I have a question for Udayan. While it is all fine to witness milestones such 10000, 15000, 20000 and be happy about it, I wonder how wise is it to justify what market does.
Watching and reading CNBC commentators, at times, one gets the feeling that Sensex is their baby. Sensex' upwardly unidirectional movement is the "ONLY" and the "RIGHT" movement. Any downward movement is unjustified and not right.
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CNBC's Udayan Mukherjee says:
"Some believe that the move has been too fast. But it's not too fast - the market does what it needs to."
"And I hope that the regulators don’t get too worried about this because last time when we went to 19,000, they got they worked themselves into a tizzy, saying the market is moving too fast, there’s no too fast in the market. The market does what it has to, just enjoy the ride."
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What is market after all? Market consists of buyers and sellers. And if every one behaved rationally, probably there would be only buyers or only sellers. Unless one of these two behave irrationally, markets wouldn't move the way it does (especially in the recent past). Why else would US stock market have had a bull run preceding the unprecedented fall it had on October 19, 1987? Either the bull run preceding the fall can be justified or the fall post the bull run can be justified. Why do we say then that "the market does what it has to".
Monday, October 29, 2007
US slowdown and Emerging economies
While US economy is cruising along its journey towards slowdown, how will the emerging economies and Asia be impacted? Will these economies continue to flourish?
The consensus evolving amongst the bulls in the emerging markets is that, as US slows down, more and more capital will flow into emerging markets and hence US slow down is indeed the good news! This hypothesis would be ok only if the developing economies are insensitive to US economy, i.e. they are driven primarily by their own internal consumption and not on account of exports.
Let's look at the export numbers of some of the emerging economies:
China:
Exports (2006-07): $ 974 billion
Exports (2006-07) as a % of GDP: 37% approx
Exports by region (2007-08): EU (20%), USA (19%), HK (15%), Japan (8%), Asean (8%)
Source: Wikipedia
India:
India has seen her exports grow at 20% over the last few years.
Exports (2006-07): $ 125 billion
Exports (2006-07) as a % of GDP: 15% approx
Exports by region: EU (22%), Africa (19%), North America (16%), Asia (24%)
Exports by Industry: Engg Goods (20%), Petro Products (16%), Chemical (14%), Gems & Jewllery (13%), Textiles (13%)
Source: Department of Commerce
Brazil:
Exports (2006-07): $ 138 billion
Exports (2006-07) as a % of GDP: 13% approx
Source: Wikipedia
Russia:
Exports (2006-07): $ 317 billion
Exports (2006-07) as a % of GDP: 18% approx
Exports by region (2007-08): Netherlands (10%), Germany (8.3%), Italy (7.9%), China (5.5%), Asean (8%)
Source: Wikipedia
China could be the hardest hit by slowdown in USA. And countries such as Brazil, Russia, and India may continue to grow based on their domestic demand and may continue to attract global capital.
The consensus evolving amongst the bulls in the emerging markets is that, as US slows down, more and more capital will flow into emerging markets and hence US slow down is indeed the good news! This hypothesis would be ok only if the developing economies are insensitive to US economy, i.e. they are driven primarily by their own internal consumption and not on account of exports.
Let's look at the export numbers of some of the emerging economies:
China:
Exports (2006-07): $ 974 billion
Exports (2006-07) as a % of GDP: 37% approx
Exports by region (2007-08): EU (20%), USA (19%), HK (15%), Japan (8%), Asean (8%)
Source: Wikipedia
India:
India has seen her exports grow at 20% over the last few years.
Exports (2006-07): $ 125 billion
Exports (2006-07) as a % of GDP: 15% approx
Exports by region: EU (22%), Africa (19%), North America (16%), Asia (24%)
Exports by Industry: Engg Goods (20%), Petro Products (16%), Chemical (14%), Gems & Jewllery (13%), Textiles (13%)
Source: Department of Commerce
Brazil:
Exports (2006-07): $ 138 billion
Exports (2006-07) as a % of GDP: 13% approx
Source: Wikipedia
Russia:
Exports (2006-07): $ 317 billion
Exports (2006-07) as a % of GDP: 18% approx
Exports by region (2007-08): Netherlands (10%), Germany (8.3%), Italy (7.9%), China (5.5%), Asean (8%)
Source: Wikipedia
China could be the hardest hit by slowdown in USA. And countries such as Brazil, Russia, and India may continue to grow based on their domestic demand and may continue to attract global capital.
Friday, October 26, 2007
Udayan Mukherjee Predicts.... Oct 26, 2007
Source: Udayan Mukherjee Comments
... Globally too things are good. There is a fed meeting coming and most people expect rated would be cut and that could only be good for emerging markets. We fell off because of this technical trigger and we have just gone back to new highs once again. If this P-note issue had not happened, may the market would not have had technical correction either and (market) might have been at 20,000 by now. But that happened, may be its good that it has happened but now the market has just got back to where it fell off from, and its no surprise that market is this up this morning.
... So I am not with those people who believe we are in for an extremely lackluster markets over the next few weeks. I think in the foreseeable future the chances of the market darting up pretty fast is actually pretty high because you had a technical correction from which markets recovered and just got into a new high and I would be surprised if momentum is give-up so easily by the domestic traders at the start of the new series with an important global event where the chances of it panning out in your favour are fairly high.
