The report read:
"So, how bad can it get for Indian markets? The last time the US had a mild recession was seven years back when the Sensex fell around 50% from its peak. UBS has now come out with a report titled “How would India fare in a global recession?” that explores the comparison with 2000-02 in detail.
The UBS note says that while there was a slowdown in the Indian economy during 2000-01, this was on account of a decline in agricultural production rather than because of the performance of sectors linked to the global economy. Moreover, investment demand was muted during the period and interest rates were much higher, which is why sectors such as autos and engineering languished. The note points out, “In 2000-2002, market’s earnings decline was caused by IT services, metals, petrochemicals, engineering, automobiles and telecommunications. These sectors contributed 44% to market’s earnings in early 2000.
Today, in contrast, risk to earnings appears significant only for IT, metals and petrochemicals—the export-oriented sectors and the global commodities. These sectors constitute 36% of market’s earnings today—implying that the risk to earnings is significantly lower today than in the past.” Moreover, sectors such as IT, autos and even metals are at lower price multiples today than they were in February 2000.
So what’s UBS’ worst-case scenario? The impact on commodity prices is likely to be less, simply because US demand as a proportion of global demand for commodities is lower now than in 2000. The firm’s estimate of worst case Sensex EPS (earnings per share) is Rs989 for FY09, compared with its current estimate of Rs1,027. What about P-E (price-earnings multiple) compression? That’s tough to estimate, but UBS believes the lowest point for the Sensex is at 16,500. To cut a long story short, the implication is that for the Indian markets, there’s no reason why things should get as bad as 2001.
The performance of both the economy and the corporate sector support that conclusion. It’s true that compared with 2001, we’re more integrated with the global economy. However, both economic growth and corporate earnings growth is much higher now. For instance, GDP growth was 6.4% in FY00, falling to 4.4% in FY01 and gross domestic capital formation was growing at 26%. Currently, GDP estimates are higher than 8%, while gross capital formation is in excess of 30%. Similarly, EPS for the Sensex firms grew by just 4.9% in FY01. During the last quarter, it grew 17% year-on-year. Interest rates, too, are now much lower than they were in 2000.
But as Donald Rumsfeld famously said, there are known unknowns and unknown unknowns. This recession is very different from the 2001 one, resembling more the Japanese meltdown of the late 1980s or the savings and loan crisis in the US. And unlike in 2001, each week seems to show the credit crisis spreading to new sectors. Till the extent of the crisis is known, it may be premature to compare it with what happened in 2001."
********
History has taught us that the Indian market works on a 8 year rule. In 1992, we saw the Harshad Mehta scam and the sensex moving averages crawling south, each successive month, for the next three years. Eight years later, we witnessed the dotcom bust and for the next three years saw the sensex dig deeper & deeper. Now, its 2008.... time for a dig... and it will be deep. My prediction - worst case: 8500; best case: 12500. Time frame ? ..... well, considering everything happens faster these days, we should be done & over with all of this in the next 18 months.Any bets?
Monitoring the prediction.......
In a paper published in the fall of 2005, risk management gurus Leslie Rahl and Barbara Lucas of Capital Markets Risk Advisors, noted that in the past decade, a lot of things have happened that aren't supposed to happen, from the interest rate hikes of 1994 to the 1998 collapse of LTCM to the 2001 terrorist attacks. Or as the authors put it, "once-in-a-lifetime events seem to occur every few years."
Quoted from:
Don't trust the Wall St rally
Divining future profitability of the nation's financial firms tells us stock market valuations are still too high.
By Bethany McLean, Editor at Large
Fortune 500 24th March 2008
We’ve seen this happen many times throughout our history: in the Great Depression of the 1930s, in numerous recessions since then, in the S&L crisis of the 1980s and early 1990s, the demise of the dot-com boom in 2000 and now the collapse of the housing bubble and seizing up of the credit markets.
The particulars of each episode may vary, but all these incidents have one thing in common: the good times in the boom period always seem as if they’ll never end, and when they inevitably do, everyone acts as if we’ll never recover from the resulting debacle.
And, of course, we always do.
Quoted from:
March 24, 2008
Investing for the long haul
Walter Updegrave is a senior editor with Money Magazine
First, hedge funds sold stocks that were the easiest to sell as their investors, spooked by volatility and gripped by pessimism, pulled money out. As Mark Matthews, a Merrill Lynch and Co. equity strategist in Hong Kong, says: “It is easy to kick out Asia and come back to it later.”
Quoted from:
April 1, 2008
livemint.com
Stock markets call bluff of Asian ‘decoupling’
UBS had come under fresh pressure on the stock market Monday as it began to lower valuations of so-called auction-rate securities generally viewed as safe investment vehicles. While the bank’s subprime investments have garnered most attention, and criticism from aggrieved shareholders, the focus is now shifting to auction-rate securities as rumours abound that further huge writedowns are looming. Auction-rate securities are long-term bonds that could be sold at auctions every few weeks.
