Struggle to make money from stocks

Labels: Construction, Economy, Engineering, Equity, Equity Market, Future, India, Stock, Stock Market, Stocks

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It's been some time since I wrote in this blog, and things have changed a lot since then. The overall political environment in the country has taken a deep turn for the worse in the past couple of months, with scams affecting the image of the Government to a great degree, implicating the even honest image of the Prime Minister. Further, the economic and monetary policies seem to be moving in a direction that is not very conducive to growth, such as a high rate of inflation, and a result, the Reserve Bank seems to want to limit money supply by raising interest rates, which in turn will lead to a contraction in the amount of capital available for companies to finance their growth and lead to a reduction in the growth rate of many companies.
As a result of all this, and because there seems to be a slight positive movement in the economy of the United States, FII's seem to be selling in the domestic market, and are also repelled by the amount of the scams, which increases the perception of a high degree of corruption in India as a whole, something that is seem as harmful to the working of companies.
In the past 2-3 months, there has been a sharp fall in the value of mid-caps with many portfolios falling by 20-25%, a sharp drop that is not fully mirrored by the value of the Sensex. So what does one do about stocks ? If you believe (as I do) that in the next 2-3 years, there will be a continuing fast growth, then a drop in mid-caps and some large caps is a good opportunity to buy, so am tracking stocks such as:
1. Elecon Engineering
2. Reliance Industries
3. Bharti Airtel
4. Pipav Shipyards
5. Hindustan Construction

Labels: Economy, Equity, Equity Market, Future, India, Indian, Stock, Stock Market

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The market has been oscillating a bit in the past few weeks. After doing increases in the past few months, there is a lot of speculation that the market is over-heated, and it is only the inflowing liquidity that is causing the market to go up. At the same time, the Government and the economy are all giving positive signals for the overall condition of the economy, which boosts sentiment (although it must be admitted that all the sentiment is overall feeling that a crash is imminent and is healthy for the market).
The US economy seems to be taking a slight up for the better, and that is a good sign overall. The Indian economy needs to hear that the talk of a double-dip recession is not going to happen, and that things will remain good and that the Indian economy will continue to have a good rate of growth. If this continues, there will be periodic dips in the market but the overall trend will be positive, which is what the stock investors of the country need.
Some stocks that I am tracking:
Action Construction Equipment
Ashhiana Housing
Jindal Poly (has gone up hugely in the last few weeks, but some scope still remaining)
Rama Newsprint (more long term)
Talwarkars
Western India Shipyards

Labels: Economy, Equity, Future, India, Indian, Stock

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The Indian stock market is right now pretty directionless. The overall sentiment is more towards caution, wait and watch, and see whether there are any drivers towards increasing market movement. There are a lot of people screaming for a correction to happen, talking about it news articles, in blogs, updates, and so on.
The world economic situation is also fairly unstable; the 2 largest economies - the US and China both have their own problems. The US is being threatened by a dip back into recession, and China (even though it still posts huge increases in the economy) is starting to face its own problems in terms of some amount of social discord, more openness threatening to showcase some of the problems that China has hidden away. The EU zone is not doing so well either, and there is a movement in the EU to clear their debts through austerity measures, which are good for finances but do have an effect on consumption.
In India, the Government finally cleared the long pending Direct Tax Code, but no major changes in it; the Government kept on giving up on most of the reform measures, and has kept a number of exemptions in the code which was something that was supposed to be cleared from the DTC.
In terms of stocks, given the uncertainty in the market, if you are holding more volatile stocks, you should really get out of them unless you are able to take the risks. Invest in stocks you feel strongly about. Some of the stocks that I am currently tracking:
1. Reliance - I continue to feel enthusiastic about this stock in the long term
2. Action Construction Equipment - A small player, but seems to be well managed
3. Balaji Amines - Well posed to increase in value
4. Elecon Engineering
5. Uflex India
6. Jindal Poly

Labels: Economy, Equity, Finance, Fundamentals, Future, Global economy, India, Indian, Market, Stock

