RBI policy, market up for 4th day

RBI policy kept rates unchanged, market was a little jittery with expectations that, there can be negative surprise. As nothing changed, interest rates kept at 5.15. It was joy for the markets which moved up for the 4th straight day after the budget day fall.

After a steep drop, getting to big rally is creating confusion in the minds of traders.

 

 

 

 

 

 

 

 

 

 

 

Nifty Daily chart

When there is a big drop and steep recovery, it brings confusion. Histogram on the chart has a deep bottom & now price has moved above the EMA. Price says market is bullish, indicator says there is strength on the bear side. And the chart is trending bearish (red lines on the top – indicate bearish trend)

This confusion should lead the markets to go nowhere. For few days it will hover around the range, find resistance at 12292 levels reached on 24th Jan. From here, going long will be a trade that has very less steam left in it. For a short we need price to close below the EMA, which again will be a trade that is half way through.

So, no trades for few days in Nifty. Even Bank Nifty is the same. If both indices are in confused state, in a market that is having strong bullish strength, where can a trade come through.

In a market that has made a good rally, best trades can come from the shorts. One can find stocks that are showing weakness at the top and short them.

Reliance, Hindalco & VEDL have potential shorts – 

 

 

 

 

 

 

 

 

 

 

 

All three charts having similar pattern. Price is in the zone between 2 EMA’s. Histogram has good depth & chart is trending bearish. Also all 3 have reached value zone( area between both EMA) in 3 to 4 days from their bottom.

Within 5 day’s from the peak or bottom is considered to be hot and more likely to reach back to the bottom.

These are for intra day trades.

Coming to trades for the next day, that is Friday 07-02-2020.

Balakrishna Ind – Stock is getting weak at the top, can have a short trade once the daily histogram ticks down. There was a false break out yesterday, which also adds to bearish strength.

Havells, is getting closer to its weekly value zone. A tick down on the daily will give a short signal. Target can be at 576.

Mindtree had a high rejected & ready for short below 898.

 

Performance Linked Incentives in PSU Banks

Performance Linked Incentives for bank employees likely in the next fiscal. This is a dramatic shift to the way our bankers did business. Now, it will bring them at par with private. At first though it is talked that incentives will above the regular pay. Soon, good talent will begin to earn a fat salary and they will also help the banks compete efficiently among their peers.

When competition gets strong, quality comes in as a by-product. This shift will be one of the stepping stones for our banking sector that is struggling to catch pace with piled up NPA’s. Once the employees get drummed up, non-performers will get weeded out systematically, which otherwise will be a big pain to clean the system of un productive labour.

This change will bring the next one, hire the best, fire the rest. Though it will make many of the present staff jobless, the country and its citizens will be relieved on both their investments in the banks and taxpayer money not getting wasted to fund poor performance.

And this change will soon spread across other government enterprises, thereby making the country efficient in the way we do business. Though this change will take time to show its visibility in the economy, in few years from now, we will for sure see India at par with global peers.

And this kind of change is required, it would not have happened if not for the slowdown which we are having now. Everything happens for a good reason.

Voda-Airtel washout

Vodafone Idea creates history by declaring the highest quarterly loss on its results for Sep19. It declares a loss of more than 50K crores followed by Bharti shaving off 23K crores as a result of provisioning to meet Supreme court’s ruling on Adjusted Gross Revenue (AGR) dues.

Voda went a step ahead to declare that, they are ok to let the company go bankrupt while will not fund the losses any more. Bharti has said that, it has doubts on continuing to operate as a going concern.

This loss if goes on to a default, it will be staring at about a lakh crore of loan default to our bankers, where almost all of the names are in the basket of worry.

All of this losses just to make one persons greed a reality. Mukesh, in the need to be the dictator of Indian Telecom world, has attempted to ruin all those who are in the industry. Sad part is that, the government is supporting this ruthless massacre.

Money power along with greed is killing tonnes of public money. If suppose both these operators go under and Jio becomes the only operator, what will be the status?

Reliance, as their nature are with dictatorship mindset. They will kill everything to help them survive. Our population in the name of free service and low cost have made this monster get big in our country. Soon they will realise the disaster this monster is going to create in our country.

