The Compleat Trader

Long Grind Ahead

noreply@blogger.com (Neeraj M) — Wed, 02 May 2012 05:50:00 +0000

The sentiment post the budget has turned out to be a lot more negative than was anticipated at the time of the previous post. ‘Policy paralysis’ has become talk of the town. GAAR has everyone fuming (notwithstanding the fact that it was always part of the plan, as part of the long awaited DTC, which, ironically, is part of the reform agenda). These are not surprising things. When the economy is roaring and everyone sees money being made everywhere, even dumb policy things seem quite palatable (remember the fringe benefit tax?). And when things are not looking as nice, even reasonable questions look like nit-picking.

Take GAAR for example. Which government in the world is not going after ‘tax havens’? Be it the US or the UK, tax laws are tightening to prevent leakages. And what is so wrong if the ‘Mauritius route’ to money gets closed? For FIIs, the impact is going to be zero if they hold shares for one year and sell through a stock exchange. Even if they sell before a year, the 15% they pay is nowhere near exorbitant.

The whole point is, the country is becoming unattractive to the investors as a whole due to a slew of issues. Policy paralysis is being talked about today, but policy was always paralyzed under the UPA regime. I don’t think anyone can name even one big reform under the stewardship of Dr. Manmohan Singh as Prime Minister. So long as things were humming along nicely, everyone was happy with the paralyzed the government.

This is not to say the government is not to blame. Over past two years, the clock has indeed been turned back on the economy, and by a long measure too. We now have the redistributive agenda on top with MNREGA as the poster boy of the government, fertilizer/fuel subsidies as the favorite way to spend money and corruption/cronyism as a preferred way to run policy. This is quite a setback for a country that had learnt to take pride in itself only recently, over barely a dozen years.

The fact that it has coincided with global sentiment not being so sanguine only makes it worse. It means getting back from this spot Is going to take a long grind, with no global safety nets, no windfalls from a roaring capital flows gravy train, no respite from low commodity prices that greeted the 1^st term of the current regime. And the negative trends that have been unleashed in India will take some time to play out and even more time to reverse. Take inflation for example, the current bout which is hardly over is typical ‘demand led’ phase, which was fueled by copious liquidity. Soon, we will move to a ‘cost push’ as high input prices start getting passed on to buyers everywhere and then some more as expectations of future inflation would reset to a new level. Then follows the ‘wage-push inflation’, as high cost of living forces the workforce across the board to demand some compensation. Those who believe inflation is going to be tamed soon need not wait for too long to see what is in store. We just need to wait for MSPs for agri-products for this year to see when ‘cost push’ starts kicking in.

Coming back to the sentiment, issues like GAAR are the added bad taste in the mouth when you suddenly realized that you pumped in too much money in a mediocre growth scenario and it may take a while for you to get out. Just the act of trying to take it out is likely to lead to major losses for these investors. When the government is bent upon taking the country back to ‘same old’ and there is no hope of your fundamental growth assumptions to be realized, anything and everything looks irritating.

So why are people not talking about this souring of ‘India growth story’? Partly, they have begun to. Those who don’t have too much at stake will probably start getting more vocal about it. Those who have a lot to lose will probably not want to profess their views openly and create a rotten mood all around.

But make no mistake, there is a long road ahead if you are looking towards 9% growth...

Precipice Ahoy!

noreply@blogger.com (Neeraj M) — Thu, 23 Feb 2012 16:46:00 +0000

The fundamentals of the economy paint a nice picture of where we are headed in the immediate future. Though the 7.1% growth estimate (by PMEAC) for FY12 takes us above our comfort threshold and many would have heaved a sigh of relief, projection for the next year comes with a list of contingencies attached to it. This is not surprising at all.

A quick look at a few statistics reveals where we are headed. Despite boasting a high rate of growth over past several years, India is one of the few economies globally that still posts a 10%+ rate of unemployment, which means there is a meaningful section of the economy that is not getting any benefit from the growth. Farm sector still accounts for 50% jobs in India. This sector has not benefitted from either growth or from global commodity price boom (due to policies that don’t allow farmers to move produce from one state to the other, let alone export it). With extent of poverty not declining and inflation eating away at the purchasing power of a significant section of the population, the Indian consumption story is seriously at risk.

The rest of the story is equally depressing. We have ongoing stalemate in many sectors which are critical to growth. This includes power, where the government coal monopoly cannot get its supply act together. Growth being a power intensive business, it is bound to have repercussions. Infrastructure continues to be in doldrums, despite fancy numbers like $1 trillion being thrown around. Telecom, aviation, textiles, capital goods, consumer durables…, the story is not very encouraging.

If we start adding the center and state’s fiscal woes to it, we get a fairly bleak picture of it all. The point is, how did we manage to dig ourselves into such a hole despite almost a decade of growth, and despite a global economy that has been essentially benign (though the financial crisis did look like dampening growth, the liquidity flood that ensued more than offset the disadvantage). Even today, if you ask yourself the question, what is it in the external environment that creates a big threat to Indian growth, I am sure you will struggle for a cogent answer. The best we can do is probably ‘high oil prices’. Unlike the rest of Asia, we are not export dependent to keep the growth engine humming. If we had our house in order, there is nothing in the environment to derail the economy.

The truth of the matter is, most of our problems are of our own making. Fiscal mismanagement means we have allowed inflation to get out of control (though the global flood of money has played its role) and it is seriously hurting. Large fiscal deficits always hold monetary policy hostage. Either the government prints money for filling the gap (which would be inflationary), or the central bank has to keep the system flooded with money to allow the government to borrow at reasonable rates. The same goes for the oil mess. The government never bothered to decontrol prices when oil prices were low (the government was making a good surplus out of it, of course). Now it is politically unacceptable to raise petroleum product prices. The same applies to other areas where subsidies are hurting. If you start adding policy paralysis, corruption scandals, fractious politics, etc., to the mix, it is wonderful recipe for concentrating the mind.

The outcome is a situation where everyone is hurting and everyone is looking to the government to sort out this mess. There are high hopes from the budget. Almost every sector is hoping for a duty cut, and almost everyone is looking for a dollop. It is anyone’s guess where these hopefuls are likely to end up.

The current stock market boom is probably a combination of copious amounts of money and some wishful thinking. This may continue till the budget comes out. Chances are the budget will try to make everyone happy and end up pleasing none. Going by the track record of past 8 years, it is not likely that someone will stand up and say, ‘we need to make some hard choices, and we will throw everything behind these three top priorities’.

In absence of any real measures taken to put the economy on the growth path, stock market is likely to see the reality quickly enough. The current levels may be sustained till the budget day, but reality is likely to sink in fairly quickly post budget (if it does not happen before then). A surprise may be in waiting for those banking on wishful thinking to continue the good run.

Riding on Fizz...

noreply@blogger.com (Neeraj M) — Tue, 21 Feb 2012 17:00:00 +0000

Indian stock market has outperformed practically every other market in the world in 2012. This is not very surprising. India was among the worst performing markets in 2011 and relief rally has seen many beaten sectors/stocks recover some of the lost ground.

