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IIP nos - October 2009 - MY TAKE

IIP nos - OCTOBER 2009
ANALYSIS - my take

pl look at following points ......

1... gross no 290.1 is lower than july 2009 no which is a comparable month .... first month of a new quarter

this can not be ignored as this is contra-trend and needs to be watched carefully.

2... consumer non durable no of 264.1 is lowest since nov 2007 ( excluding aberration of oct 2008 ). inbetween we hv hit a high of 323 and 331 in dec 2008 / jan 2009 respectively.

this is alarming. whole FMCG sector could be under stress. i will not be surprised to see 6 to 8 % cuts in stock prices in this sector. looks like drought is taking its toll.

3...intermediate goods no of 284 is lower than may 2009 ..... is it a precursor of a slowing economy ? ? ? watch auto component stocks .... they could be in some trouble imdtly ......

4.... basic goods no is at 246 .... nearly at the peak ..... if this no was to be at sept level .... we wud hv shown a gross no around 286/87 ... which wud hv been a disaster ...

never the less, i dont expect a much stronger no in the coming months since this is dominated by mining and electricity - about 60/70 % contribution - .... that means alsthough the YOY gross nos still may look good .... we r going to struggle to show a strong MOM performance ..... which shud be there if economy is really getting strong . this also means we may struggle to reach 9 % IIP growth that is being projected.

the corollary is that we may reach just about 6 to 6.5 % GDP growth .... considering marginal de-growth in agriculture. the fig of closer to 7 % may remain a pipe dream.

the scenario is absolutely reallistic and barring unprecedented liquidity from FIIs , this paints a bearish picture for equities in coming months. there may not be collapse of markets like in begining of 2008 and 2009 but they will be soft.

any thoughts / comments from your side are welcome ......

september IIP nos - my take .....

we are currently in the midst of re-surrection of the economy after a terrible 6/9 month period. i think in such a stage YOY comparison is rather futile and serves no purpose. at times it gives a distorted view of the scenario due to low base effect.

what i will like to do in MOM comparison. i will be very happy to see consistent uptick on MOM basis without too much zigzag or volatility in all the components that make the IIP nos.

if we analyse the nos on MOM basis what stands out is consistent performance of consumer durable sector since JAN 2009. it can not be just co-incidence that this period matches with the huge payouts made to the govt employees by way of 6th pay commission arrears.

contd....

first instalment was paid in feb / march and second / final instalment was paid in sept 2009. this money in hands of millions of employees has boomed into demand for all kinds of white goods and small cars / two wheelers etc. this effect should wane in the next two / three months time.

6th pay commission has also put some additional money in the housewife's purse by way of monthly increase in salaries. but somehow consumer non durables are not doing so well. infact we hv seen sectoral downticks in aug and sept IIP nos. this shud get reflected in FMCG nos in dec qtr. the reason could be draught in many parts of the country.

capital goods sector normally does very well in sept and march and in dec to lesser extent. this is due to depreciation policy. but normally apr/ may and oct / nov is disater. but this is a sectoral problem not limited to any one company etc. since we hv seen bumper nos in sept 2009 ( better than march 2009 ) we hv to see how big the downtickin oct / nov.

basic goods had an uptick in aug and downtick again in september. but overall performance over last 6 months is just average. it wl remain like that in next quarter as well.

intermediate goods gave a downtick in september but overall performance over 6 month period is encouraging.

on the whole, we r bound to see a downtick in october on MOM basis while we will see a 10 %+ performance on YOY basis. i will be happy as long as we hv atleast 1 % more than aug value but it looks difficult ..... unless basic goods pick-up in a big way.....

PSU divestment .....

PSU divestment

now govt has changed the course ...... the proceeds will be used to fund social benefits of capital nature instead of putting them in NIF ...... what it actually means some revenue deficit will be made good by these sale proceeds ....

effect ... it reduces pressure on govt to make some excise changes which wud hv otherwise become necesary ....... that is why u wl see auto stocks running particularly ..... but these changes will happen ... to a lesser extent in feb budget ... - nov schedule of changes will be scrapped ........ the auto stocks still continue to be overvalued .....

PSU DIVESTMENT - to fund revenue deficit ......

is it like selling family silver to fund daytoday expenses ..... yes and no .... if it is done to support draught relief or drinking water projects etc .... where the benefit is trickling to the poorest of poor ..... the cause is justified ...

if it is only used to cover revenue deficit which will happen due to reduced excise ...... then it is not at all justified as the corporates dont need that kind of support now - as can be seen the results of last two quarters ...... govt has passed an enabling resolution .... now it remains to be seen how the proceeds are actually utilised ........

