panch-tattva talk…some ponderables

Friends,

The fall in Indian indices over the last quarter , by about 25% , is a surprise of sorts. There has been hardly any change of grave implications in economic scene since that time. The things that usually matter have been dealt with in the following paragraphs for you also to have some deeper understanding as to what exactly is in store.

The sub-prime crisis had already cast its shadow in Nov 07 and the belated reaction now and complete disregard then are both not justified. The impact gets sobered by the Fed action of lowering the interest rates , umpteen times for that matter. In India the rates have not changed but the possibility was of get lower while the latest inflation figures have belied the hope.

Talking about the inflation numbers , I feel it is govt. itself that is making much noise and not the public. There is 20% rise in wages even for the manual worker in today’s times so who would crib about the inflation going past 6% while we Indians have seen inflation of higher than this for most of the years since independence.  The ruling party’s concern for it is only an act of the political drama before the election year. In fact while the world oil and coal prices are ruling at record high , why the Indian consumer should be kept in a fools paradise. the inflation therefore can’t be nipped in bud.

The FIIs have not deserted Indian markets like a diseased place. They have in fact not lost their love for India as it has given a return of over 20% even after the slide seen lately. The world markets have been volatile sans panic. This is a great comfort.

The elections in Pak were conducted peacefully and a responsible govt. has taken over . This puts at rest the Pak factor destabilising the Indian markets.

India’s foreign trade is still not a very high %age of GDP and hence the jump in rupee value is not all that problematic particularly when the domestic market is price sensitive and would absorb all the goods manufactured for export if the price is lowered even slightly. The foriegn currency flows have rather major influence as they affect the fringes of economy. The full convertibility of rupee may moderate its impact too.

There is much ado about corporate India’s derivative trading losses but in reality there would be just a few cases where managements have indulged in speculative trading beyond the need for hedging or have taken just the reverse positions enhancing the risk in the same diretion. Not a pencil can be bought in the Indian corporate world without management sanctioning it, it is another matter that big syphoning schemes are are made day in and day out.  So, it may be presumed that no ordinery executive can indulge in complex derivative trading of his own accord.

There has been some slow down in auto sector but it has grand plans of capacity expansion and the negative numbers have not yet been reported.

Banks have robust profitability. Their business growth is ensured simply because the economy is on the expending spree, saving are growing hence the optimism is only to be maintained. Whatever the interest rate , it does not deter the volume of business for banks.

IT has weathered the storm beautifully. They have rupee appreciating and now rupee depreciating also. The bigger companies in this field have very good business models.

From a long term view market has return just under 12% per annum return over the last decade and a half since 1993-94. over this period the companies have almost remodeled themselves and most of the big corporates are now capable of taking on cudgels against any sort of competing entity around the world. The profits retained have made book values strong which have sealed the down side. The interest rates which were prohibitive in mid nineties are now quite reasonable from Indian standards. These rates will further come down as the Indian economy gets integrated more with the world economy.

So, harping on the bearish tune is foolish or is ochastrated by some powerful group. It was the same powerful group which made the gullible public drink bullish cocktail  only three-four months back. I was at pain to explain then and my feeble voice may not have been heard in the din of market place.

Now the surprise element in your mind should get subsided and rationality should take over. Find values and grab them, this is a good opportunity. All this is not to say that the message of the results should not heard. Judge the results and see for yourself it there is any cause of worry.

HariOm,

krsnaKhandelwal