The surprising part is the speed of the rally, failure of most of the big players to spot it well in time and the relative paucity of good explanations on why India is suddenly booming. Most of the people I speak to are just dumbfounded. Barely 8 weeks ago, the India story had gone bust, the infrastructure sector had caved in, power plants did not have fuel, policy didn’t have direction and government didn’t have the tenacity needed to stand up and deliver. The question is, what has changed in a month or two?

The sad part is, nothing. Fundamentally, we are exactly where we used to be. To the extent that behind the veneer of a booming stock market and a massive inflow of portfolio dollars, even the liquidity situation is as tight as November, prompting hints from the RBI on another CRR cut. Falling car sales, slowing tractor and durable goods sales in the rural sector, ballooning real estate inventory; all the elements are the same as before.

This leaves few explanations for the ongoing rally. One of the plausible few is the fresh glut of liquidity in the wake of the Greece crisis. Equities worldwide have gone up as a result and India has received a good chunk of the money. The precipitous fall of the rupee last year provided an added incentive. Strong defense of the currency by RBI and past experience would have convinced many that rupee weakness was unlikely to last for a long time. Stocks looking doubly cheap on a dollar basis would have added to the temptation. Indeed, if you invested in dollar terms in December, you would have already made a 16% on the stocks and another 16 on the currency, quite an unbeatable package.

But where do we go from here? The answer is not very clear. Once again, my bet is on commodities. Stock markets across the world may be rising, but their ability to absorb the excess liquidity is going to be limited due to poor fundamentals. Bond yields are also likely to continue to stay low globally (and high in India, more on that later). It is very likely that a good chunk of liquidity will flood commodities, causing an upward spiral all over again.

This does not augur well for the Indian market. High commodity prices, particularly oil, will further worsen the fundamentals. Coupled with Government’s inability to implement policy reforms (we have not even been able to sort out whether luxury cars should get a fat diesel subsidy or should finally bear the cost of fiscal and environmental damage they do), this will only worsen the pressures the economy is facing. The market is currently riding on fizz and it is hard to tell how long the fizz will last.

Government Debt and the Role of RBI… Back to the Future?

noreply@blogger.com (Neeraj M) — Mon, 20 Feb 2012 13:10:00 +0000

Governor D Subbarao’s musings about government debt and need for a cap on borrowing hark back to an era that we have almost forgotten in India. Not so long ago (say, till late 1990s), the primary role RBI played in balancing monetary policy was managing the government’s borrowing needs against the monetary needs of the economy.

Government borrowing in India has historically crowded out the private sector, there is nothing new about it. Till late 1990s, the traditional monetary policy tools were more or less ineffective due to this. For the banking sector, the primary tool RBI deployed was 90 and 180 day T-bills. Banks were more or less relying on their T-bill purchases to meet their reserve requirements on every reporting Friday. The catch? RBI used to measure their reserve adequacy only on reporting Fridays and the bills could be discounted freely by the banks. The highlight of this policy setting was that more than 99% of the T-bills bought by banks were discounted the following Monday. In essence, banks were keeping their funds in T-bills for only a few hours over the entire fortnight for which the reserves supposed to be maintained.

Bank rate, similarly, continued to be totally ineffective tool for a long period of time. Banks could technically borrow from RBI at the bank rate, but only to the extent of a small fraction of their incremental deposits, in effect making the bank rate practically useless for managing monetary policy or interest rates in the economy.

This situation prevailed primarily because the RBI was tasked with managing government’s debt requirements. Thus, whatever deposits the banks raised, a large chunk of that went into government bonds as the SLR component. In a cash starved economy, it meant that there was little liquidity left in the system for the private sector and banks. The result, a farcical situation in which banks needed to game the system to meet the liquidity needs and RBI did not have choice but to turn a blind eye to it.

The situation changed dramatically in the 2000’s. Falling fiscal deficit, rising growth rates and flood of global money meant that India was suddenly had a deluge of liquidity. Private sector could access capital internationally at far more competitive rates. Liquidity started chasing yields, which meant government bonds became attractive and banks started keeping more money in gilts than SLR required. With this flexibility, RBI, perhaps for the first time, gained true control of monetary policy and its tools gained a true bite.

All this can change dramatically again, if the government allows the current fiscal mess to continue and its borrowing needs start crowding out the private sector. And many signs are pointing in that direction. International money is no longer flooding India the way it was in the middle of the decade, borrowing internationally is becoming more difficult and costly, and RBI is forced to tighten domestic liquidity due to inflation concerns. Though the situation has eased somewhat with January inflow of portfolio dollars, it is the only source of liquidity at the moment and its drying up could suddenly lead to a drought of money.

In this situation, RBI could find itself in the same dilemma again. In a tight liquidity situation, government borrowing will start crowding out the private sector. Interest rates, in that case, would be driven more by the ‘going rate’, rather than tightly controlled by the RBI. Hence, the comment by the governor assumes significance.

What does it mean for the markets? One key factor to keep in mind is that if liquidity starts drying up again, the assumption that interest rates will fall no longer holds true. RBI will be hard pressed to inject liquidity into the system but will be constrained by inflation rearing its head again. Token rates may fall, but with no money available at those rates, private sector will be forced to borrow at whatever rates money is available. Not a great situation when most of the sectors are reeling under less than stellar outlook and growth has started hurting. The only hope lies in the government being able to manage its finances better and letting the economy be.

Rising Support for Yuan as a Reserve Currency

noreply@blogger.com (Neeraj M) — Sat, 26 Jun 2010 16:01:00 +0000

CHINA VS. INDIA

More than one year ago, I had written on this blog regarding the global ambitions of China; in particular its push to get Yuan accepted as international reserve currency (Of Triffin's Dilemma and China's Ambition , April 6, 2009). Since then, things have moved slowly, but almost surely in favor of this move. The latest voice to be added to this growing 'movement' is that of Asian Development Bank, which released a report this Thursday suggesting Yuan 'has the potential' to become an alternative to the US dollar (Yuan can become alternative reserve currency to US dollar-ADB).

At this point, it is not known how long it will take for the Yuan to "internationalize". That is irrelevant. What matters is the reality of China becoming more and more important in the international financial system and its implications.

China has emerged as a stabilizing force over past 18 months in the aftermath of the global financial crisis. It has done favors and most likely would have been promised rewards in return. Furthermore, China's continued cooperation is important for the world to avoid lurching back into the deep, black hole that was barely missed about 18 months ago. In other words, the timing is just right for the dragon to stake its claim to its rightful place in the world.

That brings us to the next question: what is dragon's rightful place in the world? That question gets answers as diverse as the 'color depth numbers' on the latest LED TV models; right across the spectrum. There are those who just can't stop loving China, staking everything on its economic juggernaut. There are those who just can't help being skeptics. Then there is the newer, emerging view that China is just like Japan in the late '80s; overrated, but just a spent force about to go belly up.

