Thursday, June 01, 2006

Gas Guzzlers Are Out! Good Morning America

If this year's May figures for auto sales was any indication in the US, it showed Americans don't prefer their sporty SUVs any more. Demand for these gas guzzlers along with trucks, is on the wane.

General Motors released a 16% lower sales figure for May as compared to 2005. Similarly Ford and Chrysler's May sales declined.

For years, pampered with cheap fuel, the US is slowly becoming sensitive to rising fuel costs and taking steps to reduce its dependence on it. This obviously has impacted the US's biggest vehicle manufacturers.

For those interested in the auto industry, it may be interesting to note that GM posted an average loss of $2,496 on every vehicle it sold in North America in 2005, while Ford lost $590, according to a report by the independent auto research firm Harbor Consulting.

The losses reflected a variety of factors, including the large difference in health-care and pension costs, as well as rebates and low interest rate financing, the report said.

Chrysler was the lone Detroit-based automaker to turn a pretax profit on the average vehicle, estimated at $223, Harbor said.

By contrast, Nissan, Toyota and Honda each earned a pretax profit of more than $1,200 on every vehicle they sold in North America last year, the report said.

Source: Reuters

FIIs Are Buying Mutual Funds Units

FII top Net sales of Rs 7,352.20 crore in May

Read this article carefully. It could provide you with a perspective you never imagined before.

The purpose of this hypothesis is not to define how markets will move tomorrow or the day after, but to highlight a possibility that belies the current state of the market: Things are not quite as menacing as they seem.

Perhaps Chidambaram is right; the Indian economy is on track, nothing has changed in the fundamentals, but somehow I suspect that the Finance Minister is not disclosing everything. Behind the obvious calm face is a machiavellian mind devising a scheme whose goal is as yet not known. One would suspect aggrandizement for the party with a view to elections in 2 years.

Why are FIIs selling so heavily?

According to Sebi, FIIs sold Rs 7,354.20 crore in May, roughly $1.6 billon. Looking at past behavior and also the quantum of investments made in 2005 in to the Indian markst, about $1 billion is normal and expected to move out.

However, the discrepancy between NSE and Sebi figures belies the muted optimism that exists under this whole panic situation.

NSE figures for FIIs, derived mainly out of orders punched in by brokers on NSE and BSE terminals, show that on May 29, 2006, FII clocked net sales of Rs 116.42 crore, while Sebi figures indicate Rs 81 crore. For May 30, 2006, NSE shows net sales of Rs 262 crore, while Sebi shows net sales of Rs 8 crore.

My view is that FIIs have turned to some other equity investments in India, not necessarily in the purview of the stock markets. Just read what Sebi means by FII figures:

“Data pertains to all the activities undertaken by FIIs in Indian Securities Market, including trades done in secondary market, primary market and activities involved in right/bonus issues, private placement, merger & acquisition etc.”

The etcetera is not defined or stated. Sebi needs to clarify this to all investors.

The difference between the Sebi and NSE figures, means FIIs pumped Rs 772 crore in the last two days in to primary markets–how about the DLF IPO?–or did private placements or M&As.

So, where did this money go? Could the FIIs have considered the FM’s penchant for mutual funds, and poured money in there? I would not know if this is a wise move for FIIs, but the FII FAQs on clearly state that FIIs can in fact invest in units of Mutual funds.

Finally, the sell-off could also be the precedent to the opening up of FDI in retail and real estate. Money has gone out back to the original backers of these FIIs, and could re-enter as FDI in the country. A lot of FIIs would want to give profits back to their investors, and then encourage them to invest in another fund that does FDI investments. While this possibility does not work in favor of the bourses, it certainly does in favor of the Indian economy.

Wednesday, May 31, 2006

Where did the Rs 772 crore go?

The markets did bungee jumping today, down over 6% this morning with rumors that a 10% circuit would be visible during the day.

FIIs were reportedly selling Indian equity in the secondary markets and the general view given the dollar’s massive rise against the rupee is that FIIs are sending money packing back to the US, just 2-3 years after they discovered India to be a long-term bull market.

Then comes the Finance Minister, P. Chidambaram, on television soothing nerves, making positive noises, egging on retail investors do direct their funds to mutual funds.
All this against the cacophony of Communist leader Sitaram Yechury demanding the reintroduction of long-term, capital gains, Commerce minister Kamal Nath asking cement companies to reduce cements prices (subsequently keeping quiet and completely disappearing off the horizon). Now, we have Ram Vilas Paswan saying drug companies need to be controlled.

These ministerial speakouts happily precede FIIs rotating their portfolios, like a tango dance amid a circus of statements. Surely, the ministers are collecting funds for the elections 2 years from now.

Nonetheless, I am now going to unveil a secret that will amuse you if not amaze you. In the last couple of days, we have seen some really gut-wrenching market turns, and mainly falls, with screams of FIIs leaving the shores of this land. Even data from the last few days showed–albeit smaller–in FII sales.