.. Even 25 bps will do for us. Last time 50 was a bit of a surprise. If its 50 then you have got a big rally on your hands or bigger rally on our hands. But even if it is 25 market will not sulk. Because remember just one week back, the probability of 25 bps fed rate cut on the futures was as low as 40% and that has moved upto 100% in the last few days. So, I think even 25 bps is good for emerging markets, there is no problem with flows.
Sensex 19220.92
October 26, 2007
... Globally too things are good. There is a fed meeting coming and most people expect rated would be cut and that could only be good for emerging markets. We fell off because of this technical trigger and we have just gone back to new highs once again. If this P-note issue had not happened, may the market would not have had technical correction either and (market) might have been at 20,000 by now. But that happened, may be its good that it has happened but now the market has just got back to where it fell off from, and its no surprise that market is this up this morning.
... So I am not with those people who believe we are in for an extremely lackluster markets over the next few weeks. I think in the foreseeable future the chances of the market darting up pretty fast is actually pretty high because you had a technical correction from which markets recovered and just got into a new high and I would be surprised if momentum is give-up so easily by the domestic traders at the start of the new series with an important global event where the chances of it panning out in your favour are fairly high.
.. Even 25 bps will do for us. Last time 50 was a bit of a surprise. If its 50 then you have got a big rally on your hands or bigger rally on our hands. But even if it is 25 market will not sulk. Because remember just one week back, the probability of 25 bps fed rate cut on the futures was as low as 40% and that has moved upto 100% in the last few days. So, I think even 25 bps is good for emerging markets, there is no problem with flows.
Sensex 19220.92
October 26, 2007
Wednesday, October 10, 2007
Sensex crosses 18. Looses maturity?
Here is a sequence of events:
Global rating agency predicts Indian economy to slowdown:
Read the news...
India could face general elections
Read the news...
and Sensex crosses 18,000
Read the news...
What does any one conclude?
Global rating agency predicts Indian economy to slowdown:
Read the news...
India could face general elections
Read the news...
and Sensex crosses 18,000
Read the news...
What does any one conclude?
Thursday, September 27, 2007
Liquidity and Interest Rates
Which of one of the following is correct:
scenario 1:
improved liquidity -> many lenders fewer borrowers -> lower interest rates
scenario 2:
improved liquidity -> increased money supply -> increased rate of inflation -> increase in interest rate to check inflation
scenario 1:
improved liquidity -> many lenders fewer borrowers -> lower interest rates
scenario 2:
improved liquidity -> increased money supply -> increased rate of inflation -> increase in interest rate to check inflation
Wednesday, September 19, 2007
Are our markets too optimistic?
Rupee is trading at sub 40 level against dollar. And I wonder why are our markets headed northwards.
While after the rate cut by 50 basis points in US, stock markets across the globe have shown high degree of buoyancy, there are whispers that one hear about how Bernanke has just declared a war on dollar. Crude is already beyond $80 a barrel. Some oil traders expect the crude to touch $100 in about 6 months. CNBC also reported in the morning that US treasury is likely to bust the credit limit of US $8.9 trillion (debt of the US government) by 1st October. So now they will approach US congress to issue more bonds. Very aggressive (or should I say desperate) rate cut also is an indication that probably US is headed for or is already in the middle of recession. Increasing crude prices, increased money supply, weak consumer confidence would certainly push US economy into recession if it is already not in one.
A weak US economy would hit IT companies and our exporters. Even FII inflows & FDI may dry-up. And add to that the fears of return of sub-prime, unwinding of yen carry trade, and upcoming general elections. All these indicate a chaos in the financial markets in India over next 4-6 months. Am I just being too pessimistic? Is it wise to be too optimistic about stocks in the short term?
While after the rate cut by 50 basis points in US, stock markets across the globe have shown high degree of buoyancy, there are whispers that one hear about how Bernanke has just declared a war on dollar. Crude is already beyond $80 a barrel. Some oil traders expect the crude to touch $100 in about 6 months. CNBC also reported in the morning that US treasury is likely to bust the credit limit of US $8.9 trillion (debt of the US government) by 1st October. So now they will approach US congress to issue more bonds. Very aggressive (or should I say desperate) rate cut also is an indication that probably US is headed for or is already in the middle of recession. Increasing crude prices, increased money supply, weak consumer confidence would certainly push US economy into recession if it is already not in one.
A weak US economy would hit IT companies and our exporters. Even FII inflows & FDI may dry-up. And add to that the fears of return of sub-prime, unwinding of yen carry trade, and upcoming general elections. All these indicate a chaos in the financial markets in India over next 4-6 months. Am I just being too pessimistic? Is it wise to be too optimistic about stocks in the short term?
Tuesday, September 18, 2007
25 basis points are not enough...
In what could be interpreted as a surprising move, Federal Open Market Committee announced lowering of fed funds rate (inter-depository institutions rate) and discount rate by 50 basis points. Helicopter Ben lived upto his reputation. Markets in general expected a cut in interest rates only by 25 basis points. So, markets have been exuberant. As I write this entry, Dow Jones is up by 300+ points. On a day when crude crossed $80 a barrel, will this market excitement be short lived? is the market ignoring the long term inflationary risks?
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