A Sigh Of Relief

Wow! Suddenly, there has been a rush of Foreign money into the Indian markets spurring them higher.

It is true that Central Banks all over are pumping money into the system - the ECB promised to guard the Euro and protect the Euro nations, the Federal Reserve launched QE3 and has promised to keep it going till the economy shows definite signs of improvement and other Central Banks too have followed suit.

The Indian Government, on the other hand, has woken up from a deep slumber and unleashed a barrage of reforms. Perhaps, shedding the extra baggage did the trick. In any case, reforms were overdue and as we had discussed in an earlier post (see: Light At The End Of The Tunnel), when things get depressingly bad, it is a sign that we are forming a bottom and should start looking out for a turnaround.

It can be said that in India's context, there has still not been any turnaround in growth on the ground. However, the markets have started to power up. It is a long standing belief that India is driven by Foreign money ... and a steady uptick in Foreign capital should mean that growth should start trickling down to the ground pretty soon.

FDI in Retail is a very important step forward for India. One is already hearing of big retail giants making inquiries with small suppliers. Contradictory to many beliefs, the small suppliers are really positive about the prospects!

There are several topics related to reforms that can be discussed in later posts.

For now, let us take a look at the impact that all of the above points have had on the USDINR chart and inversely on the Indian Stock Market (you should know that the Indian Stock Markets are inversely proportional to the USDINR chart ... in a general sense)

As was expected (see: Deglobalization and the Second Swadeshi Movement), a big move in the USDINR chart has come and it seems like the USD has broken down against the INR. This should be great relief for all the sectors that were suffering because of a higher dollar - also, to the Government, as it softens fuel prices to an extent.

We have to keep an eye on the chart and look for signs of a consolidation and take it from there.

For all the investors who were sleeping for the last month or so ... WAKE UP!
The rally has begun!
Make hay while the sun shines!

Cheers!

Deglobalization and the Second Swadeshi Movement

Wikipedia defines "deglobalization" as:

Deglobalization, also deglobalisation (chiefly UK/Ireland), refers to a process of diminishing interdependence and integration between certain units around the world, typically nation-states. It stands in contrast to globalization, in which units become increasingly integrated over time, and generally spans the time between periods of globalization.

If you have noticed recently, several countries are showing signs of protectionism.
In this time of global economic uncertainty, countries are opting to protect several domestic industries from increasing global competition. Several countries have imposed large tariffs on imports and exports and several countries are taking up measures to protect their currencies. This is normal behavior during difficult economic times where countries feel that they will be able to revive local industry by restricting trade. Does it really work? Well, only time will tell. Of course, this is not healthy from a world trade perspective. The sad part is, even countries that are die-hard capitalists and who were screaming for free trade are now growing extremely cautious.

You guys must read this piece of news about how France is getting protectionist about its automobile industry and trying to save the likes of Peugeot from Hyundai and Kia.

I believe this trend will continue for some more time and the world will get increasingly localized.
Without a surprise, India will be part of this too. This kind of reminds me of the Swadeshi Movement we had back during the time of Independence! I had called this the "Swadeshi Movement II" in an earlier email.

Do write in and let me know if you are seeing signs of protectionism and if you think if it is good or bad for the economy.

Oh ... and we have to talk about our favorite ... the Dollar versus Rupee chart!

Yes, as expected, the USDINR chart entered into a horizontal consolidation. Now, it is time for a rather large move. This time however, there is absolutely no sign of whether the Index will move up or down or whether it will continue to move sideways! Many people would expect (and, maybe hope) for the Rupee to strengthen from here. Let us wait and watch!

Till next time, stay calm!

Light At The End Of The Tunnel

A confluence of bad news has hit the Indian economy.

Recently, India's fourth quarter GDP numbers came in at 5.3%. While many people were shocked (or atleast pretended to be), it was quite expected. I have always been critical of the RBI raising interest rates and choking growth. At that same time some of my favorite analysts were of the opinion that the RBI was moving in the right direction and that India would have to go through some short term pain to see a longer term gain. Now that the rate increases have ceased, we can see how the entire cycle played out. Like I mentioned before, once growth stops, it is really difficult to start it up again.

I still maintain that the RBI should have kept growth going and should have treated the high inflation as an aberration caused due to excess external money flowing into India. Of course, the RBI is quite aware of the impact of the interest rate cycle. In a recent conversation, RBI Deputy Governor, Subir Gokarn said that the contraction in growth was expected, thus proving this point.

I agree that the RBI still has the tools in its bag to kick start growth again - now, when some of the developed countries will begin to slow down. But, the question to be asked is - did we have to go through the pain?

We have also been tracking the fall of the Indian Rupee against the US Dollar. After a steep run-up, the charts have lazed into a consolidation. We have to now wait and see what the next move would be.

We saw Foreign investments drying up.

The Government is also being blamed for not pushing through any major reforms. But then again, we did not have any ground breaking reforms even from 2005 through 2008 when we grew over 8%. The moral of the story here is that capital inflows have a major bearing on the Indian markets and the Indian economy - more than some reforms can have on the economy.

