Self Destruction Ceremony

18:00 IST, 16-12-2008, Tuesday. We all received a mail which contained the breaking news 'SATYAM aquires MAYTAS' !! What rubbish... and IT company acquiring an Infra company? I dont find any common thing between both verticals expect the initial 'I'. The first thing that striked me is divestment(not diversification). I heard a lot about divesting business. One such classic example is Indiabulls which divested its businesses into Real estate, Finance & Securities an year back. But mearging of companies of two difference genres is something which I didnot hear till date.

Raju says... "its an unconventional move !". Analysts say it is a "foolish move." Shareholders say it is a "fraud move"! Whatever it is, this move has already effected the reputation of the firm.
The deal was called off overnight as there is a strong dissent among the shareholders. Satyam, stock was down 55% in NYSE & 30% in Indian bourses. Maytas stock was down 20% on each day for the past 3 consecutive trading sessions. Many deals in the pipeline will be effected and thereafter the impact of this act might cost its employees too. I will not be surprised if there is a change in top management in the next quarter or two. There are a series of similar things which have against Satyam in the recent past. First UPAID case. Then the WORLD BANK case & now the MAYTAS deal. This is no less than a self destruction ceremony. Dont know where we are headed & whats next in store but one more such immatured act might cost us dearly.

With major US financial & auto comapanies queuing up to file for bankrupcy and there after seeking bailouts, the future of all IT companies is looking bleak. This quarter can easily be the last one where the IT comapanies can show reasonable profits & growth rate. Its going to be too tough to sustain this growth from next quarter. If rupee starts appreciating once again, it will add to IT woes.

Fruits, Vegetables & Stocks !

The other day, on my way to home I saw a vegetables & fruits shop. To be frank I personally never go to buy any food items for my home. My mom takes care of all that... but for a change, I thought of buying a Pineapple. I don't even remember when was last time I bought some fruits/Veggies. I am clueless about the prices & measuring units!! I have learnt from the shopkeeper about the prices of various fruits in there. Interestingly SAPOTA(chikoo) last time when I bought(may be half a decade back) was given in dozens, now they are selling it in KGs! He said the cost of one Pipeapple is Rs. 20. One Apple - Rs. 15. Dozen Bananas - Rs. 20

I reached home without buying anything as I was a little skeptical about the prices. Better my mom handle this !

Now, when I look at my STOCKS PORTFOLIO, I saw half of my stocks are trading lower than Apples & Pineapples !!! It was surprisingly shocking to know that stocks have become cheaper than Vegetables,Fruits ! When I thought about this strange thing, I realised it is because of the infamous economic jargons - 1. Sub Prime Crisis & 2. Rising Inflation. Of course who doesnot know what effect these two had on us. If the former had taken a toll on the Multi National giants & Big Boys then the latter had a deep impact on the common man. In my view, the word of the year award should be given to 'Subprime'.

Approximate numbers: Sensex lost about 65% from its alltime high & Inflation has touched an all time high of 13% but my anual salary hike was just about 6% :-(

Thanks to the booming Indian economy :P

Where are we heading ?

No matter where u r in this world u might have heard about the recent catastrophe in USA. A catastrophe which rocked & shook the complete world. No... I am not talking about Hurricane Ike or Hurricane Gustav. This article is on the downfall of 5 giants.

It all started with the Jan 22nd crash. The sub-prime crisis, US economy slowdown, Increasing Joblessness claims etc., by March many global banks have written down billions of dollars. Citi Bank writing off 50+ billion USD topping the list!! followed by companies like UBS. The total estimated losses of all the companies accounted to a whopping 512 Billion USD!!( write offs were approx... 275Billion USD in America, 215Billion USD in Europe & 25 Billion USD in Asia). Citi Bank need to sell some of its assets to come out of this quick sand! Few giant companies survived & few are still struggling & swimming against the tide & few have gone almost bankrupt!! Lets now talk about few of the biggest Organisations( based out of USA) which were washed away in the tide called Sub Prime Crisis.