One would say that, it is normal competition and businesses go through such challenges. Competition is for sure good and healthy for both the business and economy. Here it is not ethical competition, to acquire market share and ensure that there are no other players left alive, through his money power and political clout, this one man is making the country

SENSEX at 40K – 2nd time

SENSEX has closed above 40K mark for the second time. Will the uptrend continue?

It doesn’t look like the momentum will continue as we have a slew of negative news hitting the market like the core sector output going down 5.20%. Under utilization of capacities not pushing private capex.

Rumours like new buyer in Yes Bank, fund infusion in Tata Motors, pushed up the indices. Markets also had a broad based rally as laggards did a catch up as the bottom for the market is now established.

What next?

All the big stocks that helped the markets move up have been showing tiredness on their price moves. There has been no big push on their September quarter results. All the profits that are coming in the results are mostly due to tax cuts for manufacturing companies and losses in the banking space again due to the same tax cuts.

Sales growth in the economy is slow. Off the results that are out so far, there is a little less than 5% growth registered. It is not a good sign.

What all of these developments are showing is that, we will have a market that will keep hovering in the range that we have established between July and October. Only if there is a significant buying power will the trend change for good.

At the same time, our markets will not breach the low we have established in the recent months. That assures of no big losses on the investments, while it requires patience to see gains.

As of now, there is no visibility of any sectors taking leadership, which is another concern. If the whole economy is a mixed bag, there will be more confusion than clarity.

So the wait continues…..

Bajaj Finance – a long term story

Bajaj Finance stock crossed ₹ 4000 on 26th Sept 2019. This stock has been the darling of stock markets for quite some time, what is so big about it crossing ₹4000 per share.

It was a remembrance to me as I bought this stock way back in 2015 for 4K. Now, the same stock after 1:1 bonus and 1 to 5 split has again crossed 4000. This means, the ₹4000 investment in Bajaj Finace in Jan 2015 is today worth ₹40,000. Yes it is ₹40,000,  growth 1000% in about 4 years.

At a time when NBFC’s are getting masacred by the markets following thier poor handling for their businesses, followed by a crunch in support from banks which crippled their businesses. Most of the NBFC’s failed because of their exposure to real estate through builders funding as well as their own greed to acquire real estate assets using short term funds.

Bajaj Finance’s business is more focused on consumer lending. Bajaj Finance did not see a slowdown in it’s business. Even when economic slowdown was much talked about and felt in the economy, this company has been growing at 40%. Their NPA’s are at 0.75%. In a period where there is no funding available for other NBFC’s, Bajaj has been getting overseas funding at a fairly cheap cost. Along with this it has been mobilising large corpus through the Corporate FD markets.

It is growing its fund base alogn with business growth. Where can the stock go from here. Currently Bajaj Fiannce is trading at 60 times its earnings. That means, for every rupee of earnings that the company is generating, market is paying ₹60. It is too pricey, that is the price quality and consistency commands. Bajaj Finance’s latest earnings is at 72 per share and is grown at 42% in the June 2019 quarter. In the last 12 quarters it has an average of 21.55% growth on its TTM earnings. There was a dip in earnings when the company gave bonus shares.

In general market condition when a company gives bonus shares, its capital gets bigger and from there on because it has to service a higher capital, growth slows down. In the case of Bajaj, it slowed down only for 4 quarters, inspite of having 1:1 bonus, which increased the capital to double of what it had earlier. Growth momentum continued at a robust pace. This in itself was a very big achievement because getting back to 30% growth rates just after 1 year from bonus means very robust business growth.

Coming to future prospects, if the company grows at 21% & has a PE of 60, the stoock price will be 7800. Even at a 25% lesser valuation which the stock mostly has after the annoucnement of every quarterly results, the stock price should be at 3750.

Is it good to buy now? Absolutely not. Bajaj Finance stock is very highly priced. With today’s earnings Bajaj finance is attractive only if the price comes down to 2550, which is not a possibility when markets go bullish.

One can have this stock in mind to take entry when there is a crash in the market and price gets to a level it trades at less that 50% of current valuation.

On dividend yeild, this stock is a poor performer, it gives out very less as dividend which is a good move for companies that grow at a faster pace. Berkshire Hathway, one of the world’s highest priced stock, never has given bonus or dividend. Thier philosophy is that, instead of you investing the dividend and growing it, which normally is less than what I grow the company. I will retain the earnings and help you have the best growth for your money.