My belief is that FIIs have been net buyers in the last two days, except that this money did not come in to the Indian stock markets–NSE or BSE.

More tomorrow….

FIIs Shave Indian Bourses of $2.36 billion

The shaving and haircut continues....

With another Rs 212 crore pulled out yesterday, the FII figures have reached an all-time record. In the month of May, they have in so far pulled out $2.36 billion or Rs 10,907.7 crore . In the last 11 days, they have only been selling, sucking out over $2.53 billion or 11,693.6 crore. (1USD=Rs 46.15)

Never before have they pulled out so much in a month. Not October 2005, not May 2004. In history, May 2006 could get recorded as the stealthiest wipe-out of a bull psychosis.

Yesterday the Dow and Nasdaq spread gloom as if to reflect the deluge of rain in Mumbai. Uncharacteristically it arrived early and at 10 p.m. and continued ceaselessly until 2.30 a.m. this morning, about the time that US markets closed.

While the dollar fell against the euro and yen, it continues to make new highs against the rupee. This is not very heartening. While the usual answere being dished out is that importers are adding pressure it is clear that such steep and consistent slide can only come from heavy demand, which is from the FIIs, corroborated with the fact that they are pulling out money from the Indian stock markets.

Oil prices are impacting the US economy, and hence stock prices there, but since ONGC has a heavy weightage Indian investors are fooled in to believeing that gains for ONGC is gains for all companies.

Oil prices have a direct correlation to ONGC but an indirect correlation to everything else. Sooner or later India will be on a path to higher inflation, and to contain this the RBI will be forced to hike interest rate hikes. This is going to spell a lot worse for Indian corporate sector.

Good new is rains have arrived earlier so the farm sector would be bouyant, with tractors and fertilizer companies looking up. If the rains sustain well, then we can see the consumer goods companies leading the charge.

Tuesday, May 30, 2006

FII Outflow is Trickling to a Stop

Some interesting points of observation. The Nifty has been doing rangebound activity, and the bias is down. The US dollar has surged contrary to expectations as compared to the rupee. It touched Rs 46 to a dollar, and even breached this barrier.

First the bad news. A falling rupee clearly indicates that the demand for dollars is high. The usual suspects are exporters, but even they have never been able to take the dollar to such highs. Clearly money is being taken out by the FIIs who have been selling Indian equity and have so far removed over Rs 7,700 crore.

The good news is that sales of Indian equity by FIIs halved yesterday, with only Rs 116 crore sold. This nonetheless brings sales to a May figure of Rs 8124 crore, that almost kisses $2 billion.

Yesterday was a holiday for US markets, so US cues are absent. It is likely we could see another flat day.

Monday, May 29, 2006

Rs 8,000 crore until last week

The tides and ebbs of FII money continues to rule. It appears like the bloodbath has stopped and the trickles are curdling. On May 26th, which was the last trading day of the week gone by, FII's took off just Rs 304 crore.

In total until the end of the week, 8,000 crore ($1.75 billion) has been swiped off. Clearly this surpasses all previous figures of exits, and has established a new record. However FIIs have also invested far more and have made more profits this year.

In all probablity a new upmove should begin this week.




Consider how the crisis has unfolded over the past eighteen months. The proximate cause is to be found in the housing bubble or more exactly in the excesses of the subprime mortgage market. The longer a double-digit rise in house prices lasted, the more lax the lending practices became. In the end, people could borrow 100 percent of inflated house prices with no money down. Insiders referred to subprime loans as ninja loans—no income, no job, no questions asked. - George Soros in latest book

everything’s going up, there’s a feelgood factor and people tell each other how much their houses are going up at dinner parties,” says Professor Mark Stephens of York University’s Centre for Housing Policy. “Then the music stops, as it always does.”

year, Japan was a more attractive market to put money in. If you look at the US, we can now get an internal rate of return of 25% there, so why would anyone want to come to India?” - a senior executive at an international financial services group, who did not wish to be named.

people told us house prices never go down on a national level, and that there had never been a default of an investment-grade-rated mortgage bond, "Mortgage experts were too caught up." - John Paulson, trader, who bet against subprime market and made $15 billion.

most puzzling are the real-estate projects of Parsvnath. Just have a look at the Pride Asia project near Chandigarh. They are asking almost US $300K-$350 K dollars for 2 bed room apartments. They have Villas in this project that costs more than US $1.5 million dollars. It is true that some people in India have that kind of money in India. However most of their wealth is black money and that can not be used to buy these properties. Obviously, these projects have been launched keeping NRIs in mind. - Sanjeev, comment from another site

Desai, aka Bani, the star of Balalji Telefilms's soap, Kasam Se, has been house hunting for over a year. She had almost closed a 2-BHK deal last year for Rs 1.5 crore in a Oberoi Constructions' building located at Andheri, Mumbai, but when she went back to confirm it, she was asked to cough up Rs 2.61 crore. Since then, she is still house hunting. - Mumbai Mirror


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