First up....

Bear Stearns - one of the oldest Investment banks in USA was severely hampered & its stock price came down to 2$/share down from 133$/share. Finally it was acquired by JP Morgan. JP Morgan has paid close to 10$/share.

Next up...

Now its the turn of the US' oldest mortgage firms Fannie & Freddie ! The Fed came to the rescue this time.






The real Carnage begun in mid SEP.

With in a gap of less than a week, first Lehman Brothers made the headlines filling its bankruptcy. Then came the news on AIG, the biggest insurance company in the world !! Merrill Lynch followed in their footsteps. The stock price of Lehman bottomed out! It was almost valueless at 0.12$ last time when i checked. A company which has a successful history of 158 years surviving many financial crashes & world wars has finally bitten the dust :-( Interestingly Lehman has never even reported a quarterly loss till June 08!! More or less same is the case with AIG. Merrill Lynch is slightly in a better position. Luckily Merrill Lynch was taken over by BoA(Bank of America) there by becoming the biggest brokarage house in the world !! Federal Bank again came into the picture. It helped AIG by providing $80B loan after picking up 80+ % stake in the company proving that AIG is too big to fail !!! Parts of Lehman Brothers were acquired by biggies like Barclays. But that was not sufficient. Need to wait and see the future of Lehman :( It definitely looks gloomy.

The story so far :

Till date Investment Banking is the buzz word in any country when it comes to Finance ! Most of the American giants used to recruit grads from our IIMs ! I Banking used to be the most preferred profession for any MBA with splzation in Finance. But with the recent turn around in things it may soon change. There is already an article in TOI which says IIM grads are now shifting focus from IB to Micro Finance. I am totally unaware of what this Micro Finance means :-( But I am sure there is something cooking in every B-School :-) we can smell it :D

Bear Stearns, Merill Lynch, Lehman Brothers...... 3 out of top 5 Investment Banking firms are clean bowled. Left are........the dream company of many young Finance Aspirants (like me) Goldman Sachs & Morgan Stanley. Goldman has announced a 70% decline in profits when compared to last quarter!! which it self is an indication of slowdown. Both Goldman & Morgan used to be individual IB firms which out any tieup till now. But looks like they are reconsidering their independent status. Donno what exactly is cooking inside these firms... but the odour is definitely bad :P

If you think that the list has ended here then u might need to think again ! wait for another quarter or two.... there might be still some bad news left :(

Side Effects:

After all this mayhem analysts have termed this as Financial Tsunami !! & rightly so.

Guru Buffett termed this turmoil in the markets an 'economic Pearl Harbor' ! His quote: "It's not like Pearl Harbor where you could look at what happened with your own eyes and decide you had to do something that day. This is sort of an economic Pearl Harbor we're going through.'' Which only means that this Financial Tsunami has not reached its Climax !

Amid all this chaos, the Bush administration is trying for a $700Billion 'bailout plan' to bring some steadiness in the markets. But things did not turn in their favor till now. Voting went against the bail out plan and the DOW JONES plummeted 777 points on 29th Sep !! The biggest ever single day fall in the history of US. The jitters and tremors are felt across the globe & India is no exception. Now thats really Bad.... in fact its worse.

The aftermaths of these crashes, downfalls are Pink Slips in almost all the sectors which are dependent on US. IT is ahead in the list ! More than 65% of revenues of major Indian IT companies come from USA. which means these companies will get less business in future. Moreover, a significant part of these revenues come from BFSI(Banking,Financial Services & Insurance) sector(anywhere between 20%-45% of total revenues). Now its self explanatory!

He he he .......every second is filled with excitement these days. Its feels just like watching an F1 race! U never know who is going to crash OUT. My company has already started the cost cutting business by sacking jobs!! Is ur company into this business ?? If NO then they might soon learn this ART. BE CAREFUL !!