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Interesting times in the Indian market. The Sensex is dancing near the 18,000 mark, even as the overall global economic indicators are none too good. There are already articles that are again talking about a decoupling of India and China (and we knew what happened the last time there was a of talk about decoupling of India and China from the overall economic situation, the pullout by FII's decimated the Indian indexes).
There is speculation in the market that the next couple of weeks could see a period of slowness, and maybe some amount of pulldown, so am evaluating all my current stocks to see which of these I can cash out and stay in atleast anywhere between 30-40% cash.
Stocks that I am currently tracking:
1. Action Construction Equipment (CMP Rs. 53)
2. Camlin (Rs. 34)
3. Bartronics (Rs. 150)
4. Exide Industries (Rs. 106)
5. Hind Rectifiers (Rs. 69)
6. Vimta Labs (Rs. 36.5)

One group that uses mathematical calculations to determine the technical targets for investing (link)

Labels: Economy, Equity, Future, India, Indian, Market, Stock

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I have been not been updating this post for as much as 6 months (been very busy), but now that I am back to investing on a regular basis in the market, I will be much more regular in updating this post.
The overall economic situation the world over remains fragile, with the biggest economy, the US, still not seeing broad positive signs. Unemployment is still high, does not show signs of changing dramatically for the better; the housing and consumer markets are so-so, with worries that things will get worse. In addition, due to political pressures over too much money being spent which is distorting the budget deficit, the major stimulus problems are now in threat with Obama not being given the level of money he desires.
In Europe, even with some of the economies worried about defaults, including Italy, which is a G7 country and a large economy, there is an opposing argument that is gaining ground, which is that the budget deficits and overall debt are getting unsustainable, and the Governments will have to go in for belt-tightening, something that the British Government is now going in for.
What does this mean for India ? Well, even though the Indian economy is doing great, and the monsoon seems okay for now, we have seen in the past that when the world economy goes through strain, the investments in the Indian stock market get affected and can cause lowering of the index, affecting all stocks. So, the prognosis right now is, buy stocks that you see are fundamentally good, in sectors that are not going to be directly affected due to any export problems (so avoid IT), and be careful in your investments.
Some stocks that I am currently tracking along with current market price (and I do not do price targets, just stocks that I am interested in):
- Action Construction Equipment (Rs. 49)
- Camlin
- HEG
- Patel Airtemp
- Polyplex Corporation
- Supreme Industries (an old favorite)
- Western India shipyards

Labels: Economy, Equity, Fundamentals, Future, India, Stock

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So what happens next in the Indian stock market ? There are different predictions about what the future holds for the Indian stock market, but the different predictions are more about the short term. There are different indicators on whether for the short term, the markets have climbed up to a bubble level, or whether there are indeed reasons for such a jump. It is predicted that part of the growth in the US (the so called green shoots) have been over-inflated, and that growth in the US right now is nebulous, with it being a jobless recovery.
For the middle and long term however, things are much more positive, with the overall global economy having seen an uptick, and both India and China looking much more positive. India seems to have overcome the worry of a failed monsoon, although it is likely to impact Government policies in terms of foodstocks and its food imports. So what are the stocks to be watched out ?
1. Mahindra Ugine Steel Company Ltd (good for the medium and long term, but needs patience)
2. Ashiaana Housing (if housing market is not a bubble, then very good for the long term)
3. JBF Industries
4. Shilpa Medical (risky, but can grow multiple fold)
5. Elecon Engineering
6. Central bank of India

Also, started to look at more technical information. What is the difference between Technical and Fundamental Analysis (very briefly) ?
Fundamental Analysis is the study of the fundamentals of the market. Fundamentals are all things that affect the supply and demand of the underlying commodity.
Technical Analysis, on the other hand, is the study of the market based on a chart of its price data, and assumes that you can do some amount of prediction of the price and volume movements based on past trends.

Labels: Economy, Equity, Fundamentals, Future, India, Learn, Market, Technical

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We are approaching a stage where the market is seemingly over-heated. Quite a few mid-caps have shows levels that are 3-4 times what they were just a few months back, and even with improvements in the overall market, there is a sense of uneasiness. I was speaking to somebody who does deals (M&A), and he was of the opinion that this resurgence has already gone to promoters head, they are back to asking for high rates for their companies capital that was seen before the melt-down, and this was substantiated by a report in the Economic Times that claimed that deal makers are headed off to China rather than India since they do not see too many deals happening in India.
The US economic data seems better, but there are blips when the economic data seems to suggest that one needs to watch signs of recovery carefully, and not assume that everything will go fine. What this translates into for the retail investor is that you should be careful, do not start to again assume that stocks will only go up. If you have made a lot of profit, then remove some of that profit and put into safer instruments, and use the remainder to play in the market. One thing we learnt from last time is that there is no easily defined floor below which the market would not fall - it kept on falling for many months, and retail investors kept on waiting.
Stock that I am current tracking (or buying):
1. Rishi Lasers
2. KLG Systel
3. Supreme Industries
4. Patel Airtemp
5. Nilkamal
6. VST Tillers
7. Reliance (long term)