Quoted from:
April 1, 2008
livemint.com
UBS reports new losses, chairman to step down
The report, Trend will be support but trend is a fickle friend, by Markus Rosgen, Elaine Chu and Chris W. Leung, compares the price-to-book value of the current Asian markets (as on 25 March) with that during previous downturns and finds that “if this slowdown is just like those of 1990 or 2001, markets have a lot more downside. Even if it is only half as bad, markets could still fall by a further 20%.”
Quoted from:
How low can the markets go?
Livemint.com
1st April 2008
What is the World Bank forecasting:
Last week, the World Bank published its report on Global Development Finance, 2008, which has a chapter on Financial Flows to Developing Countries: Recent Trends and Prospects. The trend of rapidly rising fund flows to emerging markets in the last four years is well-known, but what’s on every investor’s mind is whether that trend is going to be reversed. The World Bank is sure that it will.
But, the current high level of uncertainty makes forecasting very difficult, so the bank outlines two scenarios for the rest of this year and for 2009. Under its base case or soft-landing scenario, it says private fund flows to developing countries will decline from $1.03 trillion (more than Rs44 trillion) in 2007 to $850 billion in 2009. But, flows in 2009 will continue to be much higher than in the mid-1990s, before the Asian crisis.
Under its second or hard landing scenario, private fund flows will fall to $550 billion in 2009, which, as a proportion of developing countries’ gross domestic product, is slightly above the average of fund flows between 1993 and 2002. Lower global growth and tighter financing conditions are expected to lower capital flows.
The bank underlines its belief that emerging markets will continue to attract strong capital inflows over the longer term. It says: “Institutional investors’ holdings of emerging-market assets are well below levels implied by their capitalization value and hence are expected to rise significantly over the medium term.” However, the prospects are not so good in the short term. The report says, “Given concerns about overvaluation in some emerging equity markets along with the risk of an abrupt slowdown in global growth, fund managers may prefer to postpone taking on more exposure to emerging-market assets until global economic and financial conditions have improved.”
The base case implies a 17.4% drop in inflows from the lofty heights reached in 2007. That’s not such a big deal, when you consider net private flows to developing countries (both debt and equity) rose from $760 billion in 2006 to $1.03 trillion in the next year. Under this scenario, therefore, all that will happen is a minor pullback in inflows and they would still be well above the levels of 2006. Under the hard landing scenario, however, inflows would be around the 2005 level of $551 billion. That would still be double the inflows of $274 billion notched up in 2003. In other words, despite the credit crisis, despite the troubles of the big banks and in spite of the rise in risk aversion, the World Bank does not believe that all of the surge in fund flows to emerging markets will be reversed.
The bank probably has at the back of its mind the experience of the last downturn, when fund flows to developing countries dropped from $196 billion in 1999 to $165 billion in 2001, a drop of 16%.
But, private fund flows include equity as well as debt flows and equity flows are further divided into foreign direct equity and portfolio flows. During the last downturn, while FDI flows remained stable, debt as well as equity portfolio flows fell dramatically. Net medium- and long-term debt flows fell from $18.9 billion in 1999 to $0.7 billion in 2002. Net portfolio equity inflows fell from $13.5 billion in 2000 to $5.6 billion in 2001 and $5.5 billion in 2002, a drop of 59%. In short, while net inflows were propped up by stable FDI flows, both the debt as well as the equity markets took a beating. The same trend is likely to be seen this time as well.
While the World Bank’s figures for overall fund flows remain relatively benign, the same is unlikely to be the case for portfolio equity as well as debt inflows, although the bank doesn’t give separate projections for FDI and portfolio flows. For the Indian market, the impact of the high levels of portfolio inflows last year is now being seen in the net FII outflows of Rs21,800 crore from the cash market so far this year.
This month (till 12 June) , despite the much more reasonable valuations, FIIs sold a net Rs6,717 crore in the cash market and Rs2,402 crore in the futures market.
The trend of stable FDI propping up net inflows is likely to benefit countries such as China, Russia and Brazil, which received FDI worth $84 billion, $52.5 billion and $34.6 billion, respectively, in 2007, according to the bank’s estimates. In contrast, India’s share was $21 billion. On the other hand, portfolio investment was much higher in India last year, at $34 billion, only marginally less than top recipient China’s $35 billion. In short, India’s dependence on volatile portfolio flows could lead to lower overall net inflows compared to its peers, which means that the impact on the current account deficit, liquidity, interest rates and the currency will be greater compared to its peers. Unless, of course, lower equity prices lead to more FDI through takeovers of Indian companies, on the lines of Daiichi Sankyo Co. Ltd’s acquisition of Ranbaxy Laboratories Ltd.
quoted from: Livemint / 16.06.08
T H E R E W E A R E....
