Cheer up, the outlook is not so bad

Posted on December 30, 2007

Cheer up, the outlook is not so bad
27 Dec, 2007, 0548 hrs IST,T T Ram Mohan, TNN

The year ends on a sombre note for the world economy. The impact of the subprime crisis in the US is stretching out. Whatever the prospects of an economic depression, the barrage of morose comment is certain to generate pervasive mental depression.

Cheer up, the outlook is not so bad. The US economy will slow down appreciably but still looks unlikely to go into recession, that is, two successive quarters of negative growth. The global economy too will slow down but growth will still be good by past standards. The Indian economy will continue to grow strongly and the stock market should provide attractive returns over the coming year.

The fundamental basis for optimism about the world economy is this: major economic crises have their roots in big supply shocks (e.g., a sharp rise in oil prices) or a currency crisis (caused by foreign investors’ lack of confidence in an economy) or a banking crisis. None of this appears likely today.

The world economy has shown an uncanny ability to live with high oil prices. But prices above $100 still have the potential to cause damage. During the year, prices inched towards the $100 mark but they have since shown signs of softening. A big factor is the US intelligence agencies’ assessment that Iran suspended its nuclear weapons programme in 2003 and is still quite far from acquiring the bomb. This renders a neocon-inspired strike on Iran rather difficult in the coming year. That is good news for oil prices.

The US is hugely indebted and foreigners hold a huge amount of US government securities. The US is theoretically vulnerable to a currency crisis. But currency crises are more common when debt is foreign currency-dominated. This is not true of the US.

The US enjoys an even bigger advantage. As the world’s sole superpower and the biggest economy, the US will remain the choice of central banks and other investors for some time to come. While investors may lower their US holdings in their portfolios, a big sell-off that could trigger a currency crisis is just not on the cards.

What about a banking crisis? Banks’ losses are expected to rise in the months to come as the crisis unfolds. Many of the off-balance sheet vehicles floated by banks are now coming on to their balance sheets. As banks are expected to carry a minimum of regulatory capital against balance sheet assets, it is argued that their ability to extend credit will be impaired and we could see a credit crunch.

This is true, of course, but a credit crunch does not imply a banking crisis. A banking crisis involves the failure of several banks, that is, the net worth of several banks gets wiped out. There is nothing so far to suggest that such a crisis threatens American banking. Large banks operate with a capital adequacy ratio of over 12% against the regulatory minimum of 8% or so. They are well placed to absorb the impact of the subprime crisis and also to boost their capital.
That is because, as Citibank and UBS have shown, there are overseas investors willing to provide capital.

US banks have non-core assets that could be sold off at a pinch. Secondly, as the Financial Times points out, the global US banks are sitting on a gold-mine in the form of their investments in Chinese banks — the nine biggest stakes are worth $81 billion compared to the write-offs announced of $50 billion. So, yes, banks’ ability to lend will be constrained but this falls well short of a banking crisis.

The prospects, therefore, are of a slowdown in the US economy but not a recession. A US slowdown will drag down global economic growth, of course, but strong domestic demand in emerging markets can be expected to mitigate this impact. Despite what is believed to be a crippling credit crisis, world economy growth in 2008 in PPP terms will not be much lower than the rate of 4.4% seen in 1999-2008.

India’s own growth prospects remain bright. In 2008-09, we can expect growth of the order of 8%-8.5%. Exports are bound to be impacted by external conditions and the appreciation of the rupee. But investment will remain strong.
The big change in the Indian economy in recent years is that it is becoming investment-driven: investment has outstripped consumption in its contribution to growth every year since 2002-03. Businessmen are looking far beyond the present global conditions and they like what they see in India, so they will invest and invest.

India’s stock market should continue to deliver good returns. The earnings outlook remains good. Moreover, the Indian stock market is showing signs of attracting new classes of investors (US pension funds, oil wealth, Japanese retail investors, etc). The combination of strong fundamentals and FII flows augurs well for the market.

There is an economic crisis in our midst alright. But it is not formidable in relation to crises we have seen in the past. On balance, it is still amenable to concerted policy action. Not a bad note on which to usher in the New Year.

‘Making money will not be easy in ’08’

Posted on December 30, 2007

‘Making money will not be easy in ’08’
31 Dec, 2007, 0454 hrs IST,Shakti Shankar Patra, TNN

At ET Intelligence Group, we have always strived to help readers take well-informed decisions. And we leave no stone unturned in doing this. Apart from providing analytical insights and expert opinions to anticipate the trends in ’08, we decided to lend an ear to what the celestial elements are telling us.

To have a better understanding of what ’08 has in store for us, ETIG caught up with renowned astrologer Bejan Daruwala .

According to this fond worshipper of Lord Ganesha, India’s best period started from September 3, ’07. Mr Daruwala — who had predicted India’s emergence as an economic superpower way back in January ’00 — claims that India will have a great time in the next few years and will emerge as a powerhouse some time around the year ’12.