Labels: Economy, Equity, Future, India, Profit, Stock, US

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If you look at what analysts are recommending (that is, if you believe what analysts have to say after the events of the past few months), then the recommendations are never simple. The overall market situation remains complex:
- The rainfall over the past few weeks has reduced the overall rainfall deficit for the year drastically, as a result, the Government is now feeling a lower negative impact on overall growth
- The market has gained over the past few months, to the extent that there is a feeling that the market is now over-heated and a correction is now impending. If you read economic and equity stories, you will hear about how stock are now seen as expensive, and that fund managers are feeling pressure to invest else they will feel left behind, even though they feel stocks are now expensive
- The overall world economy seems to have stabilised and seems to be on the road to recovery, and this has been stated by many top economists and others (even if some of them are trying to make optimistic projections, there is a touch of reality)
- In India, the IPO market has suffered a setback because 2 recent issues of Adani Power and NHPC did not leave any value for investors, and hence the stock is already below the issue price. At the same time, there are huge institutional investments into IPO's, signifying that money is available to invest.
With all this information, what should the retail investor do ? This is really not the time to take too much risk, so be careful about bringing fresh money into the equity market. I, am going to keep evaluating certain stocks to see whether there is potential to invest in these stocks, and also trying to sell a portion of other stocks that have jumped a lot.
1. Nirlon: This is a risky stock. If the market goes down, this stock also goes down. However, if the realty sector and commercial rents pick up, then Nirlon is a good stock to own.
2. Ashiana Housing. Another realty company. The company share has been oscillating for the past few days, and I am looking to own these shares for atleast a period of 1-3 years, and hence am picking up shares on a gradual basis.
3. Mawana Sugar. In India, sugar is a difficult area right now, with sugar being in shortfall and overseas price high because of expectations of imports by India.
4. Cairns. It's oil wells in Rajasthan have started producing oil, and on the back of a global recovery, there is an expectation that oil prices will start increasing to ever higher levels.
5. Sharyans resources. The company's share took a major hit with the economic downturn, but now looks to be again regaining hope.

Labels: Equity, Future, Stock

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The Indian projections in the short and medium term (6 months) for the stock market are in a bit of a flux. The US recession has been declared to be on its last legs by the Fed Chairman, Bernanke; however the facts on the ground are a bit uncertain. The housing market (where the entire problems started) seem to be looking up, but the same is certainly not true for the jobs market where the joblessness claims in the US have only gone up in the last couple of months, confounding experts who expected that signs of a recovery would come with fewer jobs getting lost.
Even other critical parameters such as consumer purchasing (critical for an economy like the US) are not delivering on the promise of a improved recovery. In addition, there is some real bad news coming out from China where the market has reacted pretty adversely, giving jitters to the market overall. However, and this is the most confusing part, it would seem that the markets worldwide (especially in the US and India) seem to be fore-casting a recovery in the next 6 months to 1 year.
In India, there are some reasons to be cautious about such a recovery, even though India never went into a recession; the growth got reduced, sentiment was very badly hurt, and the stock market had a literal collapse. Right now, the drought has complicated matters, and both the drought combined with the still increasing swine flu will knock a couple of points off the growth rate and cause severe jitters to the Government.
The time is not bad to make investments in some stocks, and here are some stocks that I am tracking:
Whirlpool - With more Indians entering the middle class, the growth rate of consumer appliances is only likely to go up in the long term, and Whirlpool is poised to join in that growth
Bartronics - The company had shown a lot of promise in the year 1998, but the crash had crushed any positive news of the company. However, now reports are increasing the prospects of the company being able to gain from projected boon in RFID usage
Companies in the infra-structure area will increase as the rate of GDP growth increases, even though there remain concerns about stretching themselves thin, and having working capital problems. Companies in this area include Gayathri Projects, Core Projects, Kalindi Rail, Hindustan Contstruction, Gujrat Apollo, Jaihind Projects, JMC Projects
I am also starting to evaluate more risky areas, such as when companies are seen as potential targets, and you get multiple companies fighting for these. There is some good short term money to be made if you can identify.

