Wednesday, January 14, 2009

Worst yet to come, but a great buying opportunity

Next one year will provide one of the best buying opportunities - the kind that come once in 7-10 years.

- Worst news, Domestic and globally is yet to come. US and India markets might go down as much as 20% from current levels. I won't be surprised even if it goes down more than that.

- US : A consumption driven economy - shows a 10% YOY decline in Dec`08 retail sales - that has a major impact on GDP. Next 2 quarters GDP likely to go down as much as negative 5 % and unemployment levels likely to cross 10% by end of this year. These are levels not seen for past many decades.

- India : Following US with 3-6 months lag. GDP might not go negative but we are likely to end 2009 in 5% range. However growth will take a severe hit and it will feel like a recession. Next 6 months will show consumption coming down, credit offtake coming down, big corporates closing down or showing losses, increased job losses and an increased fear and hopelessness

- Given my Sensex estimates at 60000- 80000 by 2016, this really is the year of the investor.

Monday, January 12, 2009

Bottom in sight, and also a beginning of a ride to 80000 Sensex

Calling a bottom

· The worst news on the economic front – Globally and from India – is yet to come – and will come in during April ’09 to Sept ’09 period

· I believe that we should be able to see the very initial stages of recovery in Oct ’09 to March ’10 period. However, the recovery will move along very slowly during 2010

· Stock markets typically recover 6 – 9 months before economic recovery begins and I expect the Indian stock market to hit the bottom in March ’09 to Aug ’09 period and immediately start on a path to recovery. The second half of 2009 is likely to be volatile.

· A sustained bull run will begin in 2010, however it will be a very slow run during 2010. Check my previous analysis on Drivers for a bull run ( Not the bottom - but trough of a cycle - and a time to invest )

No change in my Sensex estimates made in March '08

“Sensex likely to go up to 40K (min 25K) by Sept 2013 and 80K (min 45K)
by 2016. However before that , Sensex likely to breach the 10K mark too
in the next 18 months period……Markets are harsh and unforgiving. But
for those who can think (and hold stocks) for a 7 year range, they are
one of the best investment options. "

Sensex 10K in one year and 80 K in eight years

Signs of a Bottom

In the coming months there will be a preponderance of negative financial news, more skeletons will come out of the cupboards , some very big corporates will cease to exist and a great sense of hopelessness and despair will set in. And to top it all, will come in the uncertainty of India’s general elections. Here are some signs of a bottom:-

· Lots of ‘Downgrades’ / ‘Sell’ ratings from equity analysts - especially on the some of the biggest corporate and Nifty/ Sensex companies.

· Many of the biggest corporates / Nifty / Sensex companies will show dismal performance – from a fall in net profits to outright losses.

· Corporates bigger than Satyam (in Indian Markets) and Wachovia / Merril Lynch (US Markets) will cease to exist.· Some sectors and companies which were favorites’ of equity analysts and markets will become villains and untouchables. Examples : Steel (Tata Steel) , Auto (Tata Motors, Maruti), Metals (Sterlite , Hindalco), Cement (ACC, Gujarat Ambuja) , Infrastructure (L&T), Real Estate (DLF, Unitech)

· News about ‘New Lows’ in Industrial Production / IIP/ GDP/ Exports etc

· Most commodity prices will start touching new lows – including Oil, Steel, Metals, Sugar, Cotton etc.

· Most export oriented sectors will be very badly hit and large scale closures of the small enterprises in this segment

· Government will talk about boosting consumer spending (direct tax cuts to duty cuts), increasing FDI limits

· More news of job losses / salary cuts / lower increments/ lower bonuses

· The top management schools (the Category A ones) will not be able to place all their students – and PSU Banks , Manufacturing companies, Pharma companies and FMCG will again become the Day 1 employers

· Bank lending rates will start coming down but credit off-take will still not increase

· Land and housing prices will come down – but still no buyers – great offers (“buy one house and get a mercedeze benz free” says one I saw some time back) - many real estate companies will go phut.

· Fixed deposit interest rates will start to come down – but aggregate bank deposits will still increase as people will still keep money in deposits

· More price cuts from Airlines – some airline companies will cease to exist

· More discounts / offers/ promotions from retailers - many retailers will close down

· Petrol and Diesel price will come down and so will the overall inflation

· Auto companies will start offering one of the best discounts and offers in many years.

· Gold will touch new highs· News that LIC will invest so many thousands of crores in equities (seems to happen every time the markets tanks…!)

Nothing new – Same thing – happens every recession – its uncanny sometimes how history repeats itself.

2009 : The year of the Investor

· 2009 is the year of the investor. Such opportunities arise only once in 7-10 years – make the most of it.

· As I have said before “For the long term equity investor (with a 7 years plus type of holding window) this is the time to go all out. And the long term investor should not fear even if his/ her value of investment go down by 50% over next year or so.”

Sensex 8000 to 80000: No change in my estimates of March '08

There are no changes in my estimates made almost a year back in March '08.

Key elements of my estimates :-

  • “Sensex likely to go up to 40K (min 25K) by Sept 2013 and 80K (min 45K) by 2016. However before that , Sensex likely to breach the 10K mark too in the next 18 months period……Markets are harsh and unforgiving. But for those who can think (and hold stocks) for a 7 year range, they are one of the best investment options.  
           Sensex 10K in one year and 80 K in eight years

  • “ Growth slowdown - GDP growth for 08-09 likely to be in 5% range.....
              ......Next twelve months all resources will get repriced :-

               a) Interest rates will come down across board. Housing loan likely to go down to 7%,       personal loans to 10%, Auto at 9%.Those were the levels just a few years back.

              b) Increments / bonuses / job change increments will come down. labor market will get more fairly priced.

              c) Real estate prices likely to correct more than 30% from current levels. “

         India : From a slowdown to a recession and what it might imply
  • “….UK housing continues to follow in US footsteps. No change in China and Japan growth numbers reduction. These are all major world economies and have a strong combined linkages across the globe. Are we in the middle of a truly global slowdown.?
         ....What will happen to the stock markets ? ….If we manage our investments right, we'll probably make more money than in any of the previous cycles. Some might be able retire early.”
Global Slowdown ? -the good ,the bad and the ugly