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Crash boom bang

What a day! My net connection was fried so I was over at Kaushik’s place watching the drama unfold. From an open 4% down, the index promptly went to a low of nearly 3350 before the sun outage kicked in. The restart saw a massive cover of shorts and then with some horrendously low volume, the index moved to close just 2% down at 3510 – the future closing at a huge premium at 3566.

The news flow was bad. Russia and Indonesia halted trading after losing major ground – some 20% each. Russia and Brazil are largely commodity driven – and commodities are heading towards all time lows. Oil’s at $87 and not looking good.

Note: the problem with non-market pricing is that while we rejoice on the way up – since the government subsidises petrol/diesel for us – the reverse does not happen on the way down. The HPCLs, BPCLs and IOCs scream that they lost money going up and should be allowed to recover it going down – fair argument but we don’t know where to stop…when they make back their exact losses? What about the oil bonds? Do they count in estimating losses? And if they’re actually allowed to profit, how much? Lack of market pricing is a mess.

This also means our inflation is not going to come down by much. Which suits the government – I’m sure they are targeting Jan for an inflation break, as it gives them good election PR.

The UK decided to put in some 50 billion pounds as capital into banks. Meaning they’ll buy bank stock for the money. Good move, and people are calling for the US to do the same, but in the US the amounts needed are so high the shareholders might as well give up. (I think)

Now the Fed’s gone and cut interest rates 0.5%. I don’t know why. Still, this is a market that only news can stop – and any news will do. Including “Ben Bernanke successfully flies a kite, Dow up 200 points”. At least these are the headlines every few hours. “Stocks down on lack of belief in interest rate cuts”, says Yahoo’s finance section; and when you hit refresh, “Stocks up on hope from rate cut”. It’s like they have two reporters and they hate each other.

(That’s my theory of the French language. Whoever did the spelling bit hated the person that did the speaking bit. That’s why they have random “-oux” and “-eus” suffixes for no rhyme or reason)

Where do we go from here? We’ve had a lot of drama. I think we should enjoy it while we can. Come January and we might actually long for this kind of volatility. This is a recession – and our little recession in India is coming too. It’s remarkable how literally everything is down 50% at least. Real estate, probably 70%. JP Associates and Unitech are under 100. ICICI Bank went down to 418. Suzlon’s worried about the crack – this time it’s not in the turbine blades, it’s in the stock.

I still think we’re going down – forget why and all, it doesn’t matter, we’ll go down until we have lost all interest in the markets. But we have gone from 4300 to 3350 in a matter of 10 days. This kind of stuff doesn’t happen without a serious bounce. So I think we’ll bounce, even if it’s only a few days worth. I think we will see 3,100 on the Nifty, and I think the word “value” has started to make sense now. It will become more evident as we go on.

Disclosure: I’m currently long the Nifty, short a few options and long a few stocks.

  • Anonymous says:

    >Nifty P/E (Check NSE Site) is 15.7 now. This is based on fraud/cosmetic earnings of the last 4 quarters of NIFTY companies. Going forward with realistic earnings and flight of capital from Emerging Markets. Nifty will be a value buy sub 2000.

  • Anonymous says:

    >hi deepak,
    notwithstanding the fact that there's demand destruction at a global level, how do you think commodities like metals would fare? some of the companies are already at <5 PE. i have some private brokerage reports with me, which indicatively have some of these commodity stocks to give 40-50% returns if holding period is 18 months+. [No gold or crude or silver here — stuff like iron ore, aluminium etc]

  • AGB says:

    >:) Like what you say about Yahoo finance headlines.. I watch the headlines as a source of never ending amusement.. however, interesting as it might be, I do not agree with your view that there are two reporters at yahoo finance who hate each other.. I think there’s just one, and he/she doesnt have a clue about what’s going on.. 🙂

  • Siddharth says:

    >I always ponder, whatever the news there has to be some ‘experts’ on both the ends of the opinion on the news channel. The news presenter will be askign few q’s and he guest ‘experts’ will be doing their bit of fame.

    I believe when the news of Delhi Commissioner’s dog missing was flashed on Indian TV channels as breaking news, there must have been some rounds of some kindaa missing dog finder’experts’ on the news bit?
    Good luck for all of us. Save from those news readers and their so called ‘experts’