Labels: Economy, Equity, Future, GDP, Growth, India, Indian, Infrastructure, Investment, Stock

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What does a deficit mean ? There are many terms such as fiscal deficit, monetary deficit, revenue deficit, but the differences between are them are relevant for people involved in the field of economics. For the normal person on the street, a deficit means that you are spending more than you earn. A normal person cannot do this without getting into serious money problems, but a Government can (and in almost every case the world-over), does do this. How can a Government spend more than it can earn ? A Government does this through means of a deficit, that it either finances by printing more money, or by borrowing funds from the market.
Both cases cause problems for the economy as such, since if the Government prints more money, this essentially means that more money is being put into the system. More money, but the same amount of production means in simple terms - if you wanted something, and many others want the same thing, then the thing you want gets more expensive. In terms of the economy, if more money comes into the system, then things get more expensive and inflation rises.
If the Government borrows more money from the market, that is less money that is available to private companies to get from their market to meet their funds requirement, or if they need loans for capacity repair or expansion. Such reduction in the availability of funds means that loans for companies get more difficult and has an effect on the ability of private sector to rise above these bad economic times.
Why did the Government need so many funds that it was willing to increase the fiscal deficit to a point where it would be pointed out by economists as a risk ? Well, these are bad economic times and it is at these times that Governments the world over are putting more money into the economy to try to get out of these struggling times. In addition, the Government realized that politically, it has benefited through such measures such as the National Rural Employment Scheme, and it wants to make sure that it is pumping money into the rural sector, the agriculture based sector.
Why did the market react negatively to the Budget, and why am I writing about it after so many days ? Well, the market had been expecting some relief measures, or at least token gestures such as the removal of the Securities Transaction Tax. Instead what it got was no new seemingly market or industry oriented measures and no removal of the STT. Instead it got a much higher fiscal deficit and a seeming reversion to populism. And hence the initial bad reaction to the budget.
However, every year, there are more voices gaining ground that industry should stop looking to the budget as an earth-shaking event, instead treating it as a simple Profit and Loss statement of the Government. In addition, the initial depression of the market has subsided as it looks like there are faint signs of revival, and the realization that the budget did not make things worse, and if rural consumers get more income, that is a new market.
What should you do ? Unless, there are some earth shaking events, the long term prospects look good and you should stay invested for the medium to long term in fundamentally safe companies. Avoid risky companies unless you know what you are doing and you know the risk involved.

Labels: Budget, Economy, Equity, Future, Growth, India, Indian, Market, Stock

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What should a person look for when to invest in the stock market ? The stock market is always said to be a reflection of the economic future of the country, and in the view of many experts, seen to be an indicator of the next 6 months to 1 year. So what does the future say for the country ? You need to be cautious, monitor the sectors of the economy that are not so affected by the company, look at market value of companies as opposed to their book values, look at their future potential, and so on.
Well, the last few months have been a major shakeout. The world economy is projected to have an overall negative growth or zero growth with most developed economies contracting (in fact, China and India are supposed to be among the few countries that are still growing). Scratch the details, and you see how things are pretty bad. The United States is going through a recession not like what it has seen for decades, with consumer sentiment way down. Jobs are being shed on a huge scale, industries are down, and major corporations are reporting losses or sharply reduced profits. Obama is pushing huge packages in order to try and turn around sectors such as finance, housing, auto, etc, but the economy is very slow to respond.
The slow-down in these developed economies has had a ripple effect on economies that are export led, such as China, East Asia, and even India. Sectors such as textiles, IT, gems, etc have been impacted pretty badly. At the same time, the overall sentiment is badly negative, and this has impacted growth in sectors such as Finance, Realty, Construction, Auto, name it, and the sectors are impacted. Industry is looking at getting good encouragement from the Government, but in an election year, populism is the key. At the same time, since inflation is down below 4%, one can expect some key monetary steps such as reduction of interest rates to try and boost the economy. One needs to evaluate companies that are well run, fundamentally sound, and does not indulge in unsound practices.