“In ’08, Jupiter will land up in India’s sun sign Capricorn. This ensures prosperity and good luck,” he says. He further enunciates that other natives of Capricorn, including Ratan Tata, Baba Kalyani of Bharat Forge and Vikram Pandit of Citibank, will have a wonderful year ahead.

Mr Daruwala emphasises that ’08 will see Saturn teaming up with Virgo, which means only the ‘practical-minded and ruthless’ will survive. Companies that emphasise on cutting down unnecessary expenses and are willing to overhaul old management practices will do well. Similarly, Capricorn, the big daddy of all sun signs, will ensure that managements that act with a strict hand do well.

However, Mr Daruwala feels the Sensex may not reflect the strength of the Indian economy to the fullest. “The year ’08 will see the Sensex fluctuating wildly and money-making won’t be as easy as it has been in ’07,” he says. He further predicts that the months of March, June, September and December will be particularly tough for the market.

Looking beyond the economic scenario, Mr Daruwala sees the country facing a few new problems. He cautions that the next 2-3 years will see the emergence and rise of new forms of terrorism. He foresees that India and Pakistan will have a more permanent and long-term truce.

On a more positive note, Mr Daruwala opines that India’s favourable time had begun when Atal Bihari Vajpayee took over as prime minister, and both he and Manmohan Singh are lucky for the country.

Who all are the biggest winners in the market?

Posted on December 30, 2007

Who all are the biggest winners in the market?
31 Dec, 2007, 1555 hrs IST,DEEPAK MOHONI,

The market bounced back last week, with the Sensex finishing 5.45% or 1,044 points higher, the Nifty up 5.43% and the CNX Midcap gaining 6.63%. Tata Steel was the biggest winner among the Sensex stocks with a 12.9% gain. Other gainers were Reliance Energy, DLF, Bhel, Wipro, HDFC and Hindalco with gains between 7% and 12%. Bajaj Auto was the biggest loser among the Sensex stocks with a 6.5% loss. Maruti Suzuki lost just 0.8%, and was the only other Sensex stock to finish lower.

Era Construction was the biggest winner among the more heavily traded non-Sensex stocks with a 38.7% gain, followed by Everonn Systems with a 38.3% gain. Mercator Lines, Parsvnath Developers, Adani Enterprise, Videocon Industries, Essar Oil, Alok Industries, IOC, Ansal Infra and Mundra Port all gained between 17% and 33%. Ispat Industries was the biggest loser among the more heavily traded non-Sensex stocks with a 2% loss. There were no other significant losers.

Intermediate Trend: The indices remain in intermediate uptrends, with last week’s rally helping them avert the downtrend threat. The uptrend has started from the Sensex’s November 22 low of 18183 for the Sensex and Nifty, while the CNX Midcap index has been in an uptrend since October 22.

The uptrend will end if the Sensex falls below 18886, the Nifty under 5676 and the CNX Midcap below 8430. Our market is one of the very few that has managed to escape an intermediate downtrend. The uptrend will become more stable if the global rally evolves into an intermediate uptrend.

Outlook For ’08: The market’s long-term (major) trend remained up during all of ’07. The Sensex had gained 46.57% or 6,420 points until Friday, and the Nifty 53.28%. The CNX Midcap outperformed them with a gain of 74.39%.

Reliance Energy was the biggest winner among the Sensex stocks with a 314.7% gain. Larsen & Toubro, Reliance, Bhel, Tata Steel, State Bank, DLF and HDFC followed, with gains between 80% and 188%.

Infosys was the biggest loser among the Sensex stocks with a 19.9% loss. Other losers were Tata Motors, Cipla, Wipro, TCS, Mahindra, Satyam Computers and ACC with losses falling between 7% and 19%. The bull market will end if the indices close below their previous intermediate bottoms. These stand at 18183 for the Sensex, 5394 for the Nifty, and still 6463 for the CNX Midcap.

We will enter ’08 with a strong possibility that we are in a bubble, as the market caps of several underachieving companies are rising on hope and hype, rather than performance. Hence, there can be a correction — perhaps along the lines of the one seen in May ’06. However, bubbles are always unpredictable, and stocks can continue to rise beyond most expectations before the bubble bursts.

Short-Term Outlook: Global markets were rallying again after dipping on Thursday night and Friday morning, and this should lead to further gains at the start of the new week. A fresh global intermediate uptrend can mean more gains ahead. Europe and the US were rising again on Friday, and a global intermediate uptrend appears to be on the cards now.

Strategy: Fresh long and medium-term purchases should be made only after the next intermediate downtrend ends, and provided the bull market continues. Day traders should find the mid-caps more profitable, as the larger moves are happening in this category once again.

The intermediate uptrend looks stable for now, and swing traders can carry positions overnight on the long side with normal risk. Please note that all forms of short-term trading will succeed only with a proper risk and money management strategy.