Truth is likely to stranger than all these punts. Punts they are because it is hard to know China despite all those 'research dollars' being thrown at it by consulting firms, investment banks and brokerage houses, trying to make sense of the puzzle that China is. Instead of relying on these 'house views' and 'in-depth studies', it is better to simply look at the growth curve of country and something rather simple: human behavior.

And the human behavior dictates that the internal consumption story in China has not even woken up yet to its full potential. Per capita GDP numbers hide a vast gulf of disparity between China's elite and its have nots. The have nots have kept quiet so far due to the ability of the system to deliver and the system has been delivering. Why should they put their faith in anything else? As soon as their turn comes, an army of consumers will rise. There is nothing to stop them.

There is a historical precedent to it as well. Much to the chagrin of purists, the US of A provides the prime example of an economy in transformation; exactly one hundred years ago. The economy had just been finding its feet after a 50-year growth run with per capita incomes of about $5000 in today's terms (about $1000 higher than today's China, but then you can't be exact about this stuff). What happened after that is anybody's guess. Runaway growth, wild capitalism, rampant bull runs; only to be tempered by a Wall Street crash and global depression twenty years later.

Folks, the dragon has barely begun. More on this later.

Ciao. And apologies for disappearing for so long.

Why We Need a Stop Loss

noreply@blogger.com (Neeraj M) — Thu, 08 Apr 2010 06:23:00 +0000

TRADING PSYCHOLOGY

My favorite piece from Zen literature.

Master Caotang Qing said:

The fire that burns a meadow starts from a little flame, the river that erodes a mountain starts drop by drop. A little bit of water can be blocked by a load of earth, but when there is a lot of water it can uproot trees, dislodge boulders and wash away hills. A little bit of fire can be extinguished by a cup of water, but when there is a lot of fire, it burns cities, towns and mountain forests….

When people of old governed their minds, they stopped their thoughts before they came up… Therefore the energy they used was very little while the accomplishment they reaped was very great.

- Zen Lessons, translated by Thomas Cleary, Shambhala Books, Boston

I don't think I can say it any better than the Master said. So I will just shut my trap and let you meditate on it.

Confirmation pouring in: We are in the middle of a commodities boom and a dollar flood

noreply@blogger.com (Neeraj M) — Tue, 06 Apr 2010 07:33:00 +0000

GLOBAL ECONOMY; GLOBAL MARKETS

I did not expect confirmation of my yesterday's views so early. Of late, confirmation has generally been arriving pretty soon for what I have been observing. On NIFTY breakthrough (Violent and Brief), it took the market barely one day to cross the long held resistance.

There is sporadic evidence emerging for the hypotheses I proposed yesterday (Recovery : Final Confirmation, Twin Deficits and Rising Inflation). Broadly, my argument is on the following lines.

Recovery in the West has been underway for some time and now we are seeing final confirmation of the same.
At the same time, this confirmation is of little use, mainly because what brought the recovery is going to be a massive drag from here on.
The large US budget deficit is also going to create a massive trade deficit. This means:
- Higher purchases of US treasuries by foreign governments; this will fail to absorb the entire trade deficit.
- Additional dollar supply flooding the market; since there is no penalty for the US for letting the world slosh in its money. Exactly one year ago, I was ranting about the same thing and why China and even EU want piece of the action (Of Triffin's Dilemma and China's Ambition). It is funny how an old rant can seem new sometimes.
- Commodities on fire; the dollar flood is going to simply push commodity prices out of the stratosphere.

A cursory glance at Bloomberg page today brings the following news.

Rise in Treasury Yields Slowed as Currency Reserves Grow Fastest Since '08

Oil Surges to 17-Month High on Signs of U.S. Economic Growth

Copper Advances to Highest Level Since August 2008 on Recovery

Financial journalism tends to put a spin on everything. Right now the spin is 'recovery'. Well, there is another explanation that is far simpler; dollar flood. And then there is the Euro flood that is almost as big. And then, there is the Pound flood that is the biggest of all in relative terms (just measure the relative sizes of the budget deficits to the economies). The "gainers" of this not-so-hard earned money, on the other side, are also easy to identify. Export powerhouses like China (who incidentally refuses to let the currency appreciate) and commodity dependent economies. Japanese yen is around 93 (you can bet the Japanese are not very happy about it but will keep quiet because it will rise to probably sub-80 levels if they let it go free), Australian dollar is heading towards parity again and Brazilian Real is at 1.76. The evidence is all over the place.

To avoid confirmation bias, am still looking for that one bit of contradicting news which can disprove the hypotheses. If you come across something, please do throw it in.

Recovery : Final Confirmation, Twin Deficits and Rising Inflation

noreply@blogger.com (Neeraj M) — Mon, 05 Apr 2010 12:41:00 +0000

INDIAN MARKETS; GLOBAL MARKETS

Much has been made of the recent job growth numbers out of the US. They are a very positive sign of course. But what does it augur from markets' point of view?

Not very much, not at least from the US markets' perspective. Here is why. In any typical recovery, most of the indicators start registering a positive long before growth starts showing up in job numbers. As an indicator, growth in jobs is probably the one that lags the farthest behind. The reason is not difficult to see, no matter how rosy the outlook starts becoming, you will always want to check twice before you add those extra workers to your payroll. If you have any doubt, you will most likely opt for paying overtime or other such temporary measure.

Hence, the value of the indicator is in confirming that a recovery has actually taken place. Yes, it makes not a very convincing confirmation since the number has been positive only twice. But if you are waiting for further confirmation, you are already way behind the curve.

It does not augur necessarily well for the US stock markets. Much of the move has already happened and there are major challenges going forward. The toxic assets that caused the problem in the first place are still stuck somewhere in the system. The large stimulus, even though it drove the recovery, is going to be a major drag in the form of fiscal deficit in the US.

For emerging markets, there are many positives though, particularly for India. India came out of the shock with relatively little 'stimulus' and whatever has been provided has been rolled back. Fiscal position is looking good. Hence, the growth is solid. Furthermore, even financing crunch (due to lack of liquidity) is likely to ease, as explained below. All looks well for Indian market, except that inflation is going to be a complete pain.

Rising liquidity

Huge budget deficit in the US is going to drive a huge trade deficit too (they are two sides of an equation, no matter how much hot air US policy makers blow, there is no way you can eliminate one without eliminating the other). Which means the world is going to get inundated in dollars too. Whether you like it or not, a dollar flood with continuously falling interest rates is inevitable over next one year. Some of it will go back to the US as Central Banks buy US treasuries, some of it will simply be funded by excess money supply. Such is the prerogative of those supplying the reserve currency of the world.

Commodities again

No turning back the commodity inflation cycle from here. Once again, the rollicking days of ever rising commodity prices are here. That is likely to be the situation for next one year. If you bought some of those metal stocks here when they were going cheap, you are going to be rich pretty soon! Jokes apart, we are looking at a repeat of the late '70s here, nothing less.

