Weekly Outlook for The Indian Stock Markets - 21st September to 26th September

Volatile last week
The last week had been a phenomenal for the stocks markets worldwide including India. It would have been terrible, had not emergency steps taken by US government given a new lease of life to the stock markets. Otherwise, the remaining week saw just one side movement and that is downwards.

Though Indian markets looked resilient at times. Nifty which went down almost to 3799 on Thursday came back strongly to close the day at 4050 and then went up by another 200 points on Friday to close at 4250 mark.

But again the concerns for the markets are real and grave. Where would markets be drifting to in the future? Will US survive the financial turmoil created by its own? Will Indian economy, which has been otherwise quite resilient will be affected greatly by the global financial mess. And amidst such hazy atmosphere, what should investors like you and me do???

Come; let us review the events that have shaken the global financial space and its possible impact on the markets. Also, let’s look at the steps taken by the governments to overcome those events.

Collapse of Wall Street Giants
The fear of Lehman bankruptcy started surfacing after Bear Sterns collapse. But somehow everyone was silent about it on the street. And hence, when it happens, the fear changed to panic all across the Wall Street. Within hours of Lehman collapse, we have seen some of the quickest reactions by the companies on the Wall Street to prevent themselves of becoming the next victim– Merrill Lynch merger with Bank of America, AIG 88 Billion US$ bailout by the Fed, Morgan Stanley hectic searching for the soul mate to get itself merged.

The immediate impact of Lehman Brothers was felt on those stocks where it has direct and indirect investments. For instance, it has invested extensively in the projects of real-estate companies like DLF, Unitech, etc. The shares of both these companies have almost collapsed in last one week. Though, there has been no indication of any liquidation in investments by Merrill Lynch. But Morgan Stanley has sold the stake of around 3000 crore in last one week to other financial institutions, mostly to Deutsche Securities and Goldman Sachs.

The impact of this event could be felt on growth, since these companies have been the easy source of funds for many who are looking to expand themselves. Also, the boost in equities came due to extensive buying and selling by the Wall Street giants. After the collapse of many, merger by some and survival of few, the equities will continue to suffer in the near future, till the time new companies take over their place.

The party seems over on the Wall Street.

Liquidity Crunch
Aftermath of Lehman collapse, the banks refused to lend and borrow in the money market, fearing that who will collapse next. This led to severe dearth of funds and overnight bank rates increased exponentially. During these times, the central banks across the world had to intervene and open their treasuries to provide the liquidity that many banks have been craving for.

Few months back, every small and medium financial institution was looking to expand, hoping to become a financial giant in a few years. But the times have now changed and many of these financial institutions are exploring the options to merge themselves.

One can see several mergers and acquisitions happening in the near future. Morgan Stanley has few days left only. Washington Mutual is another institution that will be acquired soon. Federal Reserve will remain busy for some more months trying to broker several deals to prevent another chain of panic reactions on the Wall Street.

Its impact on the equities will be sizeable since equities have always deemed as high risk-high gain investments. Now with weaker balance sheets, the financial majors will be averse investing in equities and rather move to safer havens like Govt Bills, Gold, etc.

Oil and Inflation remains a threat
The Oil has subdued in the recent past due to slowdown in the US. Also China which heavily bought Oil at the time of Olympics has also slowed down now. Hence, Oil seemed like cool-off. But it is still not out of danger.

Any new threat of war in the Gulf will propel the Oil again. The developing economies like India, which import more than 50% of Oil from international markets, will suffer in the backdrop of High il prices. Also, High Oil prices will have an impact on the Inflation as well, which is already in 2-digits.

The future-tense
The future for the equities doesn’t look good. All the factors that were behind the great equity boom are now over. The interest rates have increased, thus making equities less attractive. The Financial Institutions, who were behind the boom, have either collapsed or merged with a bank. Oil is at all-time high, which is fuelling the inflation too and subduing the growth rate.

Amidst such tough times, who will invest in equities? Will you take a risk at times when you have money only for food, cloth and shelter? Similarly, the financial institutions who have weak balance sheets will not be investing in equities, for sure.

Coming Relief rally
The coming week could see some relief rally in the Indian markets. Also, announcements by the Reliance Industries on Sunday regarding the Oil discovery in Godavari basin will be a positive trigger for the battered Indian markets.

Hence, one can be geared to book some profits in the stocks during the week. The stocks that one may buy are the power stocks like NTPC, Ppower Grid, and Reliance Power. The signing of nuclear deal during Manmohan US visit could boost these stocks. Reliance Industries will also be a good stock to buy at the current levels. It is the only firm that looks rock solid in the aftermath of financial distress.

