Alarming signs!

S&P CNX Nifty 2763.65 -22.00 (-0.79%)

How could one explain a perfect U-shaped recovery on the back of dissappointing Q3 GDP numbers? Well, global markets didnt expect the worst even when the sub-prime news was beginning to scare early Jan '08 and talks on India de-coupling from the West were taking shape!

Frankly speaking, there's more to worry than just GDP numbers. The Ruppee(INR) is at a new low versus the US dollar. Its not so great news when exports are under pressure and imports don't seem to slowdown. This would only add to India's alarming fiscal deficit. This is time for action from RBI which is expected to review the rates soon. With inflation at under 4%, I don't think a rate cut is necessary. Its time for RBI to step in and control the ruppee fall, if not the INR can go beyond 55 a dollar!

There's another way of looking at it. A strong dollar would encourage more inflows and make outflows less attractive. From the FII data, I dont see any change in sentiment - they have been net sellers to the tune of 2,420 crores(equity) for the month of Feb '09(as on date). However, there's a positive sign in that the debt investments have seen a constant increase. The months of July, Aug, Sept and Nov '08 saw huge inflows to debt from equity.

Ignoring alarming signals and not bottoming out now is only going to slow down the pace of recovery. Investors might need to wait a bit longer for the next bull to start and happen. Traders can trade within the narrow range keeping 2678 as stop loss on Nifty.

Reading the fineprint

The past few days have been full of important developments, both positive and negative. One, US government prompt clarified their stance on nationalization after Citi fell massively in Europe and Dow. Its a positive signal from the government indicating minimum government control in privately run banks. It might sound great at the face of it, but I don't think its going to be easy sitting outside the table especially when you have pumped in such a lot of money into the banking system.

The government should certainly have its representatives on board to establish governance mechanism and regulatory framework. Some banks had recently announced huge bonuses, though in absolute terms, they were much less than the previous year. It will be hard to imagine US banks like Citi doing this, as they are accountable for every penny they spend. Having government representatives on board will help stem such acts. It is going to take couple of years to weigh the impact on IT companies like Infy, TCS and Wipro. It will take a few years until these companies show performance on their balance sheet. The action plan before the new government is to first restore normalcy, create a balanced economic environment through stimulus and create jobs. Outsourcing cannot happen at the expense of these three. You cannot create IT jobs at a remote location when the core-jobs and business is dissappearing! Clearly for IT, its too early to expect a big turnaround.

S&P rating brought some basis to my sell recommendations! S&P is right in pointing out the huge fiscal deficit, but more than anything, the next government needs to act with restraint. The present government has already done all that it could. The next government should focus more on reducing expenses, inviting investment(FDI or otherwise), provide sops for new businesses and not just provide tax relief. I'm sure the next goverment would be tempted to announce tax concessions, sops and so on. A clear restraint and focussed policy on distribution of money from the rich to the needy would alone solve problems. You need to encourage spending across all categories and classes and policies must clearly move in that direction. Lets wait and watch!

Markets on Monday

Citigroup Inc (C) 1.97 -0.54 (-21.51%) 12:36 PM ET
C Quote (NYSE Echange)

European markets were the first to sense the danger of nationalization of US banks early in trade today. Citigroup was hammered in European as well as US markets in trade today. At this point, Citigroup lost 54 cents to trade at $1.97, a drop of 21.51%. Will Indian markets feel the jitters on Monday? Well, I dont see any impact on Indian banks per say. But, IT is going to have a jittery start for sure. TCS which bought over Citi's backoffice for Rs 2,400 crore should be in deep pressure. Nationalization of banks would directly impact outsourcing as critical processes cannot be lawfully outsourced. Given this, the deal is currently under question and the terms of the contract need to be read out. Infy and Wipro might follow suit and contribute to the fall as they derive considerable amount of revenues from BFSI. Lets wait and watch!

Satyam - Questions unanswered

Sometimes, its hard to believe how the very best of companies fall like pins! Satyam has been India's success story - no one can dispute its top 5 status even now given its talent base, clientele, geographical presence and offerings. Yet, one man who built from scratch was responsible for its fall overnight!

While legal agencies may establish truth and the board may establish credibility and impose the ethical way, it still baffles me as to why the entire thing happened in the first place. Is it greed on part of the individual promoter or is it pressure from sons/family which led the exercise? Maytas for sure had its green days because of Satyam, its capital which was fraudulently transferred(if media reports are to be believed). But, why would a promoter of a multi-billion dollar company use such fraudulent means to invest in a company which is not even half its size? There are many more questions to be answered, but these would probably never be as the matter is sub-judice.