Global Perspective: Most major global markets rallied all week, except for a sell-off on Thursday night and Friday morning. However, most of the main global indices are still in intermediate downtrends, but a persistent rally should lead to an early confirmation of an intermediate uptrend.

Several global indices went into these intermediate downtrends after making lower intermediate tops, and there’s a question mark on the global bull market. A closing below its last intermediate bottom of 12700 will be a bear market signal for the Dow, and such an event can well trigger a global bear market too.

The Sensex’s gain for ’07 (until Thursday) stands at 46.6%, making it the fourth best performer among 40 well-known global indices considered for the study. Shanghai heads the list with a 98.4% gain. Indonesia and Pakistan follow with gains of 47.1% and 51.7%, respectively . (These rankings do not take exchange rate effects into consideration). The Dow Jones Industrial Average has gained 7.2% and the Nasdaq Composite 10.8% during the year.

(The author is an independent technical analyst)

Daily Exchange Rates – Wednesday, 26 December 2007

Posted on December 26, 2007 Updated on June 6, 2015

Brought to you by
Al Rostamani International Exchange
Abu Dhabi
Phone: +9712 6223003
http://www.alrostamaniexchange.com

Daily Exchange Rates – Tuesday 25 December 2007

Posted on December 25, 2007 Updated on June 6, 2015

Brought to you by
Al Rostamani International Exchange
Abu Dhabi
Phone: +9712 6223003
http://www.alrostamaniexchange.com

Daily Exchange Rates – Monday, 24 December 2007

Posted on December 24, 2007 Updated on June 6, 2015

Brought to you by
Al Rostamani International Exchange
Abu Dhabi
Phone: +9712 6223003
http://www.alrostamaniexchange.com

Daily Exchange Rates – Saturday, 22 December 2007

Posted on December 22, 2007 Updated on June 6, 2015

Brought to you by
Al Rostamani International ExchangeAbu Dhabi
Tel : + 9712 6223003

What’s short-selling of shares?

Posted on December 20, 2007

What’s short-selling of shares?
TNN

What is short-selling?

Short-selling, in the context of the stock market, is the practice where an investor sells shares that he does not own at the time of selling them. He sells them in the hope that the price of those shares will decline, and he will profit by buying back those shares at a lower price. In India, there is no prohibition on short-selling by retail investors. Institutional investors —domestic mutual funds and foreign institutional investors registered with the Securities and Exchange Board of India (Sebi), banks and insurance companies — are prohibited from short-selling and are mandatorily required to settle on the basis of deliveries of securities owned and held by them.

How is short-selling beneficial?

Short-selling is considered an essential feature of the securities market not just for providing liquidity, but also for helping price corrections in over valued stocks. Supporters of short-selling claim its absence distort efficient price discovery, gives promoters the unfettered freedom to manipulate prices and favours manipulators than rational investors. Securities market regulators in most countries, and in particular, all developed securities markets, recognise short-selling as a legitimate investment activity. The International Organisation of Securities Commissions (IOSCO) has also reviewed short-selling and securities lending practices across markets and has recommended transparency of short-selling, rather than prohibit it.

Are there any drawbacks of short-selling?

Critics of short-selling feel selling, directly or indirectly, poses potential risks and can easily destabilise the market. They believe that short-selling can exacerbate declining trend in share prices, increase share price volatility, and force the price of individual stocks down to levels that might not otherwise be reached. They also argue that declining trend in the share prices of a company can even impact its fund raising capability and undermine the commercial confidence of the company. In a bear market in particular, short-selling can contribute to disorderly trading, give rise to heightened short-term price volatility and could be used in manipulative trading strategies.

Will institutional investors in India be allowed to short-sell securities?

Sebi is working on a proposal to introduce a stock borrowing and lending mechanism. This will allow institutional investors to short-sell by borrowing shares. Under this arrangement, an investor A, who feels that a certain stock is overpriced, borrows those shares for a charge from investor B, who is willing to lend those shares. Investor A then sells those shares in the market, hoping that the price declines so that he can buy cheap and return them to investor B.

What is the difference between covered short sales and naked short sales?

Covered short sales are those in which the seller arranges for the delivery of shares he has sold by borrowing them. Naked short sales are those in which the seller does not intend to provide for the delivery of shares he has sold. Most international securities market regulators have prohibited naked short-selling and require the client to have documentary evidence of borrowing/tie-up with lenders before executing the sale transaction. This is because naked short sales in huge quantities can destabilise the market.

How does the stock lending and borrowing mechanism function in other markets?
World over, securities lending and borrowing transactions are, by and large, over-the-counter (OTC) contractual obligations executed between lenders and borrowers. International securities market regulators do not directly regulate the lending and borrowing transactions. In many international markets, entities like custodians and depositories run the lending and borrowing scheme and have their own screens for meeting the demand and supply of securities from their clients.

( With inputs from the Sebi discussion paper on short-selling and stock lending )