Violent and Brief

noreply@blogger.com (Neeraj M) — Fri, 02 Apr 2010 17:09:00 +0000

INDIAN MARKET

So we did have a dip from the 5300 levels afterall (Waiting for the Breakthrough) on the NIFTY. Nothing very surprising there. The market has bounced back from its minor correction (if you want to call it that). We are back on the gates of the 'zone de résistance' and things might get stuck here again.

Or they might not. I do not know whether the bearish side of the market has had its fill of adventure or not. If not, we will see another skirmish. But at some stage (possibly in this very move), the zone is likely to be overrun.

And it is likely to be overrun in a big way. This is not the first time that this level is working as a major resistance. Post the Lehman dip, this level has alwathings might get stuck here again.

And it is likely to be overrun in a big way. This is not the first time that this level is working as a major resistance. Post the Lehman dip, this level has always held. It was not broken during the post election rally, held out once again against medium term trend and is proving tough to breach for the medium term trend move.

The strong resistance means that a break is likely to be fairly forceful and swift when it happens. There is a lot of pressure built up that is likely to be released when the breach comes. All the doubtful bulls sitting on the sidelines will jump in at the sight of a convincing breach and that will make the move quite sudden.

For those salivating at the thought of making a quick buck in the move, here is a sobering thought. Given that a large chunk of the market is now dominated by robo-trades, there is no way exact timing of the move can be predicted. Going aggressively long has its risks, as you can get caught in the 'sucker bet' downmove generated by automatic algorithms. At the same time, there is no telling when the market may make a sudden breakout. In all likelihood, it is going to be a very violent affair, and a very brief one. Given the nature of trading in the market, it may be over before you can say "gotcha!!!"

A Questioning Mind

noreply@blogger.com (Neeraj M) — Thu, 01 Apr 2010 08:46:00 +0000

TRADING PSYCHOLOGY

Yesterday's piece cited one recent piece of research that insists there are specific 'centers' in the brain that control temptation. Also, 'stimulating' those centers somehow seemed to alter the level of temptation subjects could bear. Does it mean we should snap electrodes to our heads to stimulate our brains before sitting down in front of the trading screens?

The answer to that brings us to another important trait that makes a successful trader, a questioning mind. On the face of it, the research seems innocuous and straight forward. But it might not be. There are too many give-aways. The first one is the intent to produce a 'drug' that can help you control temptation. I won't even get into the ethics of doing this. The other is the fact that there could be a much simpler explanation for the phenomenon observed. We all know (thanks to a movement that took this principle to the height of stupidity) that the right side of the pre-frontal cortex processes information holistically while the left side processes sequentially. So it is not hard to imagine that stimulating the 'holistic' side will help you thwart temptation while working the sequential, 'next step only' side will drive you right into its clutches.

This is too simplistic, of course. As simplistic as the right-brain left-brain movement, which incidentally made the assumption that 'using your right brain' was a simple matter of shutting down half of your brain (a truly "half-brained" approach). Let us not even get there. But the moot point is that you can avoid questioning 'given wisdom' only at your own peril.

The same applies to investing also. "Very well known" you would say, "tell us something new". Well, the new thing is that 'cultivating the questioning mind' is something different from what it is made out to be. What does not matter is how many questions you raise, because simply raising questions is not enough. What matters is what questions you are asking and what you are willing to accept as an answer.

The importance of asking the right questions and framing has been explored long ago by behavioural finance pioneers Tversky and Kahnemann. Those who are interested in the area would enjoy their brilliant work and how ingeniously they separated the motivations at work layer by layer. In most of the cases, path breaking conclusions look extremely simple in hindsight, though getting to those solutions to begin with might have been extremely hard (due to orthodoxy, 'given wisdom', etc.). The beauty of their work is that most of what they say is so counterintuitive that even today it never fails to startle. To come up with answers that are counterintuitive yet startlingly true, not only against the 'given wisdom' of the time, but still amaze three decades later requires a rare quality. A truly questioning mind.

More will follow.

Hard Wired Traders?

noreply@blogger.com (Neeraj M) — Wed, 31 Mar 2010 17:37:00 +0000

TRADING PSYCHOLOGY

There is some good news on the trading horizon. At last, you have a way to literally shock your brain into doing the right thing. All traders have known for ages what the right thing is; take your losses, sit on your profits, so on and so forth; but succumb to temptation.

New research indicates that "maturity" (or lack thereof) of the pre-frontal cortex is to blame for people falling to temptation (try this Yahoo link for the full story). This has fairly strong implications for people who want to become active traders or investors. It is no longer a matter of following some standard advice on 'taking your losses'. It boils down to whether you are wired or not for taking the high pressure situations this profession puts you into.

Ability to delay gratification or to withstand temptation is a core measure of maturity of a person. The trait is valuable across the board. It is the best predictor of future success at an early age. It can determine whether you live a healthy, well adjusted life or will indulge in self-destructive behavior. It is at the heart of decisions like whether to get up early in the morning to exercise, give up that next drink so that you can drive home safely or give up the dessert after dinner despite being presented with truly sinful but delicious option. It also has implications like whether you will diligently plan your finances or will run budget-busting credit card bills. But nowhere is this more visible than in investing and financial markets.

Trading and investing (I do not necessarily differentiate between the two, it is just the time horizon that separates a trade from an investment) definitely requires an ability to give up short term pleasure, even bear extreme pain (remember the last stop-loss that you took?) for long term gain. From start to finish, trading is all about sticking to the discipline of doing the right thing.

This advice has sounded very easy to follow. But real world stands testimony to how difficult it is to practice. Barely 1% of traders are profitable in the long run. The usual explanation for this has been 'trading talent', but it has remained elusive what this talent is all about. How do you differentiate who will be a good trader and who will wilt under the temptation of letting that loss-making trade run just a little bit longer in hope of salvaging something?

Surely, trading involves a lot more than just brutally enforcing your stop losses. It requires diligent research, a sharp and keen mind and a great run of luck. Still, some of us could use just a little bit more of that discipline to make the difference.

So where does this lead us? Shall we all wrap electrodes around our heads and start "stimulating" the correct regions of the brain? May be not so fast. More on that later.

A Strong Sense of Entitlement, or Something Else?

noreply@blogger.com (Neeraj M) — Tue, 30 Mar 2010 15:13:00 +0000

TRADING PSYCHOLOGY

Last week, there were two very interesting headlines Times of India's Delhi Edition had on its front page (of course, hidden behind the annoying half page of advertisement that simply kills the pleasure of picking up a paper in the morning). The first one was on the fire in a building in Kolkata. The story writer ranted on 'unapproved additions to the building', lack of safety norms and so on. The conclusion was that the civic authorities had failed completely in their duty.

This is not interesting on its own. The interesting part was the second story. Again, the writer ranted on cancellation of day one of fashion week in Delhi. The arguments were on the lines of authorities having been informed sufficiently in advance, people waiting in queue, authorities not getting their act together, etc. Buried somewhere in the story was the fact that the organizers were not able to meet all safety guidelines and that delayed approval.