For those who have already invested in Bajaj Finance, it is one of the goldmine stocks, which can be held for some more years, till it shows signs of weakness in its growth.

Reliance stock surges 10%, SENSEX falls

It was a rare occurrence in the markets this week, price of Reliance shares went up above 10% following the announcement in their AGM that Saudi Aramco is taking 20% stake in the company & the money that will get raised, 1.15 lakh crores will be used to clear debt.

Mukesh also announced that his company will be debt free by 2021 March. Looking for separate listing for Jio and Retail businesses by 2024. All of these positives took the stock price up.

This happens when the whole market,, the SENSEX takes a plunge of 1.66%. Something very ridiculous, Reliance the top heavy weight in the index and its stock price goes up more than 10% and yet SENSEX closes down 1.66%. This indicates the weakness that all other stocks had for the day and Reliance stayed positive.

Is it good news?

No, its not. In fact it is bad news. There were thoughts going around in the social media circles, ‘when the whole world is pessimistic, how come this man is so optimistic. Building dreams’ The very reason Reliance spoke about debt shows there is some concerns in the way they are operating. Current net debt of Reliance is 2.80 lakhs crores, almost 50% of the company’s market cap.

Already fear news is doing circles that, if Reliance defaults, it will be a bigger blow to the economy. This company has been borrowing heavily to pump up their dreams of killing every other business in India and they play their dictatorship on the economy. This dream will not come true.

They have had positive experience in Petrochemicals and refining businesses, where they ruled the world. Now, it is time for them to pack off and probably getting to that stage through the retail exposures. Bringing in news of a strategic investor at a higher price and jacking up stock price.

There was similar kind of effort made in 2008 by sending the share prices higher without reason and due to that mis demeanour Reliance stock languished in the markets without any growth for more than 7 years. Again the management is resorting to similar efforts.

Fund managers conviction on this stock is very low. In spite of being the biggest stock in our market, not all schemes of Mutual Funds hold this stock. Those who are holding are due to herd mentality of just carrying what others have.

We already have big corporates failing because of greed, Reliance is a different kind of animal to tackle.

Car Sales Slow down effects the Indian Economy

Luxury car segment has registered 25% decline in sales, which is a big surprise to the industry. Luxury car sales have lost more than the rest of the industry, which was not the norm. Financing issues that are significant for the regular market is not a requirement for the luxury market. They generally tend to outperform.

So far it was assumed that due to elections people were postponing purchases. Whereas the trend now states something different. Looks like there is a shift in the buying decision itself.

Now that the taxes on the super rich has increased substantially, they will continue to postpone their decisions or some may even drop their plans of changing their cars.

On the general market side, OLA’s & Uber’s along with troubles in parking, increase in fuel costs have made users think of not owning cars. It can be even a few percentage. The resultant impact on the economy – all the major manufactures have reported double digit negative growth, have announced plant shut downs.

Auto sector has been a major contributor on employment. Now, it will have serious impact. With a considerable number of employees getting displaced from jobs, it will create a circle of events, triggering further slowdown of the economy and bringing challenges to some of the connected industries.

FMCG sector has slowed down since the last 3 quarters,  which is due to part reactions from the Auto slowdown.

Contraction even luxury segment is worrisome to the industry. So far about 245 auto dealerships have shut shop. Thereby creating further pressure on employment. How are we going to accommodate these labour force that is getting out?

There is a big challenge the government has at it’s hands.

Budget 2019 – 1.34 lakh crore lifeline to NBFC sector

Government promising to bear the first loss of up to 10% of high rated pooled assets purchased by state run banks brings the much expected lifeline support to the NBFC sector, whereas banks will only be funding high quality NBFC’s. Big players who already have a good clout in the industry have continued to have good business growth.

Like Bajaj Finance, Bajaj Finserve kind of companies already have good growth and more over they are not much dependent on domestic borrowings. Most of the top NBFC’s have moved to foreign borrowings which gives them added cushion of lower interest rates.

Even considering currency risk, they are still at a good advantage when compared to their smaller counterparts who have to borrow at higher rates both due to their own performance issues on ratings as well as due to local borrowings.

