Archive for October, 2008

The Long Position Update

4 comments Written on October 22nd, 2008 by
Categories: Nifty
A commenter recently said I haven't been talking much about my long positions, presumably because they've gone rotten? I certainly am guilty of only mentioning them a few times, so here's a post on it for good measure.

I'm still long. This is a personal, very discretionary position, which I intend to roll over. This is not because of any other reason that a short term bounce - typical bounce expected is 20-30% over a short term, max three months or so.

I may be wrong - heck, that's a given every once in a while. And our systems continue to make money on the short side. But given this is a discretionary position that involves Nifty futures and short put options, I am fairly ok with the losses incurred so far, intend to get out only at a stop loss a further 15% below here.

It's a tough market - and I don't want to do any bottom calling. Speaking systematically everything is short, and needs to be. But I'm playing a very discretionary game here, it may work or may not - either ways it's my trade, and I wouldn't recommend it to anyone else. Still staying long, and still adding to my positions.

Posted in Nifty

Lending rate news, and signs of bullishness?

6 comments Written on October 21st, 2008 by
Categories: Crisis2008
  • TED Spread at 2.57, way below the highs of 4.5 or so. Still, a little high, but should get better.
  • 13 week treasury bill yield at 1.24%, which means people aren't flocking to buy T-bills.
  • NSE Overnight MIBOR at 6.23%, but 14-day to 3-month values are still higher than 10%. Earlier overnight MIBOR had reached 16+%.
  • LIBOR's getting lower and lower, says WSJ.
  • Large improvements in (lower) Euro borrowing yields, and lots of liquidity.
  • The US will fund $600 billion to money market funds, taking commercial paper as collateral, to ease redemption pressures.
The easing in the credit markets is getting more and more obvious. What isn't, is that home prices aren't going up, so the basic reason for the whole crisis (and probably, the recession) remains.

I can't find the article now, but it seems a number of FIIs had lent shares to other entities who would short sell them, and take the money and put it in the Euro money markets. That spread has gone now, so will they come back in and buy? There still seems to be a lot of shorting going on - the index futures are sitting at almost no premium today. Is this a bullish indicator, all of it?

Posted in Crisis2008

So FCCBs do hurt, or do they?

No Comments » Written on October 21st, 2008 by
Categories: JPAssociates
A follow up from my post "The Falling Rupee and the FCCB problem" (Sep 11, 2008). ET confirms that this is indeed showing up in results.
Delhi-based drug major Jubilant Organosys has recorded a hit of Rs 174 crore for the second quarter as a notional loss on its outstanding FCCB and other foreign loans. The rupee value of these loans has gone up as the dollar has appreciated sharply against the Indian currency. Other drug companies such as Biocon and Alembic have also recorded losses on the same account.

The malaise is not restricted to any one sector. Auto ancillary manufacturer Balkrishna Industries and IT firm Rolta have also seen losses on the front. While the latter took a hit of Rs 61 crore on the forex account, the former has taken a charge of Rs 31 crore.

FCCBs were a preferred route for raising money some years back. Foreign investors would typically put money into the company at a very low interest rate, which could be converted to equity over a certain period. Usually, the conversion price would be 30-40% higher than the then market price. If not converted, the money would be treated as a loan.

Not only are there temporary mark-to-market losses, some of these companies have to contend with loans they weren't quite willing to repay (they assumed conversion). JP Associates, for instance, has fallen even more since that post - and their conversion price is Rs. 247. Current price? Around Rs. 80.

But they announced results today - EPS of Rs. 1.57 versus some 0.86 last year, a phenomenal growth. I don't see the impact of the forex losses mentioned - as I can imagine, many companies will not take it up when it's losses (choosing to only take it up when it's gains). I hope that is not the case with JP.

(This is not just the conversion of course - lots of other factors, overall sentiment etc. But the conversion price is now looking even more difficult to achieve, plus they now have a 1800 cr. rights issue coming up. This is one helluva tough cookie - but guess what, management bought 1 cr. shares at Rs. 397 each, so they must be really confident. )

Posted in JPAssociates

Why not another black money amnesty scheme?

9 comments Written on October 17th, 2008 by
Categories: Crisis2008
There's a liquidity crisis out there, and if I may suggest something: Why not another one of those "declare your black money, pay 20% of it as tax" schemes? It's stupid but so are bailouts, and isn't this even better than bailouts? It's moral hazard - yes.

The amount of black money in the country is obscene - and once we get it back mainstream, it will result in a huge cash cushion for an economy that will struggle through a recession. The tax revenue can offset the costs of a slowing economy - in part, at least - and the extra money coming in can stem a liquidity crisis of gargantuan proportions.

To ensure people don't think such schemes will happen ever so often, the thing to do is to tighten enforcement so much that people will hesitate to have black money after this. By this I mean serious investigation into all real estate transactions, a tax-push by hiring more agents and consolidating the tracking information they have been collecting. It's amnesty but there must be a penalty for not taking part.

This won't help the likes of me - I have no black money because I have entirely been paid by cheque, I don't own land or property etc. But it will take money from the mattresses back into the economy. And it will definitely help politicians :)

Posted in Crisis2008

A GMR Recap

1 Comment » Written on October 16th, 2008 by
Categories: GMR Infra
I haven't checked a lot of stocks lately - and looking at GMR Infra's price of Rs. 62 today shocked me. Let's take a look at what happened to GMR Infra from the time it listed:

The IPO was available at 200, which translates to a price of Rs. 40 today (split 5 ways in between). My IPO analysis showed a past EPS then of Rs. 2.5 (which is equivalent to 0.5 today) and a P/E of, at the eventual price, 80.

