Clapping process

Well, yesterday i was attending our CMD bid adieu function. It was a massive gathering of about 500 people. Just a matter of my hobby, i started observing the clapping phenomenon to understand the people's behavior.   Clapping takes place when most of us agree or appreciate the speaker's part of speech. Clapping is a phenomenon that lasts for minimum of 5 secs to longer depending upon the audience emotions and feeling towards the things that are being said. The clapping starts with a solitary clap at some corner which u can clearly hear before the clapping starts. The solitary clap will be followed by claps by some groups in the audience . It then followed by the real clap when most of the people in the gathering starts clapping. So from the time of the solitary clap to the real clap, there is series of activities that can happen to form a more meaningful audience clapping within few seconds. A very normal observer has a different way to assess whether he should clap or not. He may think the point spoken by the speaker is valid and require appreciation but does not initiate the clap. He may not be of the same group as the clapping group that starts clapping after that solitary clap. He may only clap if he agrees with the point, do not  take initiative of clapping first, and only his group claps.

I can very well co-relate the clapping process to sudden rise or sudden fall in stock markets. So next time when there is a stock market rise or fall, just keep the clapping process in mind.

Quotes

1. In the beginning, i think of an end. In the end, i think of a beginning.
2. The world is unfair and unjust and that is precisely the reason i deserve to win it..

What lies ahead in Stock Markets (9th Feb)

These days stock markets are giving sleepless nights to many including me. When the post lehman crisis stock market run never looked comfortable, it all boiled to selling India centric story to boost up the markets.. No doubts, India remains a high growth market in long term.. However what remains to be seen is how India stock market matures as fast as possible so that people heed to something called valuations. Even at current valuations certain companies dont justify its prices, both undervalued and overpriced categories.. In the past, FIIs were successful to move Indian stock markets as per their wish selling some story or the other. However, unlike 2008 this time Indian Investors have done far more better to outsmart FIIs. This is a classic example that Indians cant be duped everytime and Indians have learnt a lot from 2008 crisis.

The recent sell off in stock market is attributed to high near term inflation that will erode profit margins of companies. No doubt, the reasoning is correct.. However we may have to watch whether this expected inflation do match the economic projections.

Well, if u ask me, stock markets should reflect the true sense of how businesses are doing in India. And remember businesses drive stock prices and not the other way round. So ultimately it boils down to how businesses will do in future determines stock market direction in near future.

So how will businesses do in next 3 months. What are all the current problems that businesses are facing. Lets analyse that. The first problem is rising input costs for most businesses. What is fueling these input costs. Liquidity has almost become tight in the market.. Domestic Demand also seems to be subsiding. So next quarter, we should see input costs subsiding but not bottoming out.This will make a case for partial recovery in stock market. However if world economic growth remains robust, i dont see input costs subsiding and hence putting more pressure of its rise (at this point the probability for this seems to be high for next 3 months). The second problem is employee costs. Employee costs will be permanent owing to its downward stickiness. Hence those costs are here to stay unless economic growth is negative and there is panic in terms of unemployment. The other part of operating costs will stay untouched or may go up a little. Interest costs are bound to rise as long as short term rates are higher.

So on a whole, next three months, costs will go up and hence any increase in prices due to this will severely impact demand as liquidity will also dry up. So we see a scenario where demand moderating, costs increasing, and prices stablizing. Now all my eyes are on how US market and the world economy will perform. That is a big trigger for the Indian Stock Markets. Till then we have to sit with uncertain times.

RBI policy action.. How i read it!! (26th Jan 2010)

Well the anticipated wait is over.. RBI and its policy action.. No surprises is what the newspapers read.. But what many failed to notice is the attitude of RBI about India's domestic problems, raising fiscal, Current account deficits and inflation. The message is clear, the government is not doing justice in keeping these measures in check. And ultimately blaming UPA government, if not partially but entirely about the India's ballooning problems. The policies are reckless and corruptions are at their highs. All this makes a case for Mr. Singh to step down from or convince Sonia ji/coalition parties that the problems are serious and need some tough decisions to be made. The second option seems to be unlikely considering that Mr. Singh is soft spoken bureacrat who all his life was faithful to Congress. Hence to restore his value system, his stepping down is essential.

Now not digressing from the topic, the next most awaited event is Budget. I am not expecting that any growth centric, anti-poverty, anti-corrupt and more anti things nature policies will be laid down. The expectations would be rolling back of stimulus partially and implement policies that are election centric. Congress neither have enough coffer to spend nor risk their own private coffer to get empty. But yes, they may stretch fiscal deficit by borrowing more and put more debt to Indian Citizens. Of course that is the price we have to pay for electing this sort of coalition government who needs to satisfy every other Indian.

So what should we do in this kind of environment of short term gains and long term pains. Nothing but to keep pain killers in place. Amen.