Is this the end of the story for the Indian economy?

Actually, no! It has been seen historically that the economy bottoms out roughly three to six months after the first rate cut after a series of rate hikes. To support this, we also have lower Crude prices, a stabilizing or possibly strengthening Rupee, a Government that is desperate to push some reforms through and a Central Bank that has to look at stimulating growth.

All things that had to go wrong went wrong. Now, we should hope that a bottom is formed soon and then things start looking up ... well, at least till the next big disaster strikes!


It is time for us to be more sensible and practical with our thinking rather than get emotional and lose our minds over issues that are trivial.


Till next time ... happy investing!

Is Facebook "like" Reliance Power?

I don't know why but somehow the Facebook IPO brings back memories of the Reliance Power IPO.

At the upper range of the $28 - $35 a share band, Facebook will be valued at $96 billion.Through this IPO, CEO Mark Zuckerberg plans to raise $11.8 billion, biggest ever amount by an Internet Company.

The Reliance Power IPO had opened in January of 2008. Touted to be India's largest IPO, it drew bids of $27.5 billion on the first day itself. The stock listed on February 11, 2008 amid sudden concerns that the IPO was overpriced. As we all know, the IPO turned out to be a disaster and it marked the end of the massive bull run in the stock markets. It also marked the beginning of the recession in 2008.

The big question is, will the Facebook IPO have the same effect on the US markets or probably world markets? Analysts have already started complaining about Facebook's IPO being overpriced. Further, Facebook's results showed signs of slowing down last quarter. Like during the days of the Reliance Power IPO, analysts are advising people to make a quick buck by dumping shares after the listing - to make most of the hype and momentum in the markets. Mark Zuckerberg, however, is betting on mobile device advertising to contribute to Facebook's income and seems to have some tricks up his sleeve.

I want to hear from you guys on what you think about Facebook's IPO and if all the hype will last. Will it mark a long drawn downtrend for Internet companies like the Reliance Power IPO did for Indian Power companies?
Only time will tell.

Coming back home, India's industrial output shrank 3.5% in March compared to a year earlier. This is not all that surprising considering ground realities. Indian manufacturing companies, especially the small and medium ones have borne the brunt of RBI's high interest rates. Growth is based on momentum ... you need to keep it going. Once stopped, it will be very tough to start it up and bring it back on track again.

Let us take a look at the markets. The last time we spoke, the markets were consolidating and were on the verge of a big move. The big move has come in the form of a break down. Here is the chart:

Till next time ... Happy investing!

Spain Pain Go Away!

We always knew that the PIIGS countries were in trouble. Perhaps, it is the headline hungry media that has now shifted its spotlight on Spain.

Spain is in a very bad situation. Bad, mainly because the unemployment rate is approaching 25%! Very bad because there is nearly 50% unemployment among the youth! Standard & Poor's two notch downgrade didn't help the situation either. Yeah, as usual, the rating agencies are late! It would be interesting to know that the Spanish Government is yet to implement its plans of hiking taxes and cutting Government spend.
In summary, Spain is going down a dangerous spiral. It will probably end up as another patient on life support.

In the meanwhile, the UK has quietly slipped into a technical recession! Remember all those gloomy predictions about double dip recessions? They have come true! But, what? No hue ... no cry?

I wonder how the world economy can get back on track.

Anyways, our markets are tightening up. Are we going to see a big move? Hmmm ... looks likely.
Again, I cannot say if it is going to be an up move or a down move, so you'll have to wait and watch. :)

On the other hand, the US Dollar has continued its climb against the Indian Rupee.
Let us wait on that one!


Till then,
Happy investing!  :)

Infosys sees iceberg ahead!

It has been 100 years since the Titanic sank.
The Ship of Dreams ran into an iceberg and sank in the North Atlantic Ocean on 15 April 1912.


To me, Infosys is like the Titanic of Indian software companies. A dream company for many aspiring college graduates, a dream stock for many shareholders and a great example of good management. And, going by Infy's guidance, you would believe that they are seeing an iceberg ahead!


This is how CEO and MD of Infosys, Shibulal, defended the weak guidance which was given as part of the Q4 results:

"We have seen unprecedented convergence of multiple events during the quarter. We saw contract delays, delays in some of the anticipated ramp-ups which we had planned and ramp downs in quite a few accounts, especially in financial services and in the US."

If this is an indication of things to come for the software services industry in India, it is scary!


Hearing of layoffs in companies like Infosys is unusual (although layoffs happen under cover). But the truth is that companies like Infosys carry a lot of excess baggage in the middle management - that can be shed when the ship is sinking.


Carrying on from the last discussion, the Dollar has indeed broken above the consolidation band and moved up. The uptrend does look like it is tiring into a horizontal trend. We'll have to wait and see if that is indeed the case.


(The chart is taken from Yahoo Finance)