The stock markets have been rallying so far on all kinds of false expectations being built in the minds of investors. Several stocks had been pushed up sharply prior to the Railway Budget and see what happened. Same thing has been done for the Interim Budget, which is to be presented today. And the result will be the same.
The US, European and Japanese markets have been struggling and the possiblity of a big sell off when crucial support levels are breached will create panic here too. The $787 billion bailout package will not be enough according to most analysts. No one wants to talk about the price at which toxic assets should be taken out of the system. At current prices, most of top US banks would turn insolvent and a higher price will be difficult to justify to the tax payers. Interest rates in the US have also become difficult to handle. Most economists expect US to print currency, which will be highly inflationary, and only postpone the problem by a few more years.
The restrictions on H1-B hirings by US companies that seek government funding is likely to negatively impact on our software business. Why this restriction, beats us? The loss of jobs is mostly in other skill-sets, and this restriction is not going to be of any help, but then a mix of politics and economics is what compounds problems. Also, H1-B visa hirings ensure spending in the US iteself. If this move were to encourage more off-shoring, then it would be even worse for the US economy.
The decoupling theory has come back again. Chinese market has risen by 35% or so from the bottom and our markets too have been holding. One can certainly say valuations are cheap for the small and mid-cap companies, but to say that valuations are cheap in the large cap companies is definitely not correct. In the small and mid-cap companies the major problems are illiquidity, transparency, poor information flow, accouting issues, weak balance sheets, etc. The ones that do not have these problems aren't really that cheap. The operators are at play, and they are using rumours and volatility to their advantage to lure investors.
On company specific front, Reliance Infra and Bartronics attracted our attention. Reliance Infra announced another buyback program for purchase of Rs. 700 crore worth of shares over the next two months at a maximum price of Rs. 700. They seem to have enough confidence about their liquidity position and that's a big positive in this environment. Bartronics has bagged a project from Delhi MCD to set up 2000 kiosks on a BOT basis, from which it expects to earn revenus of Rs. 5000 crores over the next 9 years. It is an interesting project, which might be emulated by other State Governments throwing many more opportunities. Both these stocks present a good investment opportunity on declines.
The markets are poised at critical resistance levels. An extremely bad Q3 had to be followed by some semblance of recovery - both in price and volumes. This is what we have seen from the January data and it has helped the markets to stabilize and regain some of the losses. But sustainability of these numbers may get questioned again when the February data starts to come out in March.
We believe that there is still time and a fall is imminent sooner than later. This is the time to start working on your shopping list for the next discount sale!!.
Vivek Bhargava
The US, European and Japanese markets have been struggling and the possiblity of a big sell off when crucial support levels are breached will create panic here too. The $787 billion bailout package will not be enough according to most analysts. No one wants to talk about the price at which toxic assets should be taken out of the system. At current prices, most of top US banks would turn insolvent and a higher price will be difficult to justify to the tax payers. Interest rates in the US have also become difficult to handle. Most economists expect US to print currency, which will be highly inflationary, and only postpone the problem by a few more years.
The restrictions on H1-B hirings by US companies that seek government funding is likely to negatively impact on our software business. Why this restriction, beats us? The loss of jobs is mostly in other skill-sets, and this restriction is not going to be of any help, but then a mix of politics and economics is what compounds problems. Also, H1-B visa hirings ensure spending in the US iteself. If this move were to encourage more off-shoring, then it would be even worse for the US economy.
The decoupling theory has come back again. Chinese market has risen by 35% or so from the bottom and our markets too have been holding. One can certainly say valuations are cheap for the small and mid-cap companies, but to say that valuations are cheap in the large cap companies is definitely not correct. In the small and mid-cap companies the major problems are illiquidity, transparency, poor information flow, accouting issues, weak balance sheets, etc. The ones that do not have these problems aren't really that cheap. The operators are at play, and they are using rumours and volatility to their advantage to lure investors.
On company specific front, Reliance Infra and Bartronics attracted our attention. Reliance Infra announced another buyback program for purchase of Rs. 700 crore worth of shares over the next two months at a maximum price of Rs. 700. They seem to have enough confidence about their liquidity position and that's a big positive in this environment. Bartronics has bagged a project from Delhi MCD to set up 2000 kiosks on a BOT basis, from which it expects to earn revenus of Rs. 5000 crores over the next 9 years. It is an interesting project, which might be emulated by other State Governments throwing many more opportunities. Both these stocks present a good investment opportunity on declines.
The markets are poised at critical resistance levels. An extremely bad Q3 had to be followed by some semblance of recovery - both in price and volumes. This is what we have seen from the January data and it has helped the markets to stabilize and regain some of the losses. But sustainability of these numbers may get questioned again when the February data starts to come out in March.
We believe that there is still time and a fall is imminent sooner than later. This is the time to start working on your shopping list for the next discount sale!!.
Vivek Bhargava
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