So there you are. As a society, we are heading to a situation where we cannot tolerate even a minor disruption of what we want to have. We want our gratification, right away. Somebody else owes it to us and we will shamelessly lash out even when we are at fault for delay.

That attitude kills an investor or a trader more than anything else. In this game, there is nothing worse than getting into the ring (figuratively, now that everything is electronic) with a strong sense that the market owes it to you. Even a small dose of this poison can do irreparable harm to portfolios carefully nurtured over long periods of time.

For a trader, it is even more dangerous. You cannot blame market analysts, policy makers, the government, media or anyone for anything. The trader has to take responsibility for all that happens to her position. The trader cannot blame even the tools, so what if a tested technical pattern did not hold out on a particular day and you lose money? The market does not owe you anything, nor do Mr. Head and Shoulder, Mr. Double Bottom or Ms. Third Wave.

Why am I writing all this? Because after years of reminding ourselves over and over again, there still is a day when the stop losses get hit and we just cannot help cursing that analyst whose 'advice' provided that extra bit of justification needed for putting on a trade. You can laugh at them, berate them or otherwise disagree; but you cannot blame them. The blame lies squarely with you, the Trader.

Waiting for the Breakthrough

noreply@blogger.com (Neeraj M) — Mon, 29 Mar 2010 07:46:00 +0000

INDIAN MARKETS

The market is stuck at a strong barrier, the strong resistance of getting past a previous high in the recent past. The general prediction in the market seems to be that the resistance is too strong and this is the time to take profits. Is it really?

Let us consider the pure momentum argument. This market has had a lot thrown at it over past one month. High inflation in India, tightening stance by RBI, possibly higher interest rates, international risks (e.g., possible Greek meltdown) and so on. The result? The market barely blinked.

On top of that, we have had a sizeable portion of the market yelling that the market is ripe for a break and it is time to take profits. Still, the market has refused to break down.

Instead, the market has spent considerable time getting consolidated in each "resistance" range. And then breakouts have happened, very quick movement and then you get stuck again at the next "resistance".

All this means only one thing, the "resistance" is the last stand of the bearish crowd who have made tons of money in the past taking similar positions and are waiting for another repeat of the "same old thing".

I do not know whether this "repeat" will happen or the market will break through this time. I am completely agnostic to either. But given the strong amount of resistance at the moment, any break from here is going to probably pause only once (may be 5500?) before the last barrier is broken and the floodgates open. Once that happens, this market might not stop before revisiting its all time highs. Who knows?

Who is right?

noreply@blogger.com (Neeraj M) — Fri, 12 Mar 2010 10:15:00 +0000

GLOBAL MARKETS; INDIAN MARKETS

Globally, things are in a flux. There seems to be some consensus that the economy is on the path to recovery. Still, global economy is going through a lackluster phase and the net data flow is neutral at best. This is perhaps the best time to observe what predictions people make and how those predictions pan out (and most of them will end up doing something pretty "rude" to themselves, that is an almost foregone conclusion).

As usual, when things are finely balanced, opinion gets split in the middle. With one half seeing catastrophe ahead and the other seeing recovery, where does the market end up? The most likely answer is 'nowhere'. Performance gets lackluster and things do not look like moving. Rangebound movement is usually the result and whipsaw is frequent. But what is the prognosis?

For a trader, the best thing to do is to admit that no one knows a damn thing about the future at such a juncture. That includes the trader himself/herself. It is like driving blindfolded and is probably the most interesting (though very bank-balance destroying) trading experience.

Some things can work. Including running very tight stop losses and trading ranges. Some things cannot, as this is the worst possible time for trend followers. As the trend in the global market will take some time to emerge, there is some time for money for trend followers to show up.

The implications for Indian market are clear. Any sustained upmove in the interim period is going to be amplified by global funds as people chase higher returns. Also to be expected is a higher churn as money moves due to the shifting sectoral share in growth. While currently the Indian market is also very dull, this clarity will start dawning sooner rather than later and an amplified move can be seen emerging any time over next month or month and a half.

Good time for people who believe in accumulating stock slowly and make good money in a sustained upmove.

But keep one thing in mind; no one knows.

What not to touch in the markets?

noreply@blogger.com (Neeraj M) — Thu, 11 Mar 2010 08:46:00 +0000

INDIAN MARKETS

While the market has started moving in a direction that looks more positive, there are several danger signs that need to be watched out for. Also, many sectors in the economy are going to put in a lackluster performance and some are secular laggards over next few years. Here is the list of things that you need to avoid in the coming one year.

FMCG. All said and done, where is the growth for the sector? The only answer to that is the rural market. The food component of the business will continue to grow as the economy accelerates but the rest is not likely to grow too fast. How many soaps can you consume in a day? How much extra can you get from the same consumer for the same set of products? What do you do about the low cost competition from the unorganized sector? These are the questions that made FMCG a big underperformer in the previous bull run. Nothing has changed now to make it an outperformer.
PSUs. Other than infrastructure and perhaps banking, there isn't any sector where PSUs provide a superior growth story versus the private sector counterparts.
IT and BPO. Regardless of what people thought, reality is that a recession in the west is not a dampener for most of outsourcing related work. As firms seek to cut costs, there is countercyclical force in favor of outsourcing based businesses that dampens the effect. Now the situation has changed with anti-outsourcing sentiment as strong as ever, pressure to outsource ebbing and a currency that is strengthening; the attractiveness of the sector would be at an all time low; no matter how many "signature deals" you see. It is no longer a "growth industry". You are looking at a mature industry with moderate growth rates and valuations it deserves are more like FMCG and less like renewable energy.
Retail. The model that fueled runaway growth has failed. Period. Like the internet boom of early this decade, the industry is going to be around, just not in the same shape with the same value proposition. Rejigging the model takes time. So watch out for retail's comeback, only not in 2010.
Textiles, garments and other also rans. With the policy dice heavily loaded against this sector; little hope of a comeback. A real pity though, this is the sector with highest employment generation potential with just a little amount of training (unlike software that takes years of education). No wonder every developing country has this sector on top priority. But Indians do things just differently…

Avoiding these sectors is important for the health of the portfolio. But a winning strategy takes more than just a list of stocks to buy and to avoid. More on this later.

Time for a Secular Bull Run? Part - III

noreply@blogger.com (Neeraj M) — Mon, 08 Mar 2010 12:15:00 +0000

INDIAN MARKETS

The theme for past one year has been dominated by consumption growth (led by rural demand) and resumption of the commodity cycle. Metals were poised to gain the maximum from this theme. So were two wheelers, telecom and other consumption led sectors.

This part of growth story is not going to be as strong for next two months. The effects of bad monsoon will take some time to clear up. The disposable income delivery by the agri-sector would have happened in 4QFY10. The sector has turned out to be weak and the resulting impact on disposable income will dampen demand from this sector.

At the same time, the changing fundamentals of the economy are likely to kick-in over next 12 months. I want to caution that all the positives we have identified are slow acting and none of them is going to deliver a sharp jump up in the markets. Still, a slightly positive bias is likely to rule for next 12 months.

