Market Bottom Established

Rollback of taxes to bring relief rally to the markets, it might not be a turnaround, while a bottom is now established. Between now and the next time the market reaches for the lows is the golden period to invest for 100% growth in the next 5 years

Why my SIP is Negative?

SIP returns can be negative for the first 2 to 3 years, give your investments time to work, say 5 or more years. There is no possibility of negative returns from SIP. India is in the cusp of a very big upside for both its economy and the markets. Do not disturb your SIP’s, stay invested, you will have very big gains to be made.

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.

Thought sharing with Duvvuri Subba Rao

Had the opportunity to share a few thoughts about the present condition of the economy and taking views of our former RBI Governor Duvvuri Subba Rao on the NBFC crisis that has been haunting the markets today.

In the days when Subba Rao was the governor, most of the decisions RBI took were hitting the markets badly. A 1% drop in interest rates, which was history, where India had not seen such a move & towards the later part of his tenure a 0.75% increase in rates. When this was announced market tanked & even for me it was enough of this governor. Such was the mood.

After he took over as governor, it was on 5thSeptember 2008, on 7thSeptember Fannie Mae and Freddie Mac got taken over by the government. 8thSeptember, Countrywide goes down. Then one by one Bank of America, Meryl Lynch to finally Lehman Brothers on 15thof September.

It was as though he comes in with all the bad omen. After a few months in a meeting some one asks him, ‘when will the financial crisis end’. His answer was, ’if you think I caused the crisis, the day I step down as the RBI Governor, it will end. It so happened that, Raghuram Rajan took over from Subba Rao on 3rdSeptember 2013 and the world turned around on 5thSeptember.

On hindsight the story is trilling, when we went through the days in reality it was a real challenge. For a person having gone through those challenging periods, I have many a times cursed the governor for his decisions. Especially in 2012 and 13, markets were showing resistance to every news, upon that bad news was like fuel to the fire.

Central banks world over cannot express what they think, he said that, every announcements will get rehearsed for more than 2 hours juggling words before reporting and yet the media will catch something at fault.

The last time when the 0.75% interest hike was done, next morning is a press meet and he gives out genuine concerns, thinking that market will welcome the thoughts. With in 90 minutes market tanks 300 points, which was 1.5% on the index. After the meet his colleagues tell him that, what you said is all true, while all that should not be told.

On the NBFC crisis, if Govt or the RBI would come to the rescue of the NBFC’s to help them come out of the mess. He was very clear that, RBI will not do anything. If suppose it intervenes, you people will go and invest more into those stocks and believe that all the problems will get taken care off by the RBI. Let a few of them get extinct, they made a mistake and are into trouble, why should someone come to bailout. We like the western world and appreciate their moves, while we don’t want any troubles that they went through. In the US there are many banks which have failed, whereas in India we have not had even one. By protecting, we cannot grow. Some of them going out of business will not bring big damage to the country.”

It was wise words, at present our country is going through a very big corporate cleanup. It will find some big names going down, we should get prepared for it. After the pain, we will be a more transparent economy and attract very big growth.