Shifting of Crude Oil pain

In early October this year the emerging economies predominantly India was worried about crude
increasing rapidly on its price. Many of analyst expectations that it will not go beyond $63 went wrong, it moved past $80 and there were pessimists in the forefront talking that it will soon cross $100 and will bring big challenges for India on its CAD, the government on its elections, inflation etc. Oil going up continuously even defying its own weakness on technical made many who thought that pain of oil price to the world is behind us were also made to believe that it will have some more damage done to the growth of developing economies.

For the Oil producing countries, there seemed that they were the lords of the world, dictating terms
on price front threatening of production cuts to jack up price. At times it felt like they were enjoying
the pain that the emerging world was undergoing.

Within 40 days the story turned upside down. On 5th October, oil was at $84, it is overvalued on the
charts. On 21st November, it was $63, going straight to undervalued zone. Now the talks of the global media also have changed. So far, it was a concern that the emerging world is at pain. Now, thoughts of global slowdown has come.

Mercy thoughts are flowing in support of the oil producers. Saudi wants price to be above $73, to meet its budget plans. Russia says $70 is ok for us and we cannot stop our companies from producing as it will bring pressure to their capital. US says even $68 is ok for them.

Emerging countries are in party mood. In India, pressure on the Government to bring down taxes on
oil when price kept moving higher has now brought double benefits to the users. Oil price is down
and along with that lower taxes, it is big savings for the consumers and in a election year, there will
be no increase of taxes so, it is time now to enjoy lower pump prices.

So much in just 2 months. What took more than a year for the bulls to move up oil prices only took
40 days for the bears to damage. This is why it is said that, Bulls climb by the stairs and Bears jump
out of window.

In a couple of years from now the importance to Crude Oil as a product will be history. For immediate periods, Crude will try to move up in price, while it will find resistance on every upside rally and bears will bring prices down. At least 2 such events of lower price penetration will be there before we have any significant upward movement in prices of Oil.

FM’s thoughts on Oil & Loan Waiver

Jaitley’s talk at the ET awards, “Users should pay for oil… else fiscal deficit will rise and add to the current account deficit. It will push up inflation, weaken rupee. Tax on fuel prices should come down not by creating fiscal deficit, but through an increase in the non-oil tax to GDP ratio, which is on the rise since last few years. We must create a sense of maturity among people” Very nice thought, if we contribute by way of higher compliance, it will help in getting other benefits.

It felt like, we have only been asking without contributing. When we talk about this to people, they get agitated about paying taxes. It is because, for generations we have been on the receiving end.

Want farm loan waiver, how can that happen? Vice president Venkaiah Naidu said, “Loan waiver can happen only if there is a deposit waiver’. We did not want FRDI to come because we stated poor man’s money in the banks should not get used for the bank’s non-competence. All the deposit holders should be given highest safety on their investments. At the same time banks should waive off loans. This can happen only from the profits that banks make.

And unfortunately our banks don’t have that edge too, because of people running the banks who don’t have big vision.

Happened to hear a banker say that, “De-Mon was good and GST was good, while it was wrongly timed and not executed well. Government should have planned well to avoid the problems that it came across in implementing both these great reforms.”

We are the world’s biggest democracy having diversity of Africa to Europe in our mindset. When it comes to paying taxes we are like Africa, the most corrupt. There could not have been an opportunity to learn from some others mistake before bringing these two reforms. We should only learn from our own experiences. That is how it can be…..

There is an urgent need to move out of the comfort zone of protectionist mindset to accept reality & face the world as it is. It will strengthen us as a country and prepare us to have more luxuries.

 

7% gain in 3 weeks, what next?

Nifty closes above 200 DMA, rally comes from not so prominent stocks contributing for the gains. On Friday it was Bharti and today it was Yes Bank. Both are not fundamentally great ones. After a steep correction when there is a recovery, the general pattern is to go up and get back to lows.

Now the pattern seems to be changing course. When there is a steep rally and deep correction, which gets back to median without sufficient strength. The next course is consolidation. Presently we are in this area. Consolidation will bring more pain to traders with many whipsaw or losing trades, where they will shy away from the markets and then let the market take its direction.

With state elections due in December, where the expectations are fairly against the central power, it will trigger the next sell off. Crude Oil which was a big concern when it rose in price till a couple of weeks back has now suddenly turned opposite. Media headlines are “Beware! Lower Oil prices foretell sooner than expected Global slowdown”

When it goes up we are worried, when it goes down yet we are worried. Currency was high, it impacted the economy, now it goes down more than 5% from its peak, exporters are worried. Our country needs exports to perform well to bring in dollars. If that slows down due to uncompetitive prices, again we hit the reserves issue.

So delicate are our requirements. What is likely to happen? Tussle between the Government and the RBI is now one more worry. Govt wants RBI to relax lending to SME’s, it is a good gesture while that should happen only to quality businesses. Just for the sake of funding, we get into an urgency and give out funds. That will end up adding to more NPA’s. RBI agrees to infuse 8000 crores of liquidity into the markets. A small breather though.

Oil might take time to move up as the depth of correction is very high, while the currency is not in the same zone. We should see currency reaching for a new peak very soon, which can bring some uncertainties in the market.