Which sectors are likely to lead the charge over next 12 months? There are quite a few, which provides very good diversification options to investors and traders alike (though traders will need to trade with a longer time horizon than usual to gain from this).

Banking. Favorite whipping boy of the bear runs, will likely get back in the forefront over next 12 months. Several positives, stable interest rates will not steal the wind from bond portfolio sails, rising credit offtake (particularly from housing sector), lower threat of bad loans to name the few. Some banking stocks are a "must own" in any balanced portfolio.
Real Estate. Finally out of the woods, the sector is likely to limp back to its footing over next few months. The recent withdrawal of "teaser rates" is actually a vote of confidence in the sector by the anxious bankers. They no longer feel the need to offer sops to borrowers (a "not so important/risky" set of customers) to make sure the riskier and more lucrative set (builders) stay solvent and afloat. Back to the times of rising greed and runaway prices?
Capital Goods. Must own over next 12 months. Like it or not, capacity expansion theme is here to stay. Last 18 months have seen capacity expansion disappear as "captains" of industry turned into anxiety–ridden wimps. Now that the scare is over, sooner or later, everyone is going to get the scare on the other side: "we are not poised for growth anymore".
Auto: Mildly positive. Caution needs to be exercised, with an eye on next monsoon. If it turns out to be good, two-wheelers will gain only at the fag end as rural income growth comes back.
Media: As confidence goes up, the lifeblood of the sector, AdEx, should also start rising.
Infrastructure and related (cement, etc.): Make no mistake about it, India is so starved of infrastructure today, any project is likely to make money. One of the best bets if you want safe, assured returns as a big ticket investor. The only question is, can the government get out of the way fast enough?

Along with these sectors, there are some that need to be kept at a distance. A note of caution, since they are not likely to do much over next 12 months does not mean they are easy shorts. Instead, they are more likely to be lackluster, yielding gains to neither bulls nor bears. A detailed look at some of them tomorrow.

Time for a Secular Bull Run? Part - II

noreply@blogger.com (Neeraj M) — Fri, 05 Mar 2010 11:15:00 +0000

INDIAN MARKETS

The consolidation mode markets went into over past few months has hidden a major shift in underlying fundamentals of the economy. A number of things have happened in this period.

Fiscal profligacy has come down. All said and done, the government did not fall for unlimited stimulus. I suspect a strong underlying theme would have been food inflation. Whatever the reason, a very wise decision.
Economy is recovering, though not out of the woods yet. Still, recovery sans major fiscal stimulus flowing into the economy is impressive and means that the economy can grow from here.
Liquidity. Helped in no small part by forex inflows. Government borrowing has also not gone to the level of crowding out everything else. Bond yields, as a result, have stabilized and are likely to either stay there or slowly tick down from there.

There are several negatives also, though it is better to view them as leading a 'shift' rather than pure negatives.

Failed monsoon. The impact will linger for some time. For past one year, the economy has grown on the back of a strong rural consumption story (as I continuously pointed out in my posts exactly one year ago) and negative growth in agriculture puts a spanner in that. While things should recover, rural disposable incomes will stay depressed for next six months. That shifts the focus away from consumption theme for next six months.
Low capex. A worrying trend has been the low capacity addition in the economy. It means current growth is the result of higher capacity utilization instead of capacity creation. Does not bode well for medium term growth.
High interest rates. Will take some time to come down. They are high despite good liquidity in the system and a stable sentiment. Which means any reduction in rates will be based on a slow, gradual reduction in the proportion of governments borrowings in total debt in the market.

The interesting part is that none of this makes for a drastic rise or fall in the stock markets or the fortunes of the economy. Instead, this makes for a slow and steady movement where things improve (or deteriorate) slowly.

This does not do any good to the rampant bull (or bear). At the same time, it makes for a steady secular slightly bullish market in the medium term where interest rates are either stable or slowly ticking down, economy is growing, liquidity is comfortable and consumption gradually improves as agriculture/capital goods sector gets out of the woods and capacity addition resumes.

My last year's picks, metals, auto in general and two-wheelers in particular, telecom, etc., turned out to be exactly the right picks for the market. But the changed market requires a complete reassessment of which sectors to be in. That analysis follows.

Time for a Secular Bull Run? Part - I

noreply@blogger.com (Neeraj M) — Thu, 04 Mar 2010 10:02:00 +0000

INDIAN MARKETS

We have had an extended sideways trade going on in the Indian stock market for some time. While I did anticipate December and possibly January to be a slow month, the market just continued to be dull for longer than anyone had anticipated. In hindsight, it looks just logical for it to have been like this.

On the surface, it looks like the market was waiting for the budget to come out and the fiscal stance of the government to be clearer. And it also looks like that the budget provided some clarity that has seen the market attempt to break out of the long held trading range.

In reality, the doldrums stem from another factor. It is now clear that the government started the task of fiscal consolidation long before the budget. It shows in the expenditure numbers and fiscal deficit estimates. It probably won't do much good for advocates of "stimulus" who have been clamoring for more. But it does a lot of good for the long term health of the economy.

There lies the bind the market has been in. The economy has been growing all the while when government spending has been in check. Tax level sops will probably continue for some more time to come, but low spending means there is very little "real stimulus" flowing into the economy. So there you are, the recovery is definitely there, though not on a sure footing yet. That would keep the markets from tanking outright. On the other side, there is very little "push" coming from the fiscal side. That would prevent a massive upmove also till the time things stay unclear.

The budget has brought a lot of clarity indeed, from the macro numbers point of view. It is now clear that fiscal deficit is not expanding as rapidly as some of the market participants have been factoring in. With disinvestment proceeds and 3G auction money flowing in, the need for the government borrowing drops drastically in the coming year. The government being committed to an aggressive debt-to-GDP ratio target in the medium term also points to reduced borrowings in the market.

This changes the dynamics underlying the market for a number of reasons. Working out the new market drivers for next one year would be essential for making money in the next one year. A detailed analysis follows in the next post.

NIFTY: Targets Met, Markets to Go Into Doldrums

noreply@blogger.com (Neeraj M) — Thu, 12 Nov 2009 09:23:00 +0000

INDIAN MARKETS

The yesterday's move completes the minor "rally" target on the Index and the market is exhausting its energy to create major swings. The fundamentals are not going to show too much of a change over next few months. By now, everyone is convinced about the recovery. Things are not as bad as they were supposed to be. In fact, from now on, it is going to be just a mundane update on economic numbers as far as this part of the world is concerned.

As things stand today, practically all the important information is available and discounted. Growth targets are now well known and a consensus is emerging there. We all know general inflation is not a concern (the most fallacious indicator at the moment in India), food and primary article prices are going through the roof (jeopardizing the growth engine and long term growth prospects by skewing the income distribution), interest rates are going to stay high and so on and so forth. No surprises on any side.

So all the rallies and dips are just a way for the market to finally settle for a relatively low volatility price range. None of the variables that move the market are likely to change much over next few weeks. On top of that, international money is going to completely cease movement come December as the investor/trader/fund manager community heads for the annual break.