For one, I would strongly recommend Satyam promoters to take up a teaching role in a B-school. I am sure many would learn from their mistakes and realize the importance of ethics in business. B-schools can teach a number of case studies, but none can teach ethics per say. As I write, there is a sense of displeasure on what transpired. What was once a top-notch truly global IT company is today looking at potential acquirers! This is certainly the worst thing to have happened to Indian IT.

Support Quality Rankings of MFs

Over the past few months, I have been in constant interaction with the support groups of some well known mutual funds. Here, I decided to summarise my experience and rank them based on their quality of response, timely resolution and turnaround time taken to resolve the problem.

1. Franklin Templeton Mutual Fund: I like the funds timely response and structured way of answering to customer queries. Their response time is generally 24 hours through email and they make an effort to call the customer in case of any discrepencies. I was pleasantly suprised to see a status note sent to my address stating "We're working on your issue and will get back".
On the cons, they seem to miss out reading some finer details in the form like request for online access etc which most of the popular mutual funds do!

Overall, I would rate the experience as positive.

2. Kotak Mutual Fund: I rate the fund higher based on their response times through email. They are the only fund to send a stamped receipt within 48 hours of receipt of your investment application. In terms of support, they generally respond within 24 hours through email.

3. Sundaram BNP Paribas Mutual Fund: Their response time through email is very low. They take 4 business days to respond via email! Inspite of the pitfalls, they seem to have minimal issues with regard to form processing. They dont provide an online investment access and advice to be registered with some brokers like ICICIdirect, HDFCsec etc if at all online access is required.

4. SBI Mutual Fund: Their response time is usually 2-3 business days. They work like a PSU in certain aspects, so you would have to face inconveniences if you need things like online access, unit transfer etc. You would need a legal transcript even to request online access! Well, I dont blame them - its just that they want to play it safe in case of any problems, but then its a hassle and additional expense at the hands of the investor.

5. Reliance Mutual Fund: Their response times through email is great. But then, there is little sync between the front office and back office. If you have scratched or corrected inputs in your form, then you could be in for trouble as the back office people often tend to take default inputs in such cases. They are not so prompt as others in terms of issuing acknowledgements, physical statements etc. But, then they do follow up with the usual sms or email if the facility is opted.

I have not reviewed other funds outside the ones discussed above. As and when I review them. I'll post them for the benefit of readers. Hope you find this useful.

Selling spree

S&P CNX Nifty 2770.50 -78.00 (-2.74%)

Almost every market internationally was in the red signalling a selling spree. All sectoral indices were in red today - its a great time to build a watch list and start value investing. I'll be posting my watch list soon once critical levels break.

On the charts, we're close to breaking support as discussed earlier. The short term bull-pattern discussed here didnt hold. So, we're clearly headed down further.

Market Technicals

S&P CNX Nifty 2848.50 -99.85 (-3.39%)

Structurally, there’s nothing to conclude from the fall today though it was encouraging to see some good volumes in many stocks today. For the short term, today’s close would be the support. If the market breaches today’s close tomorrow, then we could well be headed to 2678, which is the next important level to watch.

Until the market breaks the pattern shown in the chart, we can safely conclude the following.

1. The Nifty top of 3121 would not be broken in the next couple of months and upside is limited to 3050-3075 levels.
2. Nifty might well be ranged between 2848 and 3050 for the next 6-8 weeks. The range would get narrower and eventually trigger a fall.
3. The previous analysis holds. The bull within the bear cycle would come to an end as mentioned here.

Dow and Nifty: Key Takeaways

S&P CNX Nifty 2925.70 -8.80 (-0.3%)
Dow 7915.24 +26.36 (0.33%)

It’s encouraging to see the out performance S&P CNX Nifty has had over Dow. While Dow is just a few hundred points away from its 10-year support, S&P CNX Nifty hasn’t yet broken its 3-year support! For Nifty, I see another leg of fall dragging down to the 5-year support level. So far, Nifty has been defying every bearish analyst and has outperformed the Dow and some global markets during the last couple of weeks. While there is so much uncertainty in the US, the exuberant bailout package should be more than a respite. News reports suggest the size of global bailout package to be greater than the size of Indian economy! Indian GDP which derives more than 50% from services would slow down as global economies pump in money locally. Its not the best of the times for export driven economies and in specific export driven companies. We are certainly going to see some more pain in sectors like IT, autos and auto components and metals. For now, I see PSU banks and FMCG as defensive bets in the current scenario. Its encouraging to see some stellar performances from defensive's like McDonald's Corp in the US. While the Dow took a severe beating over the year, McDonald's has shelved only 15% from its 52-week high!

The first growth signals and the strongest should emerge from the US and Europe. The first rise and probably the most rewarding ones would come from sectors which are heavily beaten down in the turmoil. It’s probably one of the better times(if not the best) to part-invest in US equities. Finally a note - "When investing, always keep the return constant and not the time frame of investment".