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Property Prices go up in Mumbai

Most of the builders after receiving QIP money and successfully restructure their their debt have come out of the troubles they were facing till about a month back.

What has also helped is return of customers looking to buy, more so in residential projects then in commercial projects.

Also this may be the end of all interest rate reductions and hence a combination of low interest rates and reasonable price may sound tempting for the prospective buyers.
The last life line builders have got is from the news that the government may increase the tax rebate available on the interest paid for the loan.

All these reasons tell me that this may just be the end of price correction in the market.

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Decoupaling
when some one first told me about decoupling I was a bit sceptic about the idea, but if last one year's returns of market are any indication then people chempioning the idea may have a point. S&P 500 is more or less flat year to date where as India and China are up more then 50% year to date.
Though one year may be too shout a time to judge wether decoupling has any substance or just one more theary which will not hold tru in long term. At the same time whatever we have seen in last one year seem to suggest that probebly in the long run also some of these emerging markets will out perform the developed countries.
One reasone can be the head room which is available to grow for emerging markets, when compaired with the world.

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What if USD actually correct

We have seen what happen when USD touched 40 Rs/ Dollar, from textile companies to software to BPO's came under sever pressure. The chances are that the USD will correct again due to following reasons
higher growth in India
Excess liquidity in US
Money chasing growth and higher returns and hence investing in India and other emerging markets
If Indian Rupee does appreciate then some of those companies can come under pressure again.

This can be an opportunity

A slowdown in US economy can be an opportunity for India as most of the companies will look to cut cost and look to out source ancillary businesses.

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The latest buzz word in the market is "QIP", even if one did not know what it stands for, they were all talking about it. Some one told me two things:

1. QIP is why market has gone up so much
2. QIP is drying up the money which can potentially come to the secondary market.

Well my first observation is that they are like oxymoron, the same reason can not increase and decrease the markets. Also I am not sure if I agree with any of them.

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India will become the fastest growing economy

As per the latest IMF report India will become the fastest growing economy. As the monsoon also reaching India, albeit a bit late should help the economy grow. Almost 60% of the population still depends on agriculture and most of the agriculture in turn depend on rain.

India's low dependency of about 19% on export should keeps it reasonably safe from a turmoil in global economy.

If USD were to crash as predicted by most of the analysts, This can potentially reduce our fiscal deficit as we are net importers and import most of our oil requirement, which is the biggest component of the bill.

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Experience is not knowledge

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Experience is not knowledge

This is true in life and more specifically for investment, that is what suggest why so many investors with loads of experience keep repeating the same mistake.
just about three months back markets were reeling under presser of high profit booking and no one was willing to stick his neck out and buy, same people who said "sell" are now turned into aggressive buyers. Most of them have enough experience of market ups and downs, but I guess not enough knowledge.

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Who will By all the bonds US will sell?

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Who will By all the bonds US will sell?

If the US has to maintain all the fiscal deficit it currently has than they will have to print a lot of money, which has some deadly consequences.Or they will have to sell a lot of bonds to investors who are willing to invest in an economy which is slowing down and hence invest in a weakening currency. Even if they do find all the investors they are looking for, the yields will go up. This makes raising corporate debt unsustainable and hence affect the industry.

US may also choose to increase tax rates, which looks to be on the cards. But then that will severely affect industries competitiveness.

Economy

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Inflation is back with a bang

The data released this week show a negative inflation. This is first negative data in 3 decades, since the index started. But if you study the number closely you will realise that its only WPI which has corrected, whereas CPI has moved up to double digits.

This is in complete contrast to what RBI's expectation was of CPI coming back to about 5%. A high inflation and a global slowdown is a real bad news for the economy. This also put the central bank in a dilemma. It is difficult to increase interest rates as the economy is slowing and interest rates can not be reduced because inflation is already high.

the trend of a high CPI and eventually a high WPI looks imminent. in another six months or so the base effect will also come down significantly. If central bank decides to increase the interest rate, which I think they will, the industry will feel the heat.

Equity

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USD is standing on the shaky grounds and so is GBP. What stands to gain are Asian currencies like that of India and China. This may lead to lot of money being pumped in the these markets and may push the markets up, and governments securities' yields' down.

Also what is interesting is the amount required to take Indian markets to dizzy heights is minuscule when compared to the money which has been infused by different governments. The total FII inflows in Indian in last three months is about 4 Billion dollar, but look at what has happened to the markets. They are up almost 100% from their lows.

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Equity

What will happen from here on?

Apparently everything is on track again, and global markets have recovered from their lows, Crude is back with a bang and commodity prices are going up again. But the question is will all this remain hunky dowry for the next one year or the things may become difficult from here on.

Most of the analysts would believe the recovery is not on the tine ice and is standing on a firm ground, but i still have some doubts on the sustainably of this recovery.

I ask following questions and look for the answers.

Is the US fiscal deficit sustainable?
Who will buy all the government securities?
What will happen to the G sec yield?
Will the inflation come back?

Here is my understanding

Is the US fiscal deficit sustainable?
No. A high fiscal deficit would mean high taxes.
Who will buy all the government securities?
Difficult to find buyers
What will happen to the G sec yield?
Will go up, if a 4% is not high enough.
Will the inflation come back?
Yes.

So what we are looking at is high taxes, high G sec yield, which will make corporate debt yields unsustainable, and high inflation.

Now does this should makes the recovery unsustainable?
My answer is yes.

Gyan

Opportunity to sell?

Markets are a crazy place and can remain irrational for a very long time time. I feel the same when I see the markets go up every day day with some crazy amount of foreign money coming in. Trillions of dollar of free cash distributed by the governments across the glob is coming to financial assets and inflating by the day.

With an EPS of about 900, we are already at a PE of about 17. Now this may not be very high looking at the average PE of 16.5 clocked by the Indian market in last ten years. We can justify a higher PE by the composition of the index and a high ROE of Indian companies when compared to other emerging market.

My only concern is future EPS growth. The inflation last year was about 5% and real growth of about 9%, so nominal growth of 14%. From there we are looking at an inflation of about 2% and a growth of about 6% this takes it to 8% of nominal growth. This is a significant correction in the growth and if things do not improve the chances are very high that most of the Capex will not come through and we might end up loosing more jobs.

Now this is where I ask if with this kind of growth would the money keep pouring in to keep markets at high valuations?

Equity

Geography will become History

I's a really interesting statement, and I fully support this. Geography will surly be taught in history classes. A lot of people believed that emerging markets have decoupled from the developed market and a lot of investors here believed them, till the market started correcting.

I don't want to talk about the speed at which you can travel and how fast and cheap it is to communicate with people across the glob, but it is the dependence on each other. We are now like a jungle where if one animal extinct and the entire food chain is distorted.

The impact of a person loosing job in US has implications on the job prospect of some one in India, China, Philippines and other countries.

The point I am trying to make is that till global markets do not come out of the woods one should keep his expectations limited from the emerging markets. Yes the recovery will be faster and may be steeper then the developed markets but wait till you take the plunge.

Leverage

Leverage

There is one more very interesting aspect of leverage or loans. If you were getting loans it means you had enough money and you did not need it. If you did not have money and you needed it then no one will lend to you.

Look at what was happening to people before sub prime crisis happened. There was enough liquidity, people had jobs and houses, their wealth was growing because markets were going up, property prices were going up and yes there were enough people to lend them.

Ask those people now, they need money now more then ever before but how many banks are willing to lend them? None I guess.