WHETHER INDIAN MARKET HAS SUBSTANTIAL UPSIDE ? ? ?

i have looked at this point from two angles which are elaborated below -

1...
most of the major world markets topped out in oct 2007. at that time we were around 5400 nifty level. thereafter we continued to move up - the reasons like a large business house / FII / local brokerages cartel etc have been explained several times - by another 900 points.

THIS WAS A CLEAR BUBBLE AND SHOULD NOT BE CONSIDERED IN FUTURE DISCUSSION.

we hit a level of 4700 couple of weeks ago and the the protagonists of unbridled bullish fervour were then predicting 'kissing of the old high' of 6300 etc etc. we were just about 15 % away from a realistic high level of 5400 which was prevailing when the world markets secularly topped out.

THAT IS WHY I WAS ALWAYS VERY SKEPTICAL ABOUT ANY FURTHER UPSIDE IN IMMEDIATE FUTURE AS IT WOULD HAVE BEEN GOING AGAINST THE GRAIN OF MY THEORY OF 'COUPLED RESONANCE'.

the movement in last 2 weeks including yesterdays fall has corroborated my viewpoint / predictions.

2...
if you compare the performance of our market with other major markets, a few things come out -

A... except china all other markets have underperformed by nearly 25 % over one year time frame. india and china are more or less at the same levels - 10 % above year ago levels.

B... over a two year time frame, all the world markets are down by 35 to 40 % . china is down by about 20 % and india is at same level which prevailed two years ago.

C ... over longer timeframe like 5 yrs, the outperformance by our markets is even more pronounced.

the above points bring out that we have outperformed every other market by nearly 35/40 % over one year and two yer time frames (except china ).

DOES THAT LEAVE ANY TANGIBLE CHANCE FOR FURTHER OUTPERFORMANCE ? ? ?

i feel the answer is a BIG NO as we are now fully coupled with international economy ( which we were probably not 5/7 yrs ago - remember in asian currency crisis we did not have much problem.) and we have hit the limit of outperformance already.

generally this percentage will come down as the euphoria about a particular even based reaction wanes and that is what we are already witnessing.


now let us consider both angles presented by me collectively and you will see that it is going to be extremely extremely difficult to breach the wider range of 3700/4600 - ON OUR OWN . we will need some external impetus like dow crossing 9000/9500 zone convincingly etc.

the strength of our economy / single party govt etc may not be enough to break the range on the upside. however these two points will help us in cushioning any severe fall that may happen in the world markets and restrict the damage to the lower end of the band of about 3700.

i was waiting to put forward this hypothesis but i delayed it purposely since the marketmen were in euphoric mood and they would not have listened to any contrary but sane viewpoint.

i will appreciate your comments.

three cheers to UPA ........

KUDOS to indian electorate and THREE CHEERS TO UPA ! ! !

to everyone's utter surprise ..... the elephant left the living room without any damage .... not only that - like in the old fairy-tales, it has moved the magic trunk all over while leaving .... converting all wood, copper and steel into GOLD and SILVER .....

just yesterday evening, everyone was talking about hung parliament and the long summer nights - trying to forge a workable coalition etc - but the UPA pre-poll allies themselves have got a near simple majority .....

the left front will like to forget today as a bad dream .... hoping it never happened .... all the regional satraps who felt like king-kongs and did not bother to align with either the BJP or the CONGRESS are lying on the wayside .....in the gust of the passing bullet train - UPA.

today is the day when all the world should stand up and salute the matured indian democracy and the indian electoral system .... the process as well as the electorate itself ..... which has been many times ridiculed as illiterate, easy to manipulate, overly emotional, herd mentality etc etc.

today we have seen the never before example of TACTICAL voting. when elctorate as large as 600 million responds tactically .... just with the sense of purpose /duty and no other external impetus ... THE WORLD HAS TO STAND-UP AND TAKE NOTE.

now the new government has just blue skies above with no dark clouds of the left or the samajvadis of different hues and the moral responsibility of loads of expectations of the matured electorate which has done its job brilliantly.

NOW IT IS TIME TO PERFORM .....

exit poll vortex .......

the exit polls have ruled out NDA govt virtually ..... but the prospects of a MINORITY govt are extremely extremely damaging .....

this idea is muted by the left parties just to keep BJP out of power and congress may find this soft option acceptable .... any way they remain in power and that is what matters to them ......

but that means inspite of getting lower or say nearly half the seats - the left will continue to call shots .... and that is not a good news for market .....

