.
6. Real Estate stocks are in a shamble, autos and banks would be the next to go down.
7. What could take the markets up? Further cheap money in the form of QE -3 could flood emerging markets and take us up. Till this is announced, expect a range bound to a negative bias to the markets.
8. The results are factored in. Only some bad news like Infy or extra ordinary good results can cause big swings.
Markets typically hit some kind of bottom around May. 1 of the myths floating around is Sell in May and go away. If I look at past data, I would prefer to buy in end of May. Reason? Markets usually bottom in March-May for the year.
Portfolio highlights could be Gold, ONGC or Cairn and Debt funds. This is keeping in mind a conservative 16 pc return over the next 1 year. Gold has given a return of 26 pc if bought in Dec 2009 when I commenced my SIP in gold. This meets my target of 16 pc annual returns without taking undue risks.
1. Infosys had a double whammy. Poor results and Mohandas Pai leaving the company. Infosys is a company built on processes and too much is being made of a departure of a certain Individual. The knee-jerk reaction also is significant in highlighting the dangers of a personality cult.
2. More worrying is the drop in Margins to 29 pc. Infy is well known for high Margins of 33 pc for all these many years. Infosys has grown to a particular size. Where will the next phase of growth come from is the main question. There are several worrying questions like, how does the non linear growth come from. By non-linear, I mean that revenue and profits should not be linked to manpower growth. Putting it simply, it means getting high value businesses like Consulting where the billing rates are more.
3. On a revenue growth comparison, TCS and Cognizant are pulling ahead of Wipro and Infosys. I believe this is a cyclical phenomenon and one cannot write of Infy yet. Infy will now become a value stock like HUL and not a growth stock. A solid rock in one's portfolio but not the dazzling star.
4. Crude continues to boil over, gold and silver prices continue to zoom. The European cockroaches are coming out again. A Spanish default and Gold could cross 1800 dollars.
5. Oil imports continue to bleed our economy and the government waits for elections to get over. Inflation continues to rise and expect a 50 basis points hike soon in the interest rates.
6. Real Estate stocks are in a shamble, autos and banks would be the next to go down.
7. What could take the markets up? Further cheap money in the form of QE -3 could flood emerging markets and take us up. Till this is announced, expect a range bound to a negative bias to the markets.
8. The results are factored in. Only some bad news like Infy or extra ordinary good results can cause big swings.
Markets typically hit some kind of bottom around May. 1 of the myths floating around is Sell in May and go away. If I look at past data, I would prefer to buy in end of May. Reason? Markets usually bottom in March-May for the year.
Portfolio highlights could be Gold, ONGC or Cairn and Debt funds. This is keeping in mind a conservative 16 pc return over the next 1 year. Gold has given a return of 26 pc if bought in Dec 2009 when I commenced my SIP in gold. This meets my target of 16 pc annual returns without taking undue risks.
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