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Stock Markets: Where are we headed ?
Where are we headed
Now that most of the commentators on Dalal street have been proved wrong, we all stare at the future, thinking where are we headed next.
Some say the pain “may” be over one day, the other day they say there “might” still be some more downside. How can you have a view which is in may and mights. I have been following the stock market for a few years now. The targets for specific stocks are based on pure hunch of the speaker and seem to have no logic what so ever, and that is always followed by “may/might” theory.
Anyways, analyzing the current situation, what the sectors to look at and why. I will mention only about sector I know about or have studied.
- Banking/Finance: The credit crisis has shown a spectacular uptrend in the last few months. This trend threatens to continue for a few more months as the credit criteria continue to tighten for all lenders. This trend will see a further increase in losses till we reach the peak before starting the downward journey. The credit cycle typically takes 24 months to stabilize, and we can expect things returning to normal only in the last quarter of 2009. Meanwhile, since lending will reduce, there will be lesser and lesser balance sheet by the day; hence one can expect lowering of profits because of runoffs as well. So a double whammy, lower revenues – because of lower new loans and older loans paying off and higher credit losses.
I would suggest staying away from all companies which are too focused on consumer lending.
- Real Estate: This sector has reached a level of typical saturation, ala FMCG. The prices will not see much growth, unless they are differentiated products – like a “Healthy Living” township or “Build Tomorrows leaders” township. Smaller players will have to go niche, and larger players will have to go volume. If you are invested in a vanilla small player, please exit the counter. The home prices will remain more or less stable in tier 1 cities, may be 5-10% drop in suburbs. Tier 2 and tier 3 cities will crumble up to 20%, esp since the developers here are typically local builders, who can undercut larger players with their cost efficiencies. A branded national player may just end up being a status symbol in these cities. Also, the rentals in tier 2 and tier 3 are very low, taking the regular investment return out of picture for the investor. The speculative demand will die down for lack of growth prospects.
- Commodities: Like all rallies, commodities rally is about to get over there will be a sharp correction in the prices of lot of commodities, largely because of speculator interest.
IT : Info tech stocks are a risky bet right now. The US slowdown has not yet gone into a full fledged recession yet. My guess is in the next 3 months we will see some bad news in this sector as bigger giants start looking at their spending.
Read Full Post | Make a Comment ( 6 so far )Does Credit Bureau cause higher losses ?
Does Credit Bureau cause higher losses?
Anyways, I hate to be negative, but belonging to the consumer banking industry, I can say that the downside is far from over. The credit crisis has hit India, with the NPA going through the roof. All top Indian and MNC banks are making huge losses.
They say, when you open up the credit bureau for access to information and credit rating the industry normally faces an increase in defaults. Sounds counter-intuitive doesn’t it.
Credit bureau is supposed to improve the credit scoring, and lets banks take more informed decisions, then why would the losses go up?
Let me in short first explain how the bureau is used. Well it’s the central repository of loan information which includes how much a customer has borrowed and what is his payment pattern. Banks are free to decide on the basis of that whom they want to give loans. Now if someone has a bad record in the bureau, he does not get the loan, or probably gets a lower loan. This helps the banks in keep the “bad” customers out of their books.
Now if that is the case, why would the losses go up when the bureau system is introduced? Well lets have a look at a lethal mix of introduction of credit bureau and hardened monetary policy and higher interest rate. Add to that, a high inflation and slowing economy, the combination is near fatal for the consumer credit health.
Lets say a customer has loan running from 1 bank, which she is servicing well. Now due to the above mentioned macroeconomic conditions, her business had some issues because of which she could not pay one EMI. Now she is need of more money, and approaches another bank. The idea is to invest and try and get returns to service both loans. Now the Bank no2 refers the bureau and rejects the loan. Getting more money becomes increasingly difficult and it feels like someone has suddenly stop the shower when you where half way through you bath, with the soap itching deep in your eyes.
Consecutively, she falters her existing loans, creating a chicken and egg story. As an insider to this industry, I can see the trend in the default in the last one year, with loss rates almost doubling in consumer lending. This has led to Banks tightening the credit criteria, leading to drying of money supply to consumer, leading to more defaults.
This phenomenon apparently happen whenever a bureau is introduced in any economy. I hope this short term effect is near end now, but cant make myself believe as the numbers are suggesting otherwise.
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Die Hard in CASH
Die Hard 4 is good action… typical Bruce willis… the concept of the movie however reflects true America… there is a FED scientist who claims that terrorists can do a lot of harm to America(after his analysis post 9/11), no one belives him. So since he is a patriot, he shows them what the terrorists can do… and ends up destroying america, and bruce willis saves america…
now sorry… who is there terrorist here ? interestingly he does demand for money as well to stop his nuisance…inspite of being a patriot.
Then I saw Ocean’s 11 in Hindi called “CASH” . The movie has so many stars that they look like junior artists and the some junior artists have more dialogues than the stars themselves. They are all behind one diamond, wonder what the movie is called CASH then. In a highly convoluted plot, where no one seems to know what is happening (i am talking about the audience), some triple double cross happens and some stars die and some live. I am still trying to get the logic behind the movie… trust me, see it for yourself, you will not understand the plot – i garauntee…
then i saw a wonderful movie called Finding Love – saw it on DVD. its a superb movie all shot on a handy cam… its about a marired woman and engaged man meeting at the airport, and falling in love in one day…. and when they depart they dont even know each others name. its very well done movie… do see if you can get your hands on it.
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Locustandi
Locustandi
Everyone seems to have a point of view on myriad issues. Blog is the easiest way to express these express opinions, with our any inhibitions.
Do these people have a locus standi on the issues on which they have so many opinions ? Should people have a locus standi to express opinions on unrelated issues.
Locus Standi: Place of standing (literally meaning – a right to appear in court and express opinion)
It makes me livid to see my friends, who have left India 5-7 years back, having a very strong view on what Indians in India should do. How they should fight corruption and how they should make this place better.
A daughter in law is burnt in India, these ‘NRIs’ have a view on how the youth in India is not taking the ‘right’ steps. I don’t understand their ‘Locus Standi’
My effort in this blog space will be write relevant stuff. Those which impress me, things which I have experienced, things on which I have a Locus Standi
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Anand's thought book 