What could be the next worst thing in financial markets (14 Jan 2011)

I wake up everyday and ask what could potentially go wrong in the Indian Stock market.. I have not got any convincing answers yet.. Many things come to my mind.. Domestic problems like inflation, interest rates, burgeoning current account deficit, scams and corruptions.. International issues like sovereign debt problems of PIIGS especially Spain and Greece, uncertain macro economic environment of US and Europe, alarming debt to GDP ratio of certain countries and premature asset bubble signs are worrying. Also any kind of unknown shock may also be not surprising. The cause of uncertainties is fairly reflected in the stock market where volatility is the norm in the last few days.

However one thing is sure. India is undergoing far larger domestic problems than ever like raising interest rates and current account deficit. Inflation though became a global phenomenon especially the food prices are raising astronomically everwhere. With US looking strong, dollar will gain strength and gold and other commodities will lose its value in short term, may be a 15-20% cut in next one month. This may happen coupled with the sheer reason of investors trying to secure profit from their investments in these asset classes. I am waiting for the policy action of RBI and budget to happen to see the future direction of the market. If i am a policymaker,I continue with bankers' request for not raising interest levels beyond a .25 basis point. Also will cut CRR and inject liquidity in the system to stimulate credit growth which is very essential for economic growth. The current inflation is fuelled by raising food prices which is more of supply constraints reason that requires long term actions and monetary policy has limited effect on it. So raising the interest rates will not serve the purpose. However I still expect a 25 basis point raise in interest rates. Coming to budget, India's fiscal deficit is at its high and expected to reach more than 5.5%, which is the projected number in last budget. So with twin deficits, current account deficit and fiscal deficit, it all says a reason that rupee will depreciate in coming days. Inspite of raising more than a lakh crore through 3G and IPOs and FPOs fiscal deficit is raising.. Thanks to commonwealth games, the money was burnt, keeping the fiscal deficit at bay. So coming year, i expect partial roll out of many stimulus measures that was given in last two budgets. Excise cuts in autos and no respite in direct taxes and more indirect taxes is on cards. The budget may be considered negative for stock market, that may trigger sell offs.

But who can say? Indian ministers can heed to industrialists and continue to frame policies that are anti-poor and have long term pains. Only time can tell, however i have decided i will sit in cash till the sky gets clear.

Dollar strengthening amidst Quantitative Easing

It seems fed did the right thing by way of recent QE contrary to economists' belief. Lets analyse or try and understand what is happening.. The economist in me always wakes up when these kind of interesting thing happens. Lets analyse this way. QE injected about 600bn USD to give Americans to spend, consume and pop up the economy. This QE and subsequent actions make me believe that FED believes in Monetary easing and not the well accepted Keynesian economics that fiscal policy will make the economy rebound.

Now with more money to spend, all what they did was giving more money to financial wizards who invested it in emerging economies. India has got its share and also american stock markets made a rebound. Also these money found its way to commodities and other liquid items. While stock markets are robust for future earnings of american companies while commodities like crude depend on how does the physical demand for the same rises. There isnt any physical demand for these commodities and hence the speculative money that came did not see much returns. This has made the dollar to strengthen inspite of QE. Hence it can be concluded that QE in future can only result in more speculative money entering stock markets and commodities and will not serve the real purpose of increasing consumption and spends.

Will real estate emerges the best asset class of 2011?

Well, I have a belief that the old favorite real estate asset class will emerge as attracting the most money in 2011. Infact after five years of bull run, real estate is all poised to take a breather. The reasons are many. With no restructuring of loans permitted by central bank and hence mounting repayment of real estate companies will force them to liquidate their existing stock of houses, interest rates, stock markets, gold, silver and other alternative asset classes are at their all time highs,  1 lakh crore with the public and hence these funds in search of a high value high potential asset.. All convince me that real estate will be on a roll this year. However the greedy real estate companies will bite the dust after waiting three or four long years in search of higher prices and hence keeping the common men away in owning a home.

Hari, Wish you a very happy new year 2011

You are ushering in a new year indifferently though with high expectations. 2010 has been a year of learning and a dull year for you. Except that you got your graduation and a job after two months of unemployment with only few to support are the major events. The year reinforced your belief that you should not be dependent on others and should excel on your own way. A PSU job at the end with salaries lower than your last paid job was all you have to compromise for your aspired MBA. A point of inflexion of your life indeed as your plans laid out for next kill. There was uncertainties in your life in the last two years which was what you chose after a careful thought and chose an MBA over a coveted and secured job. Well, I am aware about your belief that 'ships are safe at harbor but that was not the reason ships are made for'. I do not know whether you chose the better path for you but you should enjoy and be happy in this journey where you only have the address of destination with no clear path describing it.

You have high expectations in 2011 as usual in line with sales person attitude in you. You want certain milestones to be achieved before you launch yourself in an uncharted path of further uncertainties. I wish you achieve this without any time overruns.

Apart from your career goals, Hari, you should concentrate on keeping yourself fit. Being in a Gym is boring and waste of time is what comes to your mind when you think of exercises. But there is a considerable reduction in your physical activities and your belly is a testimony of this. Every time you look at the mirror and you curse your pouch. Well, i should say you are barking at a wrong tree. I wish you start a new chapter in your fitness.

With these words I sign off and yes once again I wish you a very happy new year. Remember you are your own P&L and balance sheet.

Yours Sincerely,
Your Soul.