Current Trailing EPS is around Rs. 1.25. Price is still at a 50 P/E and a lot of that EPS came from "other income" - the interest on the pile of cash they hold.

It will take another twenty rupees for this stock to reach the levels it listed at - which honestly is better than most other IPOs which are seriously under water already. Would you pick this stock up if it reached 40?

Airports, Power, Infrastructure. And a recession. Hmm. Not easy, when the stock has been about four times this price just a few months ago - but as we are likely to see, those valuations will be cherished as "those good days" for a long time to come.

I won't do a funny-mental analysis. I will just say this - the price action shows the trend. Unless that changes, nothing has changed....

Posted in GMR Infra

Shipping Index deep dives

3 comments Written on October 16th, 2008 by
Categories: Crisis2008
From Big Picture: The "Ugly" Baltic Dry Index:

This is going to cause a lot of damage to companies that have ordered ships because of all the demand. Some of them in India are Shipping Corp and GE Shipping - and a number of smaller players too. The credit freeze is impacting global shipping - as without credit there's no shipping of goods.

Current prices are where they were five years ago. If the BDI gets any lower, it's going to be a sorry affair.

Posted in Crisis2008

What to do now? Gilts, Nifty and No Predictions

7 comments Written on October 16th, 2008 by
Categories: Commentary
A few comments have been mailed in asking "What to do now?". I wish there was a universal answer but there is not. Here is what I am doing, and my needs are very different from those of others.

I am buying Gilt Funds. This is for my liquid portfolio. Things at play here:

  • The government is auctioning 10K crores on Monday. This is going to bring in supply of gilts into the market, which should keep prices low for the time being.
  • Interest rates are not likely to increase from here. When interest rates decrease, bond and gilt yields will decrease to match interest rates. Yield increase = rise in prices of bonds/gilts.
  • Then why not bonds? Why gilts? Because I don't trust bonds anymore. Bond funds have gone and thrown money at avenues not quite safe - like buying Asset Backed Securities of transport finance companies and of personal loans, or loaning money short-term to real estate companies. These things will soon default, and I don't want a default.
  • Gilts are also where you run to in a credit crisis. Look at the US t-bill yields - 0.4%! With those yields prices are extremely high. A combination of flight-to-safetly and falling interest rates should provide a good return.
  • Many gilt funds are investing in fixed deposits of nationalised banks. I don't know yet, but those should be safe...still, I would rather pick up funds that invest in gilts mostly.
  • I like the Templeton India GSF - Treasury (Dividend) plan. I also am reasonably ok with Tata GSF Short Maturity plan. No entry or exit loads there. DO NOT invest in that fund. I tried to get in through Sharekhan and they held my money for an ENTIRE MONTH, before "rejecting" my application! Meanwhile the market value went up by more than 5%!
  • I have now bought Prudential ICICI Gilt Fund, Short Term Plan. Seems to be good, no entry/exit loads.
For equity, I am nearly out of everything (except for a few small mutual funds I have put money in and either can't withdraw as they have lock-ins - tax funds - or don't have the time to withdraw) But on a trading basis, I have started buying and am long the Nifty. I have a strategy on this and it's too far fetched to talk about on the blog - but I'm playing for a 20% bounce from current levels. Essentially a target of 4000 or so.

I might consider buying a few stocks at certain levels - but only if they show their strength in their price. And of course, my pessimism about this credit crisis goes away (or there is momentum).

Now to questions: What to do if one has bought the Nifty? The answer demanded is a prediction - will it go up? or down? But that's not the point. If you bought the Nifty, you bought it for a reason. You should have had a stop loss. If the stop loss is breached, sell. If it's not, and your original funda - you had a funda the market would go up no? - still applies, then hold. If you don't have a stop loss - set one NOW. If you have already lost too much, it's too late to do anything; might as well book losses and figure out what else to do.

Same funda applies for stocks. Fundamentals are what they are - funny-mentals - and you can choose to rely on them; and if your faith still remains, stick on. If you don't have faith in the companies, don't hold their stocks. There will always be another day.

Posted in Commentary

News for A Thursday

1 Comment » Written on October 16th, 2008 by
Categories: Uncategorized
Interesting news today
  • Russian Ruble falls to 20 month low
  • Crude at $72. This is now half of the $144 price when the fear was of peak-oil and $200 oil.
  • Ted Spread still doing 4.29, staying high.
  • RBI Auctioning 10,000 cr. of t-bills/bonds on Monday. Interesting for gilt funds.
  • RBI says FIIs can get $6 bn into corp bonds, from the earlier limit of $3 bn. With yields here being very very high, this should help dollars flow in. Alongside, RBI has increased limits on interest rates paid to NRIs.
  • Citadel's hedge fund falls 30% this year. Seems it's their only loss making year since 1993 or something.
  • Slow U.S. retail sales continue in September, with a 1% drop again.
  • Indian Mutual Funds are trying to stop people from redeeming their money.
    ABN Amro MF has now put a cap on redemption on its long-term FMP schemes. All investors in these schemes can redeem only Rs 1 lakh per folio per day.

    “As a short-term measure, the trustees of the mutual fund, in order to safeguard the interest of the investors who want to remain invested till the maturity of the long-term FMPs, today have decided to limit the redemption to 5% of the size of these schemes per day, with a further limit of Rs 1 lakh per investor, per day,” said ABN Amro India-AMC managing director Nikhil Johri.

  • Indian markets opened 6% down, closed 2% down - recovered most losses, and then lost the 2% in the last half hour. Such craziness.

Posted in Uncategorized

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