I can see a Sea of Red

Its a cloudy morning here in Bangalore and globally the scenario is getting gloomy day in and out. Over the days we have been hearing more and more of issues like Sub Prime. Yesterday, we started off well and within minutes we were around 200 pts up. Afternoon stuck and Europe opened, BNP Paribas which happens to be a big bank in France came out with bad news and froze funds with more than 2b$ operating in mortgage markets in US and then came the cut.

Today morning also, the global cues are pathetic. Most of the Asian markets are down by 2% or more and if you ask me, i would say that this is beginning to be a can of worms now.
Everday we are hearing new things, we learnt about Sub Prime and now today morning i heard on CNBC that there is some issue with the Quant funds. These are some of the things which i really dont understand and claim to be an expert.

Its obviously not a bubble like the tech bubble but its in excesses and the market will surely make you pay for the excesses.
The mantra stays the same, we for sure need to be very careful about the investments.


I will write more laters.
Cheers,
Vaibhav

Dont doubt the Indian Markets

Last few days have been nail biting for investors across the world. From New York to Japan to Mumbai, this volatility has become the talk of the town and whomsoever i interact with, is eager to know the reasons for it.

Now what caused the volatility in the market? The first reason which every fund manager yells is global cues. Most of the Asian markets fell; reversing an earlier rally following a fall in the US market which was down on account of problems with the sub-prime loans. Unfortunately we religiously follow the US market and we do feel that even the Asian markets are overreacting to the US situation.

Another trigger was the sudden change in the flow of FIIs. If we look at the FII inflows in the month of July 2007, it has been positive all the month except the last three days. So FIIs were the buyers for the whole month and they contributed for higher liquidity in the market. They suddenly turned sellers for about three days in the last week.
Many other things also have been happening, Crude touched 78$/bbl, although, its moving back to the 72$ mark now. If you ask me, the rising crude price is actually not a concern, its actually the pace with which such changes take place that matters.

RBI also announced its credit policy on 31st Jul and raised the CRR by 50bps taking it to 7%. One of the fund managers has said that the RBI's tightening bias in its monetary policy to contain inflation will remain until factories increase capacity to meet growing consumer demand. The Banks are going to get hurt the most as a result of CRR hike. But we feel that banks got to be more efficient to maintain their margins. The only option that we feel is the reduction in deposit rates. Most of the banks recently increased the deposit rates and the response was good, as a result
accretion to bank deposits last year was the highest in the last 14 years.
Coming back to the markets, how should investors approach the market in the current situation? In the current uncertain period, investors need to primarily understand what is going on in the market. They should avoid the heard mentality and concentrate on the 'A' group companies which are available at better valuations. Analysts believe that the recent fall has brought the Indian markets to reasonable valuations and this should be taken as an opportunity to buy value picks. There is no reason to panic as we have been continuously claiming that India growth story is here to stay and we should believe in it. There will be some amount of volatility in the market in the short-term, but I believe that if the approach is long-term then there is no reason to panic.

Cheers,
Vaibhav

What is dragging the markets down?

As I start writing this first post on my all new blog, the thing that really keeps coming to my mind is the sorry state of the DOW,KOSPI,SHANGHAI and other major composite indices. Most of them are already down 2% or more as of now. DOW closed around 280 pts down on Friday. On an average Asia is down 2% or more with China being an exception.

When i had a word with some of the leading brokers/relationship managers from the brokerages about the consensus they/there clients have as of now, i got only feeling, corrections are giving them better opportunities to put some more money lying with them.

The fears of Sub Prime markets in US are really playing the global markets down. Its a global situation and for sure we at India too are going to bear the brunt. We just cannot say this to ourselves that OK , US is down 2%, no problems, they are a bad market and we at India are a good market, with good earnings results, good business opportunities etc.. that logic wont work. Bankers like Lehman,Macquarie etc have already expressed that some of there money is going to make loss.

In such situations where the banks are getting sucked in, you never know how much money is actually going to move out of the markets like us in India. Taiwan saw outward flows of 4b$ during last two weeks and we dont know how much has actually moved out from our market.

Its kind of a situation which traders really dont want to be in, the markets tend to recover, and then you open up some long positions in the futures market ,and, overnight you get some bad news from the markets in US and we make a vertical fall. Just imagining such a situation make my nerves feel the cold.

Yen has appreciated 1.4% and this is another bad signal which is coming all over from Japan, its clearly telling us that there is a huge volatality churning around. This volatality for sure will make re adjustments of the global currencies.

We are in a situation in which over the near term stock prices will for sure come off and if you are a trader then for sure it will give you a raise in your blood pressure levels. If you are an investor, possibly, this fall will give you ample opportunities to buy quality stories.

Lets be prepared for a gap down opening today. I am not sure how much gap down we are going to go but on a practical note, i believe it can be anywhere from 200 to 400 pts on the SENSEX.

Cheers,
Vaibhav