Sunday, October 27, 2013

Weekly Market Commentary - Oct 21 - Oct 25, 2013

What might appear to be a dull week was actually quite interesting. Sensex tried to regain its old glory by rising within a handshake distance of all time high. In early 2008, when Sensex was at its peak, everybody (almost) believed India could do no wrong. Today investors are more cautious than ever.

Some bulls reason that current rally is sustainable due to good corporate results. This is not true. Markets are rallying as US Fed decided to defer its QE tapering decision and India benefits as it gets its share of global portfolio allocation.

Better than expectations result (was expectations low or results were actually better) helped the bulls find a fundamental story in the yarn they were already weaving.

Anyways, not all sectors have posted good results. Most of the cement stocks, the sector that should be the early riser in case of recovery, posted 50-80% decline in their quarterly profits.

We believe we want to believe.

Sensex lost 1.0%, Nifty lost 0.7% and CNX Midcap was up by 0.3% this week.

Monday – Sensex up by 0.1%, Nifty up by 0.3%, Midcap up by 1.0%
Markets are range bound, as investors get concerned about valuation levels. Easy liquidity flow continued to prop up the market levels.

Tuesday - Sensex down by 0.1%, Nifty flat, Midcap up by 0.4%
Investors continued to stay cautious as global markets wait for release of US jobs data later in the day. Jobs numbers are one of the critical figures, which US Fed looks out for to decide on its tapering plans.

Wednesday – Sensex down by 0.5%, Nifty down by 0.4%, Midcap down by 0.2%
Weak US jobs data firmly pushed expectations for the tapering of Federal Reserve stimulus into next year. Markets opened higher earlier in the day but lost all gains as interest rate sensitive stocks see selling pressure ahead of RBI meeting on Oct 29.

Thursday – Sensex down by 0.2%, Nifty down by 0.2%, Midcap flat
Sensex continues to see resistance as most of the stocks stayed in high valuation range while investor’s fear of another rate hike of 25 bps by RBI led to selling in rate sensitive stocks.

Friday – Sensex down by 0.2%, Nifty down by 0.3%, Midcap down by 1.0%
Sensex ended the day in negative after a brief rally during the day. India’s economic fundamentals do not support the current market levels. Investors continued to book profits in IT companies.

Keynes vs Hayek

Econstories surely knows how to make the drab subject of economics into an interesting one. Actually, the one you can rap to. This are the best videos on difference between the economic philosophy of John Maynard Keynes and Friedrich Hayek.

Watch and learn.

Round I




Round II

Saturday, October 19, 2013

Weekly Market Commentary - Oct 14 - Oct 18, 2013

So far, earnings season continues to surprise Indian investors to the upside. As Sensex continues to hover around its all time high, most investors will do well to realize that expectation investing can come as an handy tool a bit before earnings season is about to start. Most investors do not use DCF while analyzing a stock/company. I do though. With so many assumptions and complexities built into it, DCF does not act as a quick tool to help investors/speculators make money. In such a scenario, they can resort to what Michael J. Mauboussin calls Expectation Investing.

Expectation Investing is also knows as Reverse DCF. In this method, instead of trying to value a company (stock) by forecasting free cash flows into the future and then discounting them to current period, you do it the other way round.

You look at the current stock price and then try to find out what assumptions market is building into the price. The analyst can review these assumptions and see whether expectations are excessively high or too low to arrive at the decision of investing in that particular company or not.

The biggest advantage of this method, is as you can see, is it eliminated the need of forecasting. However, this method does not provide a quick way to analyse stocks but when formalized into a framework it can help an investor to make a quick decision.

Finally, as a noted statistician George Box said “All models are wrong; some are useful.”

I urge my readers to share with us their experience with Reverse DCF process, if they have tried it in the past.

Sensex gained 3.1%, Nifty gained 3.2% and CNX Midcap was up by 2.3% this week.

Monday – Sensex up by 0.4%, Nifty up by 0.3%, Midcap up by 0.6%
Market party over good Infosys results (guidance) ended early as inflation played spoilsport. September WPI was 6.46% against 6.1% in August and 46 bps above the street estimate of 6%. Surge in inflation has put RBI in a fix and investors on back foot as RBI now will find it difficult to lower interest rates and even may lead to rate hikes to contain the inflationary pressure.

Tuesday - Sensex down by 0.3%, Nifty down by 0.4%, Midcap down by 1.2%
Yesterday’s high inflation numbers led to selling in banking and other rate sensitive stocks. HDFC lost some ground as bank reported its slowest growth quarter in a decade. HDFC earnings increased 27% y-o-y against its record 30% growth in every quarter in last decade.

Wednesday – Markets closed on Eid.

Thursday – Sensex down by 0.6%, Nifty down by 0.7%, Midcap down by 0.4%
Markets were down as investors resorted to profit booking as Infosys and TCS good results quickly became the story of the past. The market did not move much on the news of deal on US shutdown and debt ceiling. Most talked about event of recent times continued to be ignored by investors in the Indian markets.

Friday – Sensex up by 2.3%, Nifty up by 2.4%, Midcap up by 1.4%
A good close to a rather mute week. Markets went up as corporate earnings continued to surprise. L&T, the capital goods major, reported a 7% rise in quarterly profit beating the analyst estimates. Market sentiment was also boosted by the news that LIC will invest Rs. 40,000 crores ($1.28 billion) into the markets in FY14.

Mohnish Pabrai on his learnings from Warren Buffet

I first came to know about Mohnish Pabrai when a friend recommended his awesome book "The Dhandho Investor" to me in beginning of my investment schooling. The book is, no doubt, one of the best books I have read on Value investing and is a must read for anyone about to venture into the field of analysing business, seeking risk and valuing opportunities.

