Buy with stops 39.50 EOD, target 51 or higher
30 August, 2007
22 August, 2007
21 August, 2007
20 August, 2007
19 August, 2007
17 August, 2007
Nifty Update
Well, well, well ... with Dow falling intraday to a low of 12518, a loss of 340 points at one time, and then recovering all the way back to close in the green (averaged down later to close down marginally), could it be that this is the end of the current slide and we have indeed reached a bottom ? I would suggest not ... the current upmove of Dow should take it to a level of 12900-12950 at most, I would expect. Thereafter, unless it is able to cross the resistance of 13050-13080, expect it to slip back towards 12400 levels. Accordingly, it would be best to use whatever positive impact we see in our markets to exit longs that one might have ... and wait. Wait to see if Dow crosses and sustains above the resistance levels, in which case, we can assume that a short term bottom is in place.
And in case you need further confirmation, know that the FII net sell was 3108 cr in cash markets and 3058 cr in F&O on thursday ... it aint over yet !
And in case you need further confirmation, know that the FII net sell was 3108 cr in cash markets and 3058 cr in F&O on thursday ... it aint over yet !
16 August, 2007
15 August, 2007
Subprime woes
Pick up any business daily, switch on any business channel or speak to anyone who has even a remote connection to financial world ... 9 out of 10 you would hear that dreaded phrase before you hear anything else ! Ironically, very few of us really understand what it really means and how far the same can or can not effect the global markets. Its a US specific phenomenon and even the average US investor doesnt understand the intricacies of the same.
So, in a scenario where the basics are hazy to such an extent, what should one do ? Right now, the fear is what is guiding everyone, more or less. On a very basic scale, lets try to figure out what subprime means (and i admit that I know little about it myself ! ) ....
Property owners who want to mortgage the same to raise funds, are classified into two categories, basically. One, those whose credit rating is excellent and are thus classified as prime borrowers. Rest of them, with a credit rating that may be less than excellent to below par, are classified as subprime borrowers. Both categories need funds ( thats how the consumption-led US economy runs ... spend more than you earn, consume more than you can afford) ... and hence mortgages. Prime borrowers are more secure in terms of repayments etc and are thus offered lower rates of interest. The second category, with higher probable risk attached, are willing to pay higher rates of interest for the mortgage ... and hence, the higher risk is offset by higher rates of return. As long as the borrowers keep paying the installments on their loans, everyone is happy. Trouble starts when there are defaults in repayments, which can happen when rates of interest rise from what they were when the mortgage was raised.
Rising rates increase the installments and hence possible delinquency ... which can lead to foreclosure, meaning the lender takes possession of the mortgaged asset. This is where things become complicated ... foreclosure means the property is taken over by the lender, which is usually a house against which the loan was raised. As the US housing market is facing a decline over the recent past, two things can happen ... either, the current market value of the asset possessed is lower than the current dues which results in a loss on a marked-to-market basis. Or, and more importantly what we are seeing now, the property isnt easily saleable due to the slump and the lenders are saddled with an asset that at present is hard to value as to current market price.
Now, the hedge funds and banks that have made very good gains over the past on the same subprime mortgages due to higher rates of return are now facing delinquencies. This will certainly result in some losses as we are seeing from various reports ... however, my personal view is that such losses are a small part overall in percentage terms. Yes, we will see certain schemes of hedge funds report losses and even closure ... but, that doesnt mean the entire hedge fund will collapse. A Bear Stearns that had an asset base of USD 350 billion as on Nov 2006 wont sink with a 5-10 billion loss, will it ?
The reason why everyone is clamoring for Fed to cut rates is that it may result in the subprime borrowers' installments getting lower to that extent and hence a lower possibility of defaults, which would mean more breathing space for such riskier assets. However, the basic nature of such assets wont change .... they would still remain a higher risk.
Hedge funds and banks that hold such mortgages own them as a part of their overall portfolio of investments ... those schemes that were primarily created to take advantage of subprime market would certainly see higher losses. However, as far as my understanding goes, one schemes losses wont effect another scheme that may not have subprime exposure or has a very limited exposure.
As I suggested earlier, fear is what is guiding most right now .... and no doubt, there will be pain to go through to an extent, which is understandable as the same funds enjoyed the fruits of above average returns as well on the same assets in the past.