It is advised to keep booking profits. Do not anticipate the great boom so soon. Let the things start rolling out before taking a long-term call.

Wishing you a great week of investing!!!

Weekly Outloot for the Indian Stock Markets - 15th to 19th September, 2008

Unforgettable last week
The last week has been a trying one for the Indian Stock Markets. After a tremendous surge on Monday on account of NSG deal, markets fell down like nine pins and closed beaten down to the weekly lows. Nifty, which surged to 4500 on Monday, fell down below 4300 mark at the time of close on Friday.

The current volatility provides ominous signs for the Indian equities. The most worrying factor for the markets is their inability to discount the good news. Low Inflation, Low Crude oil, NSG deal were strong enough signs for the markets to gain and make new higher levels. Yet the FIIs relentless selling pulled down the markets every time an attempt is being made to reach new highs.

Some reports have indicated that the current bout of selling is made by Lehman group and its associates to cash out their holdings in their final attempt to save themselves from bankruptcy. If this report has some strong base, then these must be worrying signs for Indian markets, since Lehman & Co. have substantial stake in various Indian companies. The investors must be hoping that Lehman Brothers sell their entire stakes in Indian equities along with other assets to the acquiring company because if it doesn’t happen and Lehman is forced to sell their stake in the open markets, then the share prices of these companies could touch new lows, which will further dent the bruised sentiments of the investors.

Let’s analyze and gauge various indicators that may influence the Indian markets in the days ahead…

Re-$ movement
Rupee has depreciated steeply against the dollar, which has neutralized the gains that oil marketing companies may have on lower Crude oil. The Greenback is currently trading at 45.60 Rs. Levels.

IT companies, which would have gained on account of higher dollar, are unable to do so because of worries that US based financial companies will be spending less on IT in the next 2-3 years. Though, the silver lining could be the BPO / ITES companies, which will stand to gain on higher dollar. There is a strong hope that Outsourcing concept will again come into shore as overseas companies will be transferring some of their non-critical tasks to India to further reduce their input costs.

Double-digit Inflation
Despite the low inflation numbers for last 3 weeks, the inflation is still in double-digits, which remains a worrying factor. Any novice can understand that equities will not perform, till the time; inflation goes below 10% mark.

We must also remember that inflation going down on account of higher base effect is not the solution of this problem since it will be the setting of a new benchmark of prices for the essential products. There should be a genuine effect to either reduce the demand or increase the supply of products. The government should also reduce the prices of fuel to stimulate the companies whose input costs have risen due to high oil prices.

Hence, the inflation should come down to 6-7% mark, before it can make a positive impact on the markets. Any hope of change in long-term view from “sell” to “buy” will only occur if inflation comes to 5-6% levels.

High Interest rates
Looking at the historical figures, equities never had a genuine long term rally in the shadow of high interest rates. Also, the companies debt cost will rise on account of high interest rates. The maximum hit was suffered by Finance and Real-Estate companies. Real-Estate companies, who received doubly-hit due to high material costs and interest rates, have depreciated maximum in every round of selling.

Hence, any investor who holds real-estate stocks need to be patient enough to earn something out of their investments. Any chance of averaging out could be as risky, as having a fresh purchase, since downside still exists in these stocks.

Crude Oil
Two months back, Crude was the major threatening factor. Sadly though, even after falling near to 30% from their all-time highs, the equities have not responded at all. The markets are still trading at the same levels or lower, as were of two months back.

Personally though, I still feel that Crude can provide a big impetus to the markets in the near-term, especially when it sustains below 100$ a barrel.

Financial Turmoil in US
It has been more than a year since the US financial problem has come into shore. We must not forget that the roots of these problems lie in Greenspan era and it will surely take more than 3-4 years to amend the mistakes. Bear Sterns and Lehman Brothers have been the victims of the problem. Various reports indicate that Merill Lynch could be the next victim. These US based financial institutions have a major stake in the Indian bourses. Hence, markets will remain under pressure till the time financial sky gets cleared.

Next Week could be volatile
The coming week will see a renewed attempt by Bulls to take the charge. Also FIIs, who have been selling consistently for last few days may pause a bit to gauge the situation. Though, any bad news from US, especially regarding Hurricane Ike or Lehman Brothers, may see another round of selling coming into bourses all over Asia including India as well.

Hence, traders can hedge by buying Nifty 4000 Puts and buy quality stocks that are in offing at low prices. For instance, ICICI Bank, REL, Ranbaxy are trading at interesting levels and can see gaining in the short term.