This makes for a very dull market over next few weeks. Of course, die hard punters will keep on trying to find direction for this market. But there isn't much juice and every move is going to dissipate more and more energy.

Clearly, time to trade ranges so long as the market shows some energy. Then shut shop and enjoy the winters and the holidays.

Cheers!

NIFTY: Is it a Correction or Beginning of a Reversal?

noreply@blogger.com (Neeraj M) — Tue, 27 Oct 2009 12:39:00 +0000

INDIAN MARKETS

In my last post, I had surmised that we are seeing the signs or footprints of the market teetering on the verge of a change in trend. Whether this downmove is just a correction or beginning of a reversal in the market is the key question.

Answering this question is important because if you are an investor, you need to reallocate the portfolio (you might want to buy gold, for instance; which looks like an excellent choice at the moment). If you are a trader, you need to change the 'bias'. And if you are fans of CNBC 'market expert anchors', then you might want to switch loyalties (curiously, Ms. Mitali Mukherjee starts beaming when the market is going up, and Ms. Shireen Bhan is gleaming when its going down).

There are several factors that will determine where this market is going. Before that, it is helpful to recount how this market got here in the first place.

Change in growth outlook. We took out couple of percentage points from the growth outlook in the beginning this year. That on its own accounted for about 40% of the fall in the market witnessed prior to the rise. And surprise, surprise, we added it all back up.
Risk Premia. Went straight through the roof, way beyond justifiable. Several percentage points added to the discount rate (whatever you were using to value stocks and other things) and when sanity returned, suddenly everything looked cheap.
Flood of money. Critical to depressing risk premia (again) to current, artificially low levels. And boosting growth expectations to, well, artificially high levels.

So here we are. And here is where we are going.

Growth outlook. Sanguine, with cumulative factors pointing to a long period of 6% GDP growth (give or take a few bips here and there). The steroids have pushed the flexible parts of the economy as far out as they could. Now the whole thingamajig needs to move forward for growth to happen. The feedback effect between different sectors becomes important after a while for growth to happen. Managing that is a tall order because Government's own fiscal condition is going to become a large drag on the economy.
Also, you can do a selective interpretation of whether 6% is good or bad or whatever. But it clearly does not support valuations that are 20-22 times earnings for the market as a whole. True, we are not there yet (in terms of valuation multiple). But we will need higher growth for the trot to continue.
Risk. Premium will start rising again. The simple reason is that despite the cycle of despair and the euphoria, the state of the global financial systems in terms of asset quality is exactly the same as it used to be before the whole thing began. The poison is still in the system. To the extent that even the pioneers of the "good bank, bad bank" approach are yet to implement it to that canary in the coalmine, Northern Rock. European Parliament is still in the process of approving the split and eventual selloff of the bank. Clearly, the global system is far from fit and the moment the reprieve provided by trading profits ends, things will start looking tough again, on the loans side in particular. Any spike in global risk premia is going to spoil the party for Indians too.
It's nice to assume the risk has gone away. It has not. And any additional points added to discount rate will make those "attractive" valuations ever "more attractive".
Turning the taps off. One of the most hilarious aspects of past few years' inflation debate has been the dance routine performed by regulators around the inflation numbers. Its either commodity inflation, or food inflation or this inflation or that inflation; so long as you can prove that "core" inflation is in check. Well, the inflation juggernaut having run through asset prices, real estate, commodities (one by one), food articles, etc. will finally run over whatever "core" is remaining in due time. The taps will have to be turned off at some time.
The funny thing is that even turning the taps off is not needed for things to start looking bad. As with all things "stimulative", greater and greater quantities are needed to keep the same thing looking good (that is why you need to keep drinking more and more beer to keep believing that your wife looks good!). So the moment you stop expanding the pool of liquidity, things are going to look ugly again.

I guess the policymakers realize these things. That is the reason why there is so much talk of "stimulus continuing" or a "second stimulus" and so on.

Finally, the timing part. Well, the fatigue of the market has been evident. Nifty has been struggling more and more to make relative new highs. The post election euphoria is more or less over. The results are not disappointing but not earth shattering either (something everyone had assumed). From now on, it is going to be evident that from auto to telecom, from pharmaceuticals to FMCG; it is going to be a slow trudge rather than a sprint to far greater profits.

Still, can we confidently say that the reversal has begun? May be not. The market may surprise with a sharp upmove before settling down to a long, dreary sideways move of chipping away prices slowly. But the winter is certainly looking uninspiring at the moment.

Foot prints of a Reversal (Is the Bear on the Prowl Again?)

noreply@blogger.com (Neeraj M) — Thu, 22 Oct 2009 17:16:00 +0000

GLOBAL MARKETS, INDIAN MARKETS

Short answer: Yes. Watch out.

I do not say this because that is the "consensus" among "professionals" and "analysts" out there. Those who have ever gone back far enough on this blog (for reading posts, not for searching who Mitali Mukherjee's husband is, we have a rocking piece on that which still brings tons of hits to this blog, hahahaha) would know why that is the case. There is a solid, fundamental reason why this market went up from March (globally) or from May (in India). And all the analysis behind that you can find in the posts that appeared here between January and March (and not in August, when I just did not post).

Similarly, there are solid, fundamental reasons why this market cannot sustain it any more.

Global Folly: Stimulus Season 2

Let us get it straight. Nobody knew whether the first stimulus would work or not. But it was needed. Put simply, the bloke called "global economy" (or whatever name you like, say "global financial system") had an accident. Blood was spilled and it was necessary to replace all those lost pints. Whether somebody knew it would work or not.

And now? Patient has survived. Even recovered somewhat. But is fat and bloated now (something like a reversal to the original position, though not fully). High cholesterol, high whatever, whatever… you name it. The fix? Give more transfusions! If nothing else, you will balance out the high cholesterol by "averaging it out" with the new, "fresh" blood. Okay, bad pun. But hey, the "new blood" represented by a certain Nobel Prize winner is doing just that, "averaging out" the effect of the old. Anyway, that is a different story. Let's get back to our main discussion.

Did I hear "bad example"? Of course it is! But it makes the point.

So what happens as this bloke is given more and more transfusions? I don't know. Hey, I am not a doctor!

Losing the Plot

The plot was simple. It was broken. Fix it. Get out.

But the choice finally taken is to keep pumping in more and more. Chinese economy vital to global health! Put it on steroids. Now that it has run the course, pump in some more. Same with the US. And of course, how can the rising superpower like India be far behind (I know, I know, those of you global freaks don't give a damn about India. Why don't you just shut up? There are tens of millions of investors in this country who care, besides more than a billion of us around who need to eat, sleep and make merry, well sort of!).

So, the plot is lost. In the meantime, you suffered commodity inflation again (I told you so), stock prices went up (I told you so), spending driven sectors blew the top off the charts (I told you so). The problem? NO, the market is not "ripe for" or "waiting for" a correction, as a celebrated analyst commented on CNBC India today. It is just that sectors that ran ahead of the economy were fired by steroids. The rest of the economy cannot support them beyond a point. The pullback becomes inevitable.