Lessons from January 2008

Lessons from January 2008
--Udayan Mukherjee

The thing about life is that one makes mistakes. Many mistakes were made in the second half of 2007 and those sins have to be washed away by blood, such is the way of financial markets. Some participants will go down under and never be able to get back to the market again but most will survive. The pain will linger for many months, maybe years but lessons have to be learnt. Every such debacle has lessons for us and the sooner we forget them the more we suffer.

The first lesson is not to let stock price performance become the sole reason for buying, a mistake which was made in abundance in the last 3 months. What couldn't be explained by fundamentals was credited to liquidity. The present lost all relevance as people chose to focus on the distant future, perhaps simply because the present could never justify those ticker prices; only a hazy dream of the future could. Traders and investors had no time for fundamental analysts, in many cases they were labelled "cribbing fools". Chartists became the most celebrated tribe on the street as only they could see and predict the one way run to glory for many of the hot stocks even as fundamental watchers cringed at valuations....till the music stopped. Don't get me wrong, charts do work in trending markets but once stock prices veer away completely from fundamental value, people need to get careful. But they never are. Now that the blinkers are off, people should ask themselves why stocks like RNRL, Ispat, RPL, Essar oil and Nagarjuna fertilisers have lost 50-70% of their value. It is simply because their stock prices had snapped all connection with underlying business fundamentals, earnings and value. Their stock prices became the only reasons for buying them which works for a while but not forever.

The other big lesson, one which should have been driven in earlier in May 2006, is the danger of overextending oneself in the futures market. The lure of stock futures is easy to understand. Put in some margin, take a big exposure on a fast moving stock, make a killing when prices shoot up. Repeat exercise. Just that people forgot that prices may also come down and at a pace which noone can even imagine, maybe their friendly stockbrokers forgot to tell them that part of the story. The result : unbridled speculation that ran into lakhs of crores, excesses that we are paying for today. Even this fall will not cure investors of their love for futures speculation but if at least some amount of caution is injected it would have been a worthwhile learning. Futures are not toys for amateurs, they are time bombs in the hands of inexpert and inexperienced traders, it's only a matter of when the fuse runs out.

The other learning which I hope will play out in the future, as it has in the past, is that it pays to be brave in times of panic such as these. If I was allowed to invest myself , which I am not, I would have no hesitation in deploying serious money into the market today, knowing fully well that prices may fall more tomorrow. And I would be standing there tomorrow to buy more of the same, till my money ran out. India is going to be a terrific stock market story for many years to come, even an intermediate bearish patch cannot shake that conviction of mine. At best, one will have to wait a bit for the returns to follow. That's alright. You are happy to put money in a bank FD and then wait for one full year to collect that measly 8%, aren't you? Then why does the stock market need to give you 20% every month? In the last one year, I haven't seen so many good stocks trade at such mouth watering levels. Forget trading, avoid the duds which were fuelled up by operators, just go out and buy those bluechips. They will deliver, even if there is a global market meltdown for a while, and if you are a bit patient you will be rewarded. But do remember January 2008, as history will repeat itself again in the future. Just that our memories tend to be too short and our greed too much.

Udayan Mukherjee

BULLS ARE BACK !!!

THE ROAD AHEAD........BULLS ARE BACK.

NOW WHAT ??

I have posted an article on 10-aug-07 named "stock market blues". Hardly five weeks have passed....today 25-sep-07 things are looking completely different.Every thing looks GREEN.
STOCK MARKETS throughout the world have submerged in the SUB-PRIME saga.No one knew exactly how many days would it take to get out of that trauma.Of course thats the reason y stock markets are so thrilling & exciting .

THE PAST:
BSE-SENSEX has touched the low of 13900 and was hovering & oscillating around 14k for some time. Added to that the situation looked threatening.There was a day when traders lost around 80k CRORES on a single day!! I thought of staying away from these VOLATILE markets for a while until the situation becomes stable.