In the mid cap space, MIC Electronics, DCB, Axis Bank, Karuturi Networks, TTML can see making gains.

Another interesting strategy for the week is to buy Nifty 4000 Puts and 4400 Calls. Somehow, it seems that almost every bad news has been discounted by the bourses and any positive news will be welcome by the markets. If it doesn’t react to the good news and goes down, then 4000 Puts will put into play. Alternatively, any good news on Crude Oil front (below 100$), Lehman Sale out (finally!!), Low Inflation (around 11%) can give a stimulus to the market and it may re-attempt to touch 4400 /4500 levels on Nifty.

What are your views on the Indian stock markets, do you have any stocks that one can buy, do you agree / disagree to my views, then please feel free to write in your comments by clicking Comments below.

Wishing you a great week of investing!!

Weekly Outlook for Indian Stock Markets - 08th September to 12th September, 2008

Better Late than Never
As discussed during last week as well, Indian Stock Markets have been celebrating too much about low inflation, rather than taking a rational outlook on the broader picture. The global cues have been weak, Europe has been slowing down, US is under pressure, the central banks all across the world have been raising interest rates to cushion their economies from inflation.

Amidst such negative cues, expectation of Indian Stock Markets outperforming others had been too much of asking? And this was reflected last week as well when Lower Oil, Lower Inflation failed to propel the markets.

Hence, the realistic view at the moment is to “stay caution”. It is better to wait till the clouds of financial turmoil gets clear before one can start investing because days have gone when markets used to give you chances to come out of wrong investments. Now, one wrong investment could be enough to wipe out everything that one has earned over the past few months or at worse, years…

Last Week suggest more pain
The last week started with whole host of positive triggers like Lower Inflation, no major impact of Gustav hurricane on US refineries and good GDP numbers from US. Asian indices traded higher on Monday and Tuesday. US markets which were closed on Monday, hoped to rise on Tuesday. But financial turmoil in US pulled the DOW and NASDAQ down, despite the lower crude. That fall was a clear evidence of the intensity of financial turmoil that US is having at the moment. For the past few times, we have seen that every positive sentiment is quickly wiped out by one of the problems that US financial sector is facing at the moment.

Indian Equities did get another chance on Friday to regain the lost ground on lower inflation numbers for two consecutive weeks. But weak global cues again played a spoilt sport and markets surrendered meekly in front of them. Bears had a great party on Friday pulling down the Sensex by 500 points and Nifty by over 100 points respectively. Technically though, Nifty had rebounded many a times from 4350 which now look like a strong support levels for the Nifty.

Hence, the last week has suggested that until the US financial sector comes under control, the chances of equities outperforming any other investment class look remote.

NSG Outcome
Nuclear Suppliers Group has finally given its consent to India, which could have a positive impact on Indian economy in a longer term. But its short-term benefit is second to none, hence markets which may rise on Monday on the outcome of the deal, may yet to find a strong base to consolidate. Those who have bought equities last week at lower levels could find Monday as an opportunity to move out with good profits.

Crude below 100$ could be a strong trigger
The crude oil, which is hovering around 105$ / barrel mark, could go further below 100$ in next 2 weeks. If this actually happens, the markets will have a strong relief rally for sure. Also, government may have a relook at the oil prices and could reduce it to further tame the inflation.

So, Lower Crude could have a positive multiplier effect on the economy, where it will reduce the operational costs of various industries, and will also help government in taming the inflation.

Trading Ideas of the Week
The next week may see a rally in Power and Infrastructure stocks like REL, NTPC, Reliance Power, DLF, Unitech, etc. Also, one may continue to see good rally in stocks of Oil Marketing companies like BPCL, HPCL, Indian Oil, etc.

An interesting idea for this week is to buy Nifty Put of 4500, if it goes above 4550. Also, one can buy 4700 Call to hedge the position, somewhat a bit.

Investing Ideas
A stock that currently looks at attractive levels is Vishal Retail. It is currently trading at 400 Rs levels. We must not forget that Vishal Retail is among very few stocks that did not touch their IPO levels, during the meltdown. The company is on expansion spree and plays in the segment that has huge potential i.e., lower and middle class sector of India. Hence, one can buy Vishal Retail around 400-420 levels for 1-2 years perspective.

Besides, some of my old favorites like Karuturi Networks (KNL), Vakrangee Software, DCHL, Balasore Alloys are also at buying levels. One can buy these stocks with 1-2 years perspective.

If you have any views or wish to share your thoughts on the stock market, please feel to write in your comments by clicking Comments link below.

Wishing you a great week of investing!!