Today, I am sharing one of his videos where he shares his learning from legendary Warren Buffet. Do watch and learn!

Hat Tip: Alpha Ideas


Sunday, October 13, 2013

Weekly Market Commentary - Oct 7 - Oct 11, 2013

Infosys results started the Indian earnings season in style, with markets welcoming the raising of lower limit of FY14 revenue guidance. Meanwhile economic slowdown, falling capex spending and low consumer confidence is leading to muted expectations from 2QFY14 earnings. Sensex companies are expected to grow their earnings by 5-7% led by export-oriented sectors that are going to benefit from rupee depreciation.

Sensex gained 3.1%, Nifty gained 3.2% and CNX Midcap was up by 2.3% this week.

Monday – Sensex down by 0.1%, Nifty down by 0.0%, Midcap up by 0.7%
Concerns over US shutdown led to muted trading in global markets. If fighting political parties did not reach the solution soon, it may considerably dent the ongoing recovery in US economy.

Tuesday - Sensex up by 0.4%, Nifty up by 0.4%, Midcap up by 0.1%
RBI tried to undo its liquidity tightening measures it introduced when US tapering announcement led to crash in rupee value against major currencies. RBI reduced the MSF rates by another 50 bps to 9% in addition to increasing the duration of lending to the banks from current one day to 7 and 14 days.

Wednesday – Sensex up by 1.3%, Nifty up by 1.3%, Midcap up by 1.0%
Indian markets struggled in early sessions as IMF reduced the country’s growth projection to 3.8% in FY14. IMF also sees global growth falling to lowest since financial crisis. Markets recouped all its losses when data showed that trade gap narrowed to the lowest level in 30 months. The trade deficit narrowed to $6.76 billion in September from $10.9 billion in August. Main reason for the fall was govt. moves on tightening gold import which has led to decline in gold and silver imports to just $0.8 billion vs. $4.6 billion a year ago.

Thursday – Sensex up by 0.1%, Nifty up by 0.2%, Midcap up by 0.4%
Investors stayed cautious head of the beginning of earnings season on Friday with IT bellwether Infosys results announcement. Street is not expecting any surprises this earning season and is choosing to be selectively bullish this season.

Friday – Sensex up by 1.3%, Nifty up by 1.2%, Midcap flat
Most of the Asian markets closed in green as US political leaders showed some signs of compromise on US shutdown crisis. Infosys results cheered the market as company increased its FY14 guidance to 9-10% from 6-10% guidance previous quarter. Investors also cheered the new draft regulations allowing the establishment of real estate investment trusts in India.

Sunday, October 6, 2013

How the economic machine works

One of the best videos from widely respected hedge fund manager Ray Dalio, on how the economy machine functions; how boom and bust cycle occur; what leads to recessions, deflations and expansions in the modern economy.





Weekly Market Commentary - Sept 30 - Oct 4, 2013

Indian markets gained this week primarily due to US shutdown, which inadvertently threw FIIs dollars in its direction. Nothing much has changed in Indian fundamentals though: CAD is still high; cost of funds has not gone down; consumer and business sentiment as reflected by weak PMI data. Even then, market is trading near its highs; is expensive and is very volatile. Though I continue to seek out the reasons to explain these anomalies, and I focus on most important ones, the economy and markets have too many moving parts. Every now and then, in order to explain the movements, I give in to recency effect and attentional bias.

Recency effect is nothing but one’s inclination to explain the process/event occurred, by whatever fresh news/story/event comes to mind. For e.g. markets went up as new RBI governor sworn in.

Attentional bias, on the other hand, is using your current subject under study: one you are most closely paying attention to, to explain every event occurring. For e.g. US shutdown is leading to global market rally as dollar investors have nowhere to go.

However, both examples used above may explain the market movements or state of the economy to some extent but the point is they are not the only ones.

Sensex gained 1.0%, Nifty gained 1.3% and CNX Midcap was up by 1.5% this week.

Monday – Sensex down by 1.8%, Nifty down by 1.7%, Midcap down by 0.8%
Indian markets were under pressure ahead of current account data release expected later in the day. An ET poll is estimating CAD to average $23 billion for Apr-Jun quarter vs. $18.1 billion a quarter earlier. Investors are worried that bad CAD data may force RBI to intervene in the market again and may escalate the cost of doing business in the near term.

Tuesday - Sensex up by 0.7%, Nifty up by 0.8%, Midcap up by 0.6%
Markets went up as RBI promised to infuse liquidity into the system via Rs. 10,000 crores purchase of government securities. Also, CAD figures released previous day came out to be little lower than what market participants were expecting. Gold and oil imports pushed 1Q14 CAD to $21.8 billion i.e. 4.9% of GDP. Indian govt plans to reduce the current account deficit to 3.7% of the GDP in FY14 to meet its $70 billion target.

Wednesday – Markets closed on occasion of Gandhi Jayanti

Thursday – Sensex up by 2.0%, Nifty up by 2.2%, Midcap up by 1.6%
Indian markets rose, as they became the target of FIIs dollars as current political crisis in United States has led to a shutdown of non-essential govt functionaries. Investors are worried that shutdown may prolong and will jeopardize any recovery of US economy.

Friday – Sensex up by 0.1%, Nifty flat, Midcap up by 0.2%
Markets ended flat as US dollars continued to flow in leading to increase in the value of Indian currency. The gain was capped as investors were disappointed by weak HSBC PMI data, which fell to 46.1 vs. 47.6 in August indicating contraction in private economy. Realty, auto and consumers gained as govt. decided to infuse funds into PSU banks to help them offer cheaper loans to public and industry.