Labels: Company, Economy, Future, India

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The recession in the world economy will take time to look up. The US is right now a year into recession, with unemployment rates reaching scary rates, not seen for many many years. The Big 3 automakers are in real trouble right now, fighting for getting funding from the US Government, and right now, that funding looks in trouble since the US Congress has refused to grant such a funding. Companies have been firing people left right and center, forcing much more instability into the entire economy.
The market in India has also been severely impacted, with growth in many industries and sectors very badly impacted - the realty market is down, rentals are down, auto industries are down, consumer durables are impacted, and so on.
The market remains depressed, and even the announcement of a reduction in petrol and diesel prices, along with a Government push to go against its fiscal responsibility norms and push more money into trying to pump up the economy and growth in the infrastructural area has not had much of an effect to the market. Even when the market goes up to some extent, there is always the worry about how transient this growth is, and there is always an expectation that the market would again fall down. Right now, the sentiment remains negative, and people who have invested money in the recent past have also lost market, making people apprehensive about investing more money in the market.
Typically, as per all market literature and investment books, this would be a good time to invest in fundamentally good companies, but the upside will take time to achieve (maybe upto an year).

Labels: Future, Oil, Recession, Stock

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The recession word is haunting markets the world over. The US was already in recession, and given its status as the driver of the world economy, it is not a good portent for the rest of the economies all over the world. Other economies are starting to get badly affected; the collapse of an economy such as Iceland typically is of concern only to the natives, but a recession in countries such as Germany (the largest powerhouse of the European Union), slow growth in Japan, reduced growth in China, all of these are very bad portents that the situation will get much worse before it gets better.
In India, things are getting bad. Reduction in inflation to less than 9% is the only bit of good news, else the shake in consumer confidence has had a drastic effect. Entire industries such as textiles (hit by loss of exports), IT (because of reduction in IT spending in the US), Consumer Goods / Auto (because of loss in confidence and hence reduction in spending), Realty (massively hit because people are unwilling to commit), Airlines (massive losses so far), and numerous other industries are being hit.
So, in the space of a few months, the Government and the RBI are trying to reverse all the measures they took earlier, such as a tight credit scene (they were trying to cut inflation, but also cut industrial growth due to the tight credit squeeze), the Government is willing to give measures to improve the lot of airlines, banks, mutual funds, and so on; with this being an election year, the Government will also try to ensure that they will do what they can to bring back the good times. The biggest question is about whether the Government can do anything substantial, other than wait for these recession times to pass over.

Labels: Economy, Future, Realty, Recession, Stock

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The last 2 months have seen sheer mayhem on the Indian (and global) stock markets. Share prices have plunged sharply, with some companies now quoting at book value levels. This is the case with large caps, companies with fundamentally good records such as Hindalco, Tata Motors, etc. So, you can imagine the case of mid and small caps. Shareholders in smaller companies have seen their share value plummeting massively, with a massive pullout by FII's from the Indian market. Till January, there was a talk about decoupling of the Indian economy from the US and global economy, but no one talks about that now. The overall credit squeeze that started from the US economy has impacted the Indian economy now.
Now the important question is about what to do now ? There are many negative indicators in the Indian market right now:
- There are no sustained indicators about FII's stopping their selling
- The US economy is now in recession, and there are no quick trends on when the economy will pull out, and how deep this recession will be
- The Indian economy has started slowing down, with companies reporting results that are not as buoyant as you would expect
- The realty market is almost at a standstill with the number of deals having reduced significantly
- Overall consumer spending has started falling, with even the Diwali period not displaying the expected pickup
At the same time, the market is very volatile. The last session of the market saw a major jump, but no one should take this to be the pattern. At the same time, there are 2 sayings:
- The time to buy is when everybody is selling
- Fundamentally good companies are always worth buying
So, what will I do next ? I am starting to buy, at very small levels, the following companies:
Hindalco, Reliance, Suzlon (a contrarian play), Unitech (high risk, and high potential upside), Tata Motors (even though the company's results have not been so good)

Labels: Equity, FII, Future, India, Liquidity, Stock

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Things look bleak currently on the world economic scenario. The sudden and heated debated plan of $700 billion, meant to shore up US sentiment through the Government buying up the bad mortgage loans and letting credit again flow into the markets, seems to have not done much to help the US and world markets. The sentiment is so negative that the economy seems to have gone into a spiral that will only increase the chance that this downturn will be painful and long. As a result, bank credit is becoming much more difficult to get, customers (with reduced sentiment) are slowing down retail sales (and for the American economy, retail sales is a huge chunk of the economy).