The Bombay Stock Exchange's 30-share Sensex Thursday closed at 13,326.51, up 63.61 points or 0.48 per cent from the previous day's close. The high at the end of trade was 13,346.79, and low 12,558.14.
quoted from ET 18/9/2008
“The Sensex appears to be in consolidation mode. It finds resistance at 12,800 points and support at 13,200 points,” said Birendrakumar Singh, a technical analyst with Religare Securities. He maintained that the markets would remain bearish for the next 10 months until the global credit crisis clears up.
NDTV.com / 1.10.2008
OK.. ten months are up and the sensex........15670 ! (Not a very good prediction there, by Religare, though). Not bad place to be for the Indian stock market. But remember, money is to be made by knowing where we are headed from here...... and not by knowing where we are.
My view: we are in serious overbought territory and this gravity defying uptrend is in for jolt.
I cannot obviously predict what external or internal events are going to become a precursor for the likely correction, except, taking a clue from Ackermann's statement on Bloomberg, today. It reminded me of a much talked about and now probably forgotten threat of credit delinquencies. " Rising delinquencies among consumer and corporate borrowers are the “next wave” of the financial crisis and may affect banks that have avoided losses so far, said Deutsche Bank AG Chief Executive Officer Josef Ackermann. Reports dating back to no more than 365 days warned us of a crises arising from bad consumer loans, deficits in pension funds, and what have you. Somewhere, we investors, lost sight of it.
Bad news is over due and I predict it will be soon upon us. The numbers coming out of US banks these days are just too good to be believed. Patients who have undergone serious surgeries don't start running so soon. I dare say, there might be an element of ingenuous accounting jugglery at the bottom of it. Other than that, there are these inconsistencies to worry about...... mounting job losses, dropping inventories, downwardly revised GDP numbers from US, falling consumer spending and a gloomy oil demand forecast..... Yet, oil is close to 70. Commodities, which should react with a lag, are instead leading the charge. (tail wagging the dog?). Friends, these are signs that hedge funds are punting in hyperdrive..
My call: sensex will correct by 25 percent within the next three months, and hit a 12000! So lets get out now before the bears do us in.
*****************
Hong Kong-based executive director and head of equity strategy at BNP Paribas Securities (Asia) Ltd Clive McDonnell:Clive McDonnell expects similar declines in other markets in the region, particularly China. He is predicting that the Sensex, the Bombay Stock Exchange’s bellwether index, will fall further—and stay around 9,500, down from its current 12,526.
In a September report, McDonnell said the market is most likely to suffer the most from a withdrawal of liquidity is India, and that the country has replaced China as the biggest “underweight” in the region.
- Abhijit Bhatlekar, livemint.com / 6.10.2008
H E R E W E A R E .........
The resultant sell-off saw the Sensex plunging by around 12.35% to 8566.82 in late afternoon trade, its lowest mark since November 23, 2006
- sify.com / 25.10.08
Monitoring the Upturn.......
foreign funds, which led the bear run through heavy selling in 2008, have been net buyers for the month, through 12 November, to the tune of Rs1,100 crore.
- Mint.com / 17.11.08
July 3 (Bloomberg) -- Developing countries’ share of worldwide equity value climbed to a record as the fastest- growing economies lured investors amid the first global recession since World War II.
The 22 nations classified as “emerging” by index provider MSCI Inc. comprised 24 percent of world market capitalization, up from 18 percent at the start of this year, the highest proportion since Bloomberg began compiling the data in 2003. China shares surpassed $3 trillion yesterday for the first time since August, from $1.8 trillion at the end of 2008.
The increase signals growing confidence in developing countries as equity investors, spurred by interest-rate cuts and stimulus plans, redeploy cash after the worst U.S. losses since the Great Depression. The MSCI Emerging Markets Index rose 35 percent, beating a 2.9 percent advance in the MSCI World Index Index of developed economies and lifting the value of stocks to $8.6 trillion from $5.1 trillion in 2008.
“Everyone is trying to jump on that bandwagon,” said Nicholas Field, who helps manage about $11 billion in emerging- market stocks at Schroders Plc in London. “There are projects in emerging markets in which I can make more money than I can in the West at the moment.”
Developing economies will probably expand 1.6 percent as a group this year and 4 percent in 2010, according to the Washington-based International Monetary Fund. Developed nations will contract 3.8 percent in 2009 and have zero growth next year, the IMF forecast in its April World Economic Outlook report.
- 3rd July 2009
No comments:
Post a Comment