FIIs will not like the idea of minority govt ... as it is extremely unstable .... and that too supported by left ...... this will be the worst they would have expected .... and they will make their intentions clear ..... by their feet ...... by walking out ....

anyway all that is speculation still ..... but i have painted a possible scenario .... which shud force you to cash ...... it is still not too late ......

unjustified euphoria ......

yesterdays rally came out of nowhere - on the back of prospects of NDA govt .... that is what i hear ... and FIIs were the drivers

was it justified ? lets look threadbare .....

what do you think ? who knows indian polity best ? the phirangs with their computer simulated models or people like you and me who have lived here for decades and know all the colours these political chameleons can show ?

personally i am thrilled with the prospect of NDA government - due to my political leanings ..... but at the same time i will not throw caution to the winds and recommend all out TEJI.

the dice is loaded against NDA govt as they are political untouchables to many .... far too many .....this means that the NDA govt becomes a reality if BJP on their own move closer to 180 .... which to me looks a farfetched scenario ...... i have also not forgotten the 13 day govt experience of BJP 12/13 yrs ago .......

so - even if exit polls indicate a NDA scenario - a lot more drama has to unfold between today evening - the official results and the coronation of LKA as the prime minister ...
there will be huge huge swings both ways ..... and only the speculators thrive in such a scenario .... the average investor gets cut both ways .....

so we shud do the most obvious and most logical thing .... sit out this uncertain period .... if you hv moved to substantial cash - as told several times in last 10 days - deploy 20/30 % on big downswings .... only in quality stocks .... that is our objective .... isnt it ?

for heaven's sake, dont chase prices ...... be patient - because like swiss trains which come at the station - every hour - on the dot - you wl get several opportunities to get back into the market and that is inspite of NDA govt .....

governing with mistresses like jaylalita or mayavati - or even both - is not easy .... not at all easy .......

elephant in your living room ........

i like this first global duo --- shankar sharma / devina ..... somehow their investment philosophy and line of thinking is very similar to mine ....... i have never met them ... i dont know them at all apart from seeing them on TV .......

today devina talked about elephant in your living room syndrome ..... just imagine if that happens to you ...... what can u do ? really nothing ...... so u do the next best thing ...... u try to ignore it and hope that it will go away as it came in .... and with least damage to the house ......

this is exactly what the market is doing to election outcome .... just hoping that everything will be alright next week ... we will hv a stable government and continuation of reforms ......

but this is wish ful thinking ...... and there is something you can do in this case which u cant do in case of an elephant ...... sell out - mostly everything and move to cash ....... exactly what i have been preaching for last 5/7 days ....... be atleast 85/90 % in cash ..... sell what is saleable ...... or what can lose value substantially ......

we will have exit polls out on 13th evening and all hell will break lose on 14th itself ....... so dont wait till last minute ..... ACT NOW WHEN IT STILL NOT TOO LATE .........

election special ......

Today we will review the possible outcome of the general elections. To me it looks apparent that BJP + Congress will get just around 230 / 240 seats throwing open all kind of possibilities. No other single block like CPI / CPM, SP , BSP, RJD + LJP + NCP will get more than 40 seats.

So I feel the third front supported by Congress or Congress + third front ( with a different leader than manmohan ) are the possible governments. Some quarters are speculating over Chiddu ( though I have my own reservations beause of left parties ) as a possible front runner if congress will lead the government. If the third front will form the government with congress support – the leader could be anyone and name of Sharad Pawar can not be ruled out.

Fortunately 16th may is a Saturday – otherwise we would have had two lower circuits ( 10% + 5% ) for sure. 48 hours are not going to be enough to have clarity about the form of the government that we will have and I will envisage a 10% circuit or closer on Monday 18th morning.

As usual many pivotals will take deep cuts but momentum brigade will be massacred again.

The scenario described above does not warrant anyone to hold long term investments as CASH WILL BE KING. May be I will be wrong but the form of the government is definitely not going to be such as to spark a strong rally. So if you have moved to cash – you will definitely get an opportunity to get back in to the market at similar or even slightly lower levels.

I ALWAYS PREFER TO ERR ON THE SIDE OF CAUTION AND STRONGLY RECOMMEND MOVING TO CASH.

SO, TRADE WITH ABUNDANT CAUTION AND KEEP MOVING TO CASH.

Please remember CAPITAL is always scarce and needs to be respected.