The jitters were prompted by a dismal report on retail sales, a bleak outlook by the Federal Reserve and sober remarks by Fed Chairman Ben Bernanke. A government report showed that retail sales suffered their biggest drop in three years last month. With consumer spending making up two-thirds of GDP, the retail sales data stoked recession fears.
The Federal Reserve's new snapshot of business conditions showed economic activity weakened across all of the Fed's 12 regional districts. Separately, Bernanke said the government has all the "tools" it needs to fix the problems in the financial and credit markets. But he cautioned that the recovery will take time.

The economic issues have been rattling the world economy, and the responses have been a bit varied. It is hard to coordinate a response for such a grave economic issue, especially when every country wants to take a decision that is in its best interests. However, finance systems the world over are much more complex and integrated than the decision making. Funds and sentiment are currently moving much faster than individual Governments can respond, and the initiative of a few days back where the finance officials of many countries along with central bankers have been trying to get a common response to these problems. They have so far not managed to improve global sentiment, and are still searching for finding tools that would work to stop this downward spiral of the global economies.
The political scenario in the US, with a heated Presidential election ongoing, has been complicating the overall response to this situation.

Labels: Future, Liquidity, Stock, US

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Ever since the sub-prime crisis came to the fore November- December of 2008, there has been a lot of worries about where this will eventually take the US economy. And this looks like a slow-action horror movie whose climax is coming. So, there was the shock when Bear Stearns went down, and then for some time it looked like the worst was over; the worst that could happen was a recession, but the sub-prime was over. And then happened the next round of corporate disasters that decimated the investment banking community on Wall Street; Lehman Brothers was allowed to die a quick and painful death, Merrill Lynch was bought up whole by a bank, Morgan Stanley and Goldman Sachs turned into normal banks, AIG got a lifeline from the Government that decided it was too big to fail without much impact, and then the banks started toppling - Washington Mutual and Wachovia, both not so small banks were sold for a song.
Current situation in the street ? Panic since there is a lot of holding in these reduced value mortgages, and as a result, banks are not able to decide whether the money they lend to other banks will return since there is no guarantee about the finances of the other banks and other institutions. As a result, lending to other banks and companies, the life-blood of the finance system of the economy is down massively. Lending, and the ability to get money from banks through loans and working capital requirements are what lets an economy work. The solution ? Take on these tainted mortgages till the credit system starts reviving, and then sell these mortgages (they still have value) when the economy has recovered. This will give confidence to the economy and its institutions. However, this runs into multiple problems.

- Ordinary citizens worried about being able to payback the loans and repay the mortgage are outraged that no one cares about them, and everybody is instead worried about some Wall Street gents who already have too much money. How does a collapse affect the ordinary Joe on the street ?
1. Tainted assets means that banks are unsure about the value of assets they hold, and make it more difficult for them to estimate their losses; this in turn causes a loss in confidence about the financial status of the bank and prevents the bank from being able to get capital - this in turn will surely and steadily lead to the bank going down the disaster bank
2. It is not just Wall Street that is affected, mainline banks in which Americans hold their deposits, are getting affected
3. The finance sector is so closely integrated with the overall economy (and is in fact a major glue of the whole economy); a crash will bring the economy down to its knees
4. People do not realize, but they are heavily involved with the stock market. Pension funds and retirement plans are typically heavily invested into the market, and downturns in the market affect the overall value of these funds

- Republicans believe that the Government needs to be small,and the market should be free. Such a bailout plan is likely to reverse both of these concepts, and this is a matter of principle
However, right now the US economy is on a major precipice, and it badly needs sentiment to be reflected. The overall aim of any ruling structure is to take measures such that it improves the life and condition of citizens, and the current situation is that a recession needs to be avoided and the economy is brought back from the brink (as stated by any number of economists and finance experts).

However, in a major setback to the President, and to the leadership of both parties, a majority of Congressmen rejected the bill. It is the treasury secretary who is responsible for ensuring that the economy remains purring, and he (and a number of experts) believe that such a plan is necessary to prevent the economy from going into a severe crisis; unfortunately a majority of the elected representatives don't agree.