The current move of lifeline by the FM, is not going to give a boost to the industry as a whole. It will make the big or quality players more bigger. In fact, this is what is required. “If you are genuine, I will help you get more rich.” This kind of approach by the government, for a shorter period may be against the economy as bad players will be left to die their own death. In the long run, it is going to be a huge positive to the industry and our country.

Liquidity issues in the market is likely to ease at a slower pace because the lifeline is less than half of what is required. And expecting government to bail out all kinds of corporate mess-up is not a good thought too. Let the industry figure a way out, through some support from the government.

Quality NBFC’s which are already enjoying very high valuations in the market will continue to attract capital from investor. So, if you are holding Bajaj Finance, Chola Finance kind of stocks, continue to hold, it will continue to go up for a long time.

TITAN – Biggest single day fall in 11 years

TITAN, one of the darlings of Indian stock market investors and fund managers favourite gave back 13% in a single day, following downgrades from 3 brokerages, Morgan Stanley, Credit Suisse & HSBC. These downgrades come as a surprise after the company reported a slump in jewellery sales due to increase in Gold prices.

Six months of rise in prices which happened at a slow pace was destroyed in 2 weeks. That is stock markets, it is said that ‘Bulls climb by the stairs, Bears jump out of window’. One more classic example for this saying in real time.

Why such a big crash of confidence on the stock, that is the only brand which has international presence from India. That much is the confidence we have on our companies. Gold prices have been going up since beginning June 2019 following tensions in the middle east between Iran and the US.

AS THE STOCK PRICE CRASHES, MEDIA COMES OUT WITH REPORTS THAT THE BIG BULL RAKESH JHUNJHUNWALA HAS ALSO BEEN REDUCING STAKE IN TITAN. THE BIG BULL HAS BEEN HOLDING TITAN FOR DECADES NOW AND THE REDUCTION IN HIS HOLDING IS ONLY 0.04% EACH OF THE LAST 2 QUARTERS.

How media disturbs viewers mind? Here is one good example for it. Last week before the budget who was saying that our market is bullish, it is climbing peaks, getting strong. I 2 days after budget and market turned down, the same media is now crying bearishness.

For long term investors in Titan, the sky will not fall down. This is one of the best managed businesses of India. It has a marketing strength that no other consumer facing business has in our country. It can see some periods of tightness in price, while in the long run, it will still play out strong.

Investors can be rest assured that even their grand children will be using Titan products with price. I remember a beautiful experience from this company’s AGM in its very early days. When JRD Tata chaired the AGM, some of the investors attending the AGM asked why the company did not give any gift to its shareholders, which used to be a norm those days. JRD’s answer was,” your company is creating products that will be cherished by the world, you cannot expect to get them free of cost just because of being a shareholder.”

In the last 30 years since this event happened in its small facility in Hosur, Tamil Nadu, TITAN has grown to be a brand that every Indian prides to have.

BUDGET 2019 – Auto industry to change fast

With the increase in excise duty on petrol and diesel and the GST cut on Electric Vehicles will is going to be a big blow to the Auto sector, which is already reeling under huge pressure of declining sales.

The message is getting out clear that, manufacturers have to speed up with EV launches, else they perish. Tight cash flows in the market due to closing of funding tap of the NBFC’s, has impacted Auto sales to a very large extent.

In the last 3 months, almost all the companies in this space have registered continuous decline in sales numbers. Many of the big names have shut down their facilities for short period to adjust for the inventory build up at the distributor level.

Now the next step will be offering discounts to clear off inventories. It will be a better decision for the manufacturers which will reduce cost of funding these unsold inventory. Buyers will enjoy getting their favorite vehicles at a discount.

Yet, as the message from the government is getting more clear about the fast pace expectation to switch to EV’s. Buyers will prefer to delay their purchases, though not on a big scale, it will impact sales.

The biggest threat will be to Auto anciliary businesses. EV’s don’t require all the parts that are presently used in an automobile. Either they fast pace their production to include products required for EV’s or perish.

Auto stocks are already down to their bottoms, now it will go down even further. If you hold any auto stocks in your portfolio or find exposure to auto in your Mutual Fund portfolio, take exit. It will deteriorate further.