From July to mid-November, traders made big money as the markets took a swing on both sides, now it is time for them to give back some gains. Among the index heavy weights, very few stocks have strength to move up like Hindustan Lever, HDFC Bank & L&T all others don’t have patterns that can take them to a bigger rally. Even those that are showing little strength, all of them are in their end stages, over head resistance will be high as they reach their top.

AS we keep climbing higher & higher the height of correction gets higher. As of now we have recovered more than 7% from the bottom. Strong resistances are just above the present price levels for the index. So we should be prepared for a 8 to 10% correction, where the previous bottom will get breached. When that happens, volumes should be low, which will happen because weak hands would have moved out due to prolonged correction. Then we will start our next rally.

Many of the stocks in the market are having patterns that require a test of lows to get strength. All these data coincides supporting a big correction which can come in mid December or early January.

For those waiting on side-lines, the next low is going to be a great opportunity to enter markets because they have the potential to make an easy 20 plus percent gains which can come in the next 12 to 15 months.

 

Indian Stock Market Recovery Soon

Fall in Crude prices following positive developments India had in the international markets helped in bringing down currency which favors well for the market and its rally in the last couple of week’s. Will the rally continue? Fund managers are cautious, which is the need of the hour while Economists are too pessimistic with expectation of crude touching $100 and Currency hitting 80 along with threat of China on India. In actuals nothing of such pessimism is visible, we had a correction following overvaluation in the end 2017, while that is not the end for our markets. We will have another round of corrections when Crude & currencies go up due to inverse correlation of the stock markets to Currency & commodities. The good sign will be the end of price increase for commodities and bottom for the markets. We might see september lows on portfolios which can even get breached briefly, while it is not a concern or reason to worry. Election results may or may not bring the same government, while all of the uncertainties will get factored in the next correction. Next leaders are getting ready for their show of power when the markets go up. Pharma, Manufacturing & Public Sector Banks will lead the market’s rally. PSB’s are already showing signs of strength. One can add to their investments, increase SIP’s to get the benefits of lower prices which will help get the best returns from the new bull market. Money is made when there is blood on the streets said John D Rockefeller, one such opportunity is coming soon.

 

Inside Our Portfolio – 2

This video talks about positions in Delta Corp, AU Small Finance Bank, Bandhan Bank, Bajaj Finserve, HCL Infosys, Himadri Speciality Chemicals, Sterlite Technologies, L&T Technology Services Going light on this week as there is no commitment to buy stocks, stops on existing positions getting closer to current prices indicates that market will take a breather. Having a little extra transaction cost is better to having weak stocks in the portfolio, getting in and out of stocks benefits in having a smooth equity curve, which brings confidence to invest more in the portfolio.

Inside Our Portfolio – 1

This video talks about stocks that are at advantage in our portfolio from the current result season. Intellect Design Arena, L&T Technologies, Sterline Technologies stocks in big rally mode. Trading positions in Himadri Speciality Chemicals. Top technology growth stocks in our portfolio helps us outperform the SENSEX by more than 3% this week even with 50% exposure.

Observations @ Morning Star

I had been to the Morningstar Investor Conference in Mumbai, had the opportunity to hear thoughts of some prominent names in the industry, fund managers, Economists alike. Thoughts that were shared by economists were too negative, at a time when the markets are down with lots of pain in the minds of investors, these negative thoughts did not feel like it is right.

Maybe these people do not want to take responsibility for their views if what they say goes to be wrong and are always taking sides of what is the prevailing situation. Thoughts that our

  • Crude oil buying problem is increasing
  • Trade deficit is equivalent to those in the 90’s
  • The picture now is more bad that what it is experienced.
  • India is spending more on Coal, which is a surprise.
  • We are importing more electronics.

Why should they voice concern now and have not done earlier when markets were going up? If all these were true, it cannot happen all of a sudden in a day or two. People who are tracking these should have known them early and should have actually informed people to take right decisions. Instead all that these so called big names including media are doing is, to come after the event and support the situation.

I have been holding position in Jubilant Foodworks, the owners of Domino’s Pizza. Till last quarter for 5 quarters this company had good growth on its sales and profits. In the September 18 quarter growth has slowed down & because of bonus announcement its earnings got dropped. After the results were announced, analysts are giving information about the challenges the company will face like.

  • Due to food aggregators, they will have labour problems.
  • Competition is eating into their business.
  • Increase in Fuel cost as well as other inputs is not getting passed on and will be a burden.

How come all these showed up the day results were announced? Now that the company is showing signs of slowdown, all these people are giving supporting thoughts to strengthen the actual condition.

And this brings more clarity that all the media as well as big names should not be believed or should just brush aside and we continue with our beliefs. The other day there was a thought shared in a video that big money is made in the markets only when there is more fear and blood bath in there. And when fear gets bread through media it becomes more pain and that is where right opportunities come.

In 2008 everything around us was talking negative, joblessness, crude oil at peak, businesses defaulting and media was only giving negative news. From there market went up 157%. Even now news papers are full of negative news.

  • Agriculture growth is underwhelming
  • Mid & Small cap in Bear hug.
  • 1 year sip’s in Red
  • Valuation still above average

All these means that, there is the next big opportunity just about to come. Only that, one needs to invest into quality stocks. Just because stocks are available at a discount, one should not pick up junk stocks

Stick to quality and the next rally will help you make handsome gains.