So, in a scenario where the basics are hazy to such an extent, what should one do ? Right now, the fear is what is guiding everyone, more or less. On a very basic scale, lets try to figure out what subprime means (and i admit that I know little about it myself ! ) ....
Property owners who want to mortgage the same to raise funds, are classified into two categories, basically. One, those whose credit rating is excellent and are thus classified as prime borrowers. Rest of them, with a credit rating that may be less than excellent to below par, are classified as subprime borrowers. Both categories need funds ( thats how the consumption-led US economy runs ... spend more than you earn, consume more than you can afford) ... and hence mortgages. Prime borrowers are more secure in terms of repayments etc and are thus offered lower rates of interest. The second category, with higher probable risk attached, are willing to pay higher rates of interest for the mortgage ... and hence, the higher risk is offset by higher rates of return. As long as the borrowers keep paying the installments on their loans, everyone is happy. Trouble starts when there are defaults in repayments, which can happen when rates of interest rise from what they were when the mortgage was raised.
Rising rates increase the installments and hence possible delinquency ... which can lead to foreclosure, meaning the lender takes possession of the mortgaged asset. This is where things become complicated ... foreclosure means the property is taken over by the lender, which is usually a house against which the loan was raised. As the US housing market is facing a decline over the recent past, two things can happen ... either, the current market value of the asset possessed is lower than the current dues which results in a loss on a marked-to-market basis. Or, and more importantly what we are seeing now, the property isnt easily saleable due to the slump and the lenders are saddled with an asset that at present is hard to value as to current market price.
Now, the hedge funds and banks that have made very good gains over the past on the same subprime mortgages due to higher rates of return are now facing delinquencies. This will certainly result in some losses as we are seeing from various reports ... however, my personal view is that such losses are a small part overall in percentage terms. Yes, we will see certain schemes of hedge funds report losses and even closure ... but, that doesnt mean the entire hedge fund will collapse. A Bear Stearns that had an asset base of USD 350 billion as on Nov 2006 wont sink with a 5-10 billion loss, will it ?
The reason why everyone is clamoring for Fed to cut rates is that it may result in the subprime borrowers' installments getting lower to that extent and hence a lower possibility of defaults, which would mean more breathing space for such riskier assets. However, the basic nature of such assets wont change .... they would still remain a higher risk.
Hedge funds and banks that hold such mortgages own them as a part of their overall portfolio of investments ... those schemes that were primarily created to take advantage of subprime market would certainly see higher losses. However, as far as my understanding goes, one schemes losses wont effect another scheme that may not have subprime exposure or has a very limited exposure.
As I suggested earlier, fear is what is guiding most right now .... and no doubt, there will be pain to go through to an extent, which is understandable as the same funds enjoyed the fruits of above average returns as well on the same assets in the past.
13 August, 2007
12 August, 2007
10 August, 2007
08 August, 2007
07 August, 2007
Nifty Update
So, having gapped down on monday on the back of Dow's 280 point crack on friday last, where is Nifty headed from here on ? For one, FIIs sold over 2700 cr on monday in both cash and F&O. That should set the tone for further weakness to the downside. However, Dow surged today to recover the entire slide of friday last, which would give bulls the firepower to gapup ther nifty on tuesday, just as the bears did a gapdown on monday.
Question is, which of the two views are real and which one is just a decoy ? Dow's rally today was largely based on two factors ... one, an almost 5% fall in crude prices, which is probably the biggest single day decline in last 6 months. Two, an expectation that Fed will offer some solace to the markets in its policy statement on tuesday by indicating some sort of support for credit markets suffering from subprime virus.
The fall in crude is coming on the back of a strong surge in its prices in the recent short term and to lend too much credence that oil prices would keep falling from here on wouldnt be a wise outlook. It seems to be more of a profit-taking in crude after a sustained rise, than anything else. As far as Fed is concerned, it is highly unlikely in my view that we will hear it offer any sort of relief to bail out the credit market woes ... remember, Fed has been warning over and over again about subprime fallout and for it to offer a bailout package for the same now ? I mean, that would be dumb ! If it had to eventually bail out the markets, then why let it reach this stage ? wouldnt it have been prudent to do the same when the problem had just started rearing its ugly head ? Also, Fed isnt likely to cut rates either ... which I have been saying since the beginning of this year almost.
