The Big Mo Corner: We Are All Macro-Economists (Premium)

No Comments » Written on April 16th, 2014 by
Categories: Premium

This is the first edition of the Big Mo Corner, by Mohit Satyanand.

We are all macro-economists

I got into equities due to an accident of history. My father had been a passive investor in equities since the 1960s. In the first years of this century, when the Indian equity platform shifted from paper scrips to electronic, via dematerialisation of shares, he found the transition too befuddling to handle, and I took on the administrative task. After setting up demat accounts for each member of the family, I checked the source of funds for each purchase, so as to decide into whose account they should go. Luckily, my father had kept meticulous accounts of his transaction. Also, I was just learning to use spreadsheets, so I soon had a whole mass of raw data spanning over 30 years.


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Premium: Introducing the Big Mo Corner with Mohit Satyanand

No Comments » Written on April 16th, 2014 by
Categories: Premium

We have a brilliant addition to Capital Mind Premium, in the form of the legendary Mohit Satyanand. Mohit is a good friend and I admire him greatly. He has the uncanny ability to identify stocks both on the long and the short side, and has the discipline and confidence to hold them even when they move adversely. Mohit is supremely fit, and makes some enviable treks in the Himalayas every year, and he stands tall, literally and figuratively.

Mohit brings us the Big Mo Corner at Capital Mind Premium, starting with a more relevant introduction in his own words:

Investment Philosophy

I invest only in stocks. Only. I own real estate, but only real estate in which I want to live, never as an investment, or for speculative purposes.

People ask me what my investment horizon is. It is infinite. Honest.


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Consumer Prices Up 8.31% in March 2014, Reverse Downward Trend

No Comments » Written on April 15th, 2014 by
Categories: Inflation

After a +5.7% Wholesale Price Index (WPI) Inflation number, the Consumer Price Inflation (CPI) number has come in at 8.31% for March 2014.

This is not too bad, but it is a definite change in direction from the numbers that were going down till recently.

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Food is the biggest culprit, but in reality nothing else has really come down much (or gone up). Food has the biggest weight in the index, so it obviously overshadows the others:

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And it’s the villages that hurt the most:

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Impact: RBI won’t cut rates that easily. Their next rate meeting is in June, and by that time we will:

  • Have a new government
  • Have the April Inflation numbers

It’s likely that those will be bigger determinators of policy than anything we are seeing now. However, if the inflation numbers continue upwards, we are going to see no rate cuts, and we might see further rate hikes as well.

(Remember, the RBI policy saw inflation going down till about November and then a reversal upwards to 8% in March next year)

Infy Results in Charts: March 2014

No Comments » Written on April 15th, 2014 by
Categories: Infosys

Infosys results have become less relevant than they used to be. A few key things about their results, in charts.

Revenues are Down, Profits are Massively Up

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Profit growth went above 26% over last year. However, revenues suck.

P/E Still at 18, Trailing Twelve Month EPS Growth at 13%

If you take the EPS of the last four quarters and add them up, and use to determine the Price to Earnings Ratio (P/E) and the Growth over last year, here’s what you get:

image

While TTM EPS has begun to grow again, Infy’s P/E remains high.

Employee Headcount Addition Dismal, Utilization Constant

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They’ve only managed to hire 2001 people, after taking in nearly 11,000 (and nearly 9000 left). This is dismal because Infy makes money billing its employee based services.

They’ve had some top and mid management attrition recently which would probably add to their margins in the near term. However, how sustainable is that? They’ll still need to hire others to replace them (at a higher cost) and then raise salaries of the rest of the staff.

Reducing US Footprint

You can see that the US is losing it’s weight on Infy’s revenue:

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Impact

It’s not been that much of a stock and moved less than 1% today. Volatility on Infy results has been high in the past, but this time it’s just gone pffffft like a balloon.

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Overall, reasonable profit numbers, but they have to get their revenues going faster. From an industry perspective other companies like TCS, HCL Tech and some of the second tier players seem to be doing a better job.

Mehengai (Inflation) is Back: WPI Up 5.7% in March 2014

No Comments » Written on April 15th, 2014 by
Categories: Inflation

The Wholesale Price Index (WPI) for March 2014 shows an inflation of 5.7%, a sudden jump from February’s (now revised) 4.68%.

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You will notice that the blue line dipped a bit. Last year, inflation dipped between March and May (2013) to sub 5% levels, and that’s when the index was flat. That base effect, plus the lack of similar action this year has spiked up inflation.

Looking at components, it’s all showing a reversal of a downtrend, with fuel inflation at a whopping 11%.

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What might be a worry is that the green line (Manufactured Goods) is showing a rise again. Though it is low at 3%, it forms the biggest component of the index (65%) and an increase in that component will impact headline inflation the most.

At 5:30 pm today, we’ll see CPI inflation. That is what the RBI uses now, and it’s been going down. Will it go above 8.5%? That will determine the course of RBI action.

Trade Deficit for FY 2014 at $138 bn, Disappointed by March Data

No Comments » Written on April 14th, 2014 by
Categories: Macro

India’s Exports and Import data for March 2013 tell us a story in data:

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With imports going up to 40 billion dollars in March, the deficit for March widened to $10.5bn, marginally higher than last year. Month to Month changes are not relevant because the number of days in a month are different, and there are seasonal impacts. (I am not seasonally adjusting this data - and don’t currently trust trade data seasonal adjustments)

The Trade Deficit came in at $138 billion, substantially lower than the previous two years, in dollar terms.

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In rupees, however, we’ve seen the deficit go back to only 8.26 trillion (lakh cr) - this is lower than last year by 200,000 cr.

While markets rejoice (they don’t need a reason nowadays) we should note that the export numbers aren’t growing, and imports are increasing. While the deficit looks good at the end of the year, will it keep going down this way?

On another note: I’m note measuring this as a percentage of GDP; it makes sense to measure the total deficit (trade+services) as a percentage of GDP, which has to be financed by inflows (remittances + NRI + FII investment). We will get the services data for March in a couple months.

Optionalysis: Disbalanced Strategies, and Trading a High VIX

No Comments » Written on April 14th, 2014 by
Categories: Options, Premium

This is a post of Capital Mind Premium subscribers.

The VIX has gone bonkers. The Volatility Index, measured as a level of option implied volatilities on the Nifty, has touched 29 after being at just 18 on March 31. It looks like option prices have increased substantially.


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Why Is The Market Going Higher Every Day?

No Comments » Written on April 14th, 2014 by
Categories: Premium, Stocks

This is a post for Capital Mind Premium members.

The mad markets are getting more mad. The Nifty made yet another all time high today and it’s almost like the market can do nothing wrong! Let’s take a quick look to understand why the market’s doing what it’s doing.

There is no single answer. Or no single correct answer.


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