Closing Time

Okay, I will not write more on it today. I think it merits a detailed discussion, on India, on global economy and on China especially.

BUT YOU HAVE BEEN WARNED!!

Cheers.

The Comeback

noreply@blogger.com (Neeraj M) — Wed, 21 Oct 2009 10:58:00 +0000

It has been quite some time since this blog has been updated (more than 5 months now). I know it is not ideal to disappear without any warning, information, etc.; but yours truly suddenly quit trading and got into the staid life of paid employment. And as luck would have it (or generally has it, if you believe the brilliant "offisial atyachaar" guys), it left no time for me to even visit my own blog; forget about updating it.

But despair no more! The Compleat Trader is back, not as a trader though, only as an observer and a commentator on the economy and how it impacts the financial markets. In any case, this blog is not a "mass" following blog, very few people read it on a regular basis. But I am really grateful to this set of readers who have been truly loyal. Despite the blog not being updated for five months, it has still maintained a sustained monthly traffic of about 1,000 visits a month! Am truly floored and feel honored. Clearly, there is something that people find of value in this. And I hope I can continue to write stuff that people find useful.

Okay, time to be arrogant! Yes, despite me not following the market, the medium term view has been a thumping success. The last word on this from yours truly was on April 24, 2009 in shape of Indian Stocks: Which Sectors should We Put our Money on? Please take a look if you need some convincing.

So folks, yours truly is back. Of course, it will take him some time to hit the same form again and deliver crackling insights for investors and traders alike. Till that time, please "bear" with me (and subsequent posts will show why the word has been emphasized).

Cheers!

NIFTY: Thumping Success on the View, Should We Book Profits Now?

noreply@blogger.com (Neeraj M) — Mon, 04 May 2009 09:39:00 +0000

INDIAN MARKETS

The view on NIFTY has turned out to be quite on the mark and markets have rallied strongly. We did see a blip globally as well as in India due to swine flu concerns. But I had pointed out in my last post; it is just a temporary phase and markets would rally strongly from there.

Going into this rally, the one question that we need to answer is when to book profits. My earlier view still remains intact; the rally has steam to go past 4000 on the NIFTY. That would be another 10% from here.

However, as we get closer to our target from here, the upward pressure will weaken and market is likely to get choppy. High volatility is definitely on the card.

To Book or not to Book?

I think part profit taking is justified from here. It is difficult to predict the exact path of the market from here and there may be a pause for one or two sessions before the course is resumed. There may be a re-entry point available at a lower level on such a day. At the same time, the market may simply carry on and you may regret getting out of positions. Under such circumstances, lightening your position makes sense as you still keep a finger in the pie if the trend simply continues.

Hence, if you are itching to do something and cannot sit tight, take part profits. Re-enter if the market does test 3550.

Swine Flu Blues: Jittery? Take a Healthy Dose of Perspective, Thrice a Day for Two Weeks

noreply@blogger.com (Neeraj M) — Tue, 28 Apr 2009 18:56:00 +0000

GLOBAL MARKETS; INDIAN MARKETS

As swine flu spreads across the world, the jitters are increasing. But so far, things seem to be under control. The encouraging fact is that the cases seen outside Mexico have been mild and most of them have not even required any hospitalization.

The financial markets have chosen to be jittery at this news. Today's selloff was quite severe but may prove to be an overreaction.

Developed World Scare

Most of the scare value coming from flu outbreaks is due to the history of 1918 flu which killed an estimated 50 million people and infected 40% of the global population.

Recent outbreaks have been tame by comparison, with counts limited to thousands instead of millions. Contrast this with the biggest killers on the planet today. Malaria kills 5 million every year. Rabies kills half a million people a year in India alone.

Partly, the scare is due to the fact that malaria, diarrhea and rabies are third world disease. Developed world has more or less tamed these problems. New strains of flu, by contrast, put them at the same level of risk as, say, a country like India.

This is not to downplay the potential harm this may cause. But some perspective can help.

Indian Preparedness

The UK has enough stockpiles of anti-viral drugs to treat 50% of its population. The US has equivalent of 15%, Japan has equivalent of about 20%. India is also stepping up to the challenge and is stockpiling enough anti-virals to treat 0.0020% of its population.

Still, India could be in a relatively safe condition due to the climate (very hot and dry) at the moment. But the onset of Monsoon will bring a totally changed climatic condition, highly conducive to spread of flu like infections. Let us hope the outbreak is contained before then.

Short the Market?

No. One, it is unethical (I have my biases too) to take advantage of such a thing. Two, as the world takes that universal cure for all things psychological, a good dose of perspective, the markets can bounce back. So shorting remains risky.

Swine Flu Kay Sholay

A senior colleague returns from the US. So it is a fit situation to enact the famous Sholay scene.

Kaaliya: Kya laaye ho Sukhiya?

Sukhiya: Swine flu laaya hoon sarkar.

Taliban Under Attack, To Be or Not to Be (Happy)?

noreply@blogger.com (Neeraj M) — Mon, 27 Apr 2009 10:32:00 +0000

GEOPOLITICS

Associated Press reports that the peace pact between the Pakistan government and Taliban has broken after Taliban were attacked with artillery and helicopter gunships.

This attack would certainly please a lot of people, particularly the US government. But I am not sure whether it is a good thing or a bad thing. I do not know whether we should feel happy about it or not.

Uncertain Events

First, no one knows whether the events being reported are really the correct ones or not. They may be, they may not be. Information available at the moment is too patchy to form a certain view.

It is hard to believe that Pakistan government (and Army) has suddenly decided to take stern military action against the Taliban when they are retreating out of the Buner district.

The worst case would be if the attack has been faked to mollify Washington and (if India counts in this scheme of things) not to disturb the deep slumber of the neighbor next door. When I say fake, it is not necessarily fake; but something that keeps everyone happy without doing any serious damage to Taliban military machine.

Heads I Win…

Either way, it is a lose-lose situation. If the attack is half-hearted, the implications are serious. The world goes back to sleep and the Taliban suffer no serious damage (initial reports say 20 killed). If they lose only a few dozen fighters out of potentially a million at their command and have all their weapons; how big a dent is it going to make in their capability?

And if the attack is a serious attempt to check Taliban, the danger is a country slipping into a long struggle; possibly a war of attrition.

The world, especially India, does not necessarily win in either of these situations.

Jaago (Man)Mohan Pyaare…

In the meantime, let us hope that the deep and peaceful slumber enjoyed by "strategic"
thinkers and leadership here is disrupted for a few seconds to pay attention to such serious events next door.

And if you think it is only Manmohan Singh who is sleeping over this, think again. Advani, Modi, Rajnath trio of the 'patriotic' outfit is yet to wake up too. The less said about the rest (Behenji, Stone Age bhai, Comrade Karat and so on), the better.

So those who are rejoicing over this turn of events; HOLD YOUR HORSES.