Labels: Future, Stock, US

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It has been decades now that Wall Street has been run by big investment banks. The exact names may keep changing as some of the smaller firms became bigger, and some of the bigger firms fall (and of course, names keep on changing with mergers and acquisitions), but the basic structure of large investment firms that handled investments for individual depositors as well as large institutions (as distinct from banks who depend on deposits for their cheap source of capital) has more or remained constant for so long that most people do not know of any other mechanism on Wall Street. And then suddenly, in the space of an year, Poof!, it all disappears. It started late last year when reports started coming in of problems in the category of non-collateral high-risk loans known as sub-prime. And these loans were in turn converted by financial magic into a range of investment instruments (explaining at more this level of detail will make this a highly technical discussion !) that were traded by a variety of financial institutions including banks and investment firms. When these sub-prime loans started collapsing, the sheer extent of these loans the subsequent losses caused huge losses for those holding these instruments.
Once people sensed that these investment firms were in danger, further credit to them was slow in coming, people started withdrawing their investments, and then the credit rating agencies started declaring them as various shades of high-risk, junk status. Once this happened, for all practical purposes, these institutions were finished, with the actual spiral of destruction collapsing very fast. And, now with the Administration and Federal Bank of the USA very worried, they have taken steps to prevent some of the more huge ones:

Federal regulators converted Wall Street's remaining stand-alone investment banks - Goldman Sachs and Morgan Stanley - into bank holding companies Sunday night. The move allows Goldman and Morgan to scoop up retail banks and to streamline their borrowing from the Federal Reserve. But it also puts Goldman and Morgan under the Fed's supervision, increasing the agency's regulatory oversight and possibly forcing them to raise additional capital. As banks, Morgan and Goldman will be forced to take less risk, which will mean fewer profits.
And it brings to a close the era of the Wall Street investment bank, a storied institution that traded stocks and bonds, advised mergers and showered lavish bonuses on its executives. In the past eight days, the federal government announced a $700 billion plan to rescue the financial sector by buying up troubled mortgage assets and an $85 billion emergency loan to insurance titan American International Group. Also, Lehman filed for bankruptcy and Bank of America took over Merrill Lynch.

So, even though both these huge huge firms were not in immediate financial danger, they were sensing that they were in grave danger of running afoul of sentiment. In a scenario where investment banks were automatically assumed to be in danger, neither of these firms would have wanted to be the next company picked up for speculation; once in the target of negative public sentiment, even a profitable investment bank could quickly reach the edge of collapse.
This action goes against the normal distance that the US Government would like to maintain from the private market, but politicians of all shades have realized the extreme danger to the economy, and are willing to run with this. Making these investment firms as companies that will act like normal banks will give far more stability.

Labels: Equity, Future, Liquidity, Stock, US

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Topsy-turvy is the sign these days, and the market is doing its best to make sure that the market remains topsy-turvy (climbing up or down very rapidly and suddenly); analysing the market remain a difficult job. What irritates me about some analysts is the absolute certainty with which they make their predictions. Right now, for anybody investing in the market over the previous many years, the market just proves that nobody can predict what can happen.
I was just reading an article in the New York Times web page about how the US Congress was informed about the sudden fall of the financial titans, and how the US Government will have to pump in huge amounts of money; the credit environment is so bad, and the sentiment is so low, that this needs to be done else the financial economy will fall, and that too very suddenly.
All this affects the Indian stock market immensely as well. Many of these institutions own chunks of the Indian market, and in a crisis they start liquidating everything they own. At the same time, sentiment overall should not fall so badly since it is clear that central banks the world over will intervene to keep the economy from falling drastically.

Labels: Equity, Future, India, Liquidity, Stock, US

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The Indian stock market is getting very badly caught up in the global problems. If you look at the overall trends that affect the market, rising inflation and increasing commodity prices (especially foodstuffs and crude oil) were the critical factors that were affecting the economy. Those seem to be slowly on the way down now, with crude temporarily falling below the $100 mark, and the rise in the commodity market slowly coming to an end. These are all good signs for the economy.
However, when the US economy sustains problems, these cause problems for everybody. The rapid decline of some of the largest financial corporations such as Lehman Brothers, Merrill Lynch and AIG have both a direct and indirect effect. They have cross investments in many Indian companies, and can be trusted to sell these as soon as they can. In addition, they are a harbringer of a long term problem in the economy, and leave people with a bad feeling, something that translates into a bad sentiment.
Overall, I know people who are slowly gaining small shares in the market, but at the same time, they are also worried, since even investments bought a few weeks back have fallen. The textbook approach is to keep on making small investments into fundamentally sound companies such as Airtel, Reliance, Tata, and for a risky touch, into some companies that have fallen very badly; they are the ones who are expected to rise within a few months of a recovery and can promise high returns (but I repeat again, this is risky).

Labels: Equity, Future, India, Inflation, Oil, Stock, US

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