If things pan out accordingly, then we will see Dow go down again after Fedspeak ..... which will reflect in the global markets on wednesday. It would be prudent to exit longs in the gapup we see on tuesday and sit on the sidelines. Let the markets sort itself out !
Question is, which of the two views are real and which one is just a decoy ? Dow's rally today was largely based on two factors ... one, an almost 5% fall in crude prices, which is probably the biggest single day decline in last 6 months. Two, an expectation that Fed will offer some solace to the markets in its policy statement on tuesday by indicating some sort of support for credit markets suffering from subprime virus.
The fall in crude is coming on the back of a strong surge in its prices in the recent short term and to lend too much credence that oil prices would keep falling from here on wouldnt be a wise outlook. It seems to be more of a profit-taking in crude after a sustained rise, than anything else. As far as Fed is concerned, it is highly unlikely in my view that we will hear it offer any sort of relief to bail out the credit market woes ... remember, Fed has been warning over and over again about subprime fallout and for it to offer a bailout package for the same now ? I mean, that would be dumb ! If it had to eventually bail out the markets, then why let it reach this stage ? wouldnt it have been prudent to do the same when the problem had just started rearing its ugly head ? Also, Fed isnt likely to cut rates either ... which I have been saying since the beginning of this year almost.
If things pan out accordingly, then we will see Dow go down again after Fedspeak ..... which will reflect in the global markets on wednesday. It would be prudent to exit longs in the gapup we see on tuesday and sit on the sidelines. Let the markets sort itself out !
06 August, 2007
05 August, 2007
03 August, 2007
02 August, 2007
01 August, 2007
Nifty -- sucker rally ?
So, we had a CRR hike of 50 bps which wasnt what the market at large was expecting ... and that saw the markets rally a 100 points on the nifty from the low it made after CRR hike was announced ! Everyone rejoiced ... our markets are strong, even in the face of a CRR hike announced by the RBI ! Made me think ... bears getting ready to ambush the bulls ?
Lets have some facts first ... one, US markets, that started the slide on the back of subprime concerns and liquidity worries, have suddenly improved or what ? a one day close of 90 odd points after a sharp fall of 750 points from the top is the end of correction ? anyone heard of a technical rally or a dead cat bounce ?
Two, when was the last time that RBI came up with a rate hike that market wasnt expecting, or expecting even, and it rallied thereafter ??
Three, FIIs sold 8000 cr combined on friday and monday in cash and F&O ... is that figure so irrelevant that the markets will still rally upward with all that FII selling ?
It aint over till the fat lady sings (with apologies to the female readers of this blog)... and she (Dow) is on a song right now ! I will put my neck on the line and say that if Nifty breaks below 4395 with vols, then odds are in favour of us going down towards 4100 ... the only resistance we might encounter on the way would be 4350. Take a look at the hourly charts, if you may ... a monster H&S forming. There is still a chance to tighten stops and take the profits off the table ... the odds are high that Nifty wont be able to break past the recent high it made.
No matter how strong our economy may be or how bright the growth prospects it might have, the same didnt stop May 2006 or March 2007 from happening, did it ? Just as one cant argue with the force of liquidity when it pushes the prices up, one cant argue with it either when it decides to push prices down.
Lets have some facts first ... one, US markets, that started the slide on the back of subprime concerns and liquidity worries, have suddenly improved or what ? a one day close of 90 odd points after a sharp fall of 750 points from the top is the end of correction ? anyone heard of a technical rally or a dead cat bounce ?
Two, when was the last time that RBI came up with a rate hike that market wasnt expecting, or expecting even, and it rallied thereafter ??
Three, FIIs sold 8000 cr combined on friday and monday in cash and F&O ... is that figure so irrelevant that the markets will still rally upward with all that FII selling ?
It aint over till the fat lady sings (with apologies to the female readers of this blog)... and she (Dow) is on a song right now ! I will put my neck on the line and say that if Nifty breaks below 4395 with vols, then odds are in favour of us going down towards 4100 ... the only resistance we might encounter on the way would be 4350. Take a look at the hourly charts, if you may ... a monster H&S forming. There is still a chance to tighten stops and take the profits off the table ... the odds are high that Nifty wont be able to break past the recent high it made.
No matter how strong our economy may be or how bright the growth prospects it might have, the same didnt stop May 2006 or March 2007 from happening, did it ? Just as one cant argue with the force of liquidity when it pushes the prices up, one cant argue with it either when it decides to push prices down.
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