THE PRESENT:
Dont know when it happened, but .....now things surprisingly are in favour of investors and traders. It took just 45days to reach the zenith(16850) from the nadir(13800). & its going strong.All set today to touch that magical 17000 mark. The REASON ........... INDIA won the T20 world cup!!! So all the barriers and boundaries will be broken and all the hurdles will be crosed in this ecstasy.

THE FUTURE:
If this is not a genuine reason for the markets to cross that 17k mark then here are few more.INDIA's biggest festive season is ahead!! we have just finished ganesh chaturdi.... soon ahead is DURGA PUJA!! if that is not sufficient there is DIWALI ahead of durga puja and there is going to be a 'blast' all over india!! So SEP, OCT & NOV are going to be rocking...3 fantabulous months!!

In my view the next 2months are going to be very exciting and very fruitfull for all the indian investors at least. I cant find any crisis in the near future.......but then again.... any adversity will not tell u and come.Adversity comes and then u will understand that u r struck in the QUICK-SAND!!!!!!

CONCLUSION:
IMPOSSIBLE is nothing in stock markets!! They are highly UNPREDICTABLE. UNCERTAINITY is the second name of any stock market & UNPREDICTABILITY is the synonym!!!! Everything is VOLATILE here. Nothing is INEVITABLE!!

STOCK MARKET BLUES !!

I have been monitoring,tracking,tracing the stock markets and most importantly trading stocks for about 18 months now. But never did i felt so scary!!

Almost everything went right till july 2007.They kept oscillating but there were no tremors.They were shaky but every downfall was followed with a surge sooner rather than later.Though they were not highly consistent, they were moderately predictable.

Till date i heard various reasons which lead to the bloodbath in stocks.Be it bad corporate results or be it high interest rates,be it high inflation rate or be it bad monsoon season,be it change in our government or the foreign nation,be it economic crisis or be it political crisis.....the reason could be anything...practically anything... they have bounced back after a while.


But this time the scenario looks entirely different & the reason for this blood-bath is also a different one. This time it is SUB-PRIME MELTDOWN. Each time the stock markets have crashed they went down more than 4% each. The origin of this SUB-PRIME MELTDOWN is U.S. But the ASIAN markets are taking a deep DIP than the US or EUROPEAN markets!!! That is what stock markets are all about....the hit might be at one place but the pain will be at some other place!!! Not that NON-ASIAN markets have taken a beating but they have experienced relatively less pain than us.
To know more about this SUB-PRIME SAGA refer to the following links.

http://en.wikipedia.org/wiki/Subprime_lending
http://www.mtgprofessor.com/A%20-%20Type%20of%20Loan%20Provider/what_is_a_sub-prime_lender.htm
http://www.financialexpress.com/news/Subprime-meltdown/208033/

Each time the markets crash,one would have at least some idea that this might last for this many days.... but this time there is no such clue of what-so-ever!! I have witnessed only one such massive fall last season when SENSEX came down from 14500 HIGHS to 11000 LOWS in mid MAY to JUNE 2006. During this time SENSEX has recorded the biggest crash in its history.On 18-05-2006 it lost some 820 odd points!! & the second biggest fall(of 645 points) was soon after the 60th independence day(16.08.2007)!!! Great way to celebrate the INDEPENDENCE DAY!!

I used to hate SATURDAYS & SUNDAYS coz the markets will be shut-down these two days.But now I started liking them!!(I luv my money....!!!). I used to eagerly wait for MONDAY for the markets to open...but now i started to wait for SAT & SUN hoping at least on these two days some GOOD NEWS comes out & i can start off the week in GREEN.

Trading becomes a nightmare under these conditions.Good time to invest if u have money.Even a shorter to medium term investors could gain a handsome amount. But be wise while choosing ur stocks!! Of course no one is a master of choosing right stocks at the right time but still....with a bit of luck on ur side u can make merry(provided u have got enough patience to hold-on).

GOOD LUCK & HAPPY TRADING!!!