Time for shocks?

The current Bull Run has left even born skeptics like me wondering if expectation of a correction was result of faulty analysis. However, there still seems to be at least some rationale for remaining cautious rather than jumping on to buy stocks at these levels.

Though I normally stick to the simplest charts for analysis, today I happened to have a look at logarithmic charts of Sensex and Nifty. Surprisingly, all of seemingly unexplainable moves of the markets look very natural once we switch the scale from simple to logarithmic (A logarithmic scale plots percentages changes instead of absolute changes. For example, a movement from 200 to 210 will show a 10 unit increase in simple scale but only a 5 (10 is 5% of 200) unit change in logarithmic scale).

Looking at this chart, Sensex has hit the upper trend line of the rising channel. Even the Fibonacci analysis shows that the previous top of 19990 is 261.8% extension of rise from May 2003 to Jan 2004. Going by this analysis, Sensex has a strong resistance at 20000. The correction that begins from these levels should take it back to around 16000 in about a month. Nifty should fall to around 4300.



Sensex


The analysis is based on long term chart from 2003 to date. So the expected movement will take some time and patience is required to benefit from the fall. A closing above 20300 invalidates this analysis and a close above 20600 (3% above 20000) should be taken as a breakout, resulting in further gains before a correction sets in. However as long as Sensex closes below 19990, I would expect a correction.

Note: Charts created using data available on NSE and Yahoo Finance website with help of AOI Trade (http://www.aiotrade.com/). This write up is only for educational purpose and not intended to be professional advice.

Hold on chartists

As expected, markets pulled back nicely from the correction that started at 16000 and reversed at 14000. No surprises there. However, the shock was that the Bull Run did not stop at expected levels. It shot beyond the resistance to stage what many are already referring to as a “breakout”.

Technically, the rally should have petered out when Sensex reached the resistance level at upper trend line around 16500 (Nifty 4750). Not surprisingly, the Sensex gave every sign of weakening, including formation of well known “dodgy” pattern on 19th September. However, enormous liquidity was unleashed into the markets due to certain global events. The FII inflows not only pushed the markets beyond the resistance, but also did it more or less convincingly. This has left chartists who were short in a precarious position. The question is- Is it a false move? Or is the breakout real?

The breakout looks very convincing technically. The volume spurt on 20th September confirms the strength of the breakout. Also, Sensex ended the week on a very bullish note on 28th September (The opening and low were same. Check out candle of this day).

However, those who are short need not panic yet. As previously mentioned, the upper trend lines are never sacrosanct in a bull run. It’s lower trend line which actually holds firm. So, no matter how grim the situation looks, the markets are bound to give better exit options from short positions.

To sum it all, expect a quick fall to 16500 levels. Markets are just waiting for a trigger to fall. Next support is at 15900. If the breakout is false, we will see Sensex break this support and touch 14600. On the other hand, if 16500 holds, the markets will bounce back again from that level. The rally that starts from there will take Sensex slowly to next target of 18000 and then to 20500 in medium term. As of now, all we can do is to wait and watch the 16500 closely.

Bears on prowl

The sensex has finally shown some clear weakness after defying global trends for many sessions. The support at the top of 7th February 2007 (14562) was breached with a clear gap and the sensex did not cover the gap during day’s trading. This shows clear weakness in the market.

However, charts have not yet formed any clear trend reversal pattern. We can expect the markets to bounce back before completing a trend reversal pattern. The bounce back is likely to start from near the trend line levels of 14300 (or slightly lower levels). Normally, such a rally should touch upper trend line around 16500 (depending on slope of rise). But upper trend lines are never sacrosanct in upward trend and bounce backs may falter much before that level. It would be wise to leave some gains to the market instead of trying to squeeze out every point from the rise.

However, any show of strength should not be taken immediately as continuation of bull market. Rather it would be advisable to use new highs as opportunity to exit risky stocks (with high beta). It will be safer to have only conservative stocks in once portfolio till there is a clear signal.

Bull Market coming to an end?

Indian stock markets have seen an impressive rally since April 2005 (Sensex 6154). With Sensex trading around 15000, investors are naturally wondering if they should stay put instead of booking profits.

Fundamentally, Sensex is trading around a P/E multiple of 20 while historically Indian markets have been valued at P/E of around 14. Have the things changed so dramatically? I doubt it.

Globally the party seems to be coming to an end. US subprime loan defaults are threatening to spill over to other markets. Countries like India that are overly dependent on foreign funds may feel the heat if that happens. At the same time Chinese inflation scenario is looking very bad with expectations that the inflation may be highest in 10 years. Also, the strengthening rupee is playing spoil sport to the IT sector in India. Although the restrictions on ECB is likely to provide some reprieve to this sector, with enormous liquidity in the market RBI may face a tough time controlling rise of rupee and inflation at the same time. If RBI buys dollar to support rupee, then the excess rupee that comes into the market may cause inflation to go up.

Technically, there are two clear warning signs. First, the markets have been ignoring the red flags in last few days and performing against fundamentals. Second, the there is a marked increase in volatility. Both these things happen when market is peaking and gullible public is entering the market whereas shrewd experts are quitting. In the climax of every rally, the euphoria muddles market’s vision and people rush to buy and sell stocks at the most insignificant news while ignoring real warning signs. This creates a very volatile markets far removed from fundamental realities. Now, we are certainly witnessing such markets. In fact we may be very close to end of the bull rally.

Yet, we must remember that markets never follow our dictates. Even if we are right in our assessment of end of the bull market, it may take its own sweet time before confirming our opinion. Resistance to fall or even upward movement is something which an analyst can never rule out.

So where does that leave an investor? The answer is given by Dow’s theory. A rally is assumed to be in existence till a clear sign of reversal is evident. As long as the markets continue to make higher tops and higher bottoms, the trend is upward even though the warning signs may be there. Till date the markets have not shown any clear weakness. Sensex made its first significant bottom around 8800 in June 06 not falling below the previous top of 8770 of October 05. In March 07 it made another bottom around 12400, again around may 06 top. Naturally, the top of 14650 made in Feb 07 must be considered a strong support till it is evidently broken. (Note that a clear break requires both price and volume confirmations). So, it will be wise to stay invested if you are already in the market. Further, a rally from this support point should be considered a good entry point for those who have missed the bus. But, as pointed out earlier, the rally may not last for long. So, on breaks below the support of 14600 it may be wise to exit the market and re-enter later at a lower price.

Always remember, “It takes buying to push the prices up but they can fall on their own.” So when you have made profits do not hesitate to convert it to real money at the slightest weakness. Markets fall much faster than they rise and if you hesitate even for a short time during a fall, all your paper profit may be wiped out quickly.

Note: I do not have a professional charting software. So the values given here are only general markets levels. precise support and resistance maybe slightly different from values given here. Though, that should not make much difference to a genuine investor.

Disclaimer: This article only comments on general market conditions. Investing in equity markets is inherently risky and you should seek professional advice for specific guidance or in case of any doubt. I have no exposure in equity markets.

Booming economy, Sleeping RBI and Consumer Suicides

The controversy over harassment by loan recovery agents just doesn’t seem to stop. The situation is so bad that even the ICICI bank page on wikipedia (http://en.wikipedia.org/wiki/ICICI_Bank) has links to several instances of use of “goondas” by the bank. There are horror stories of people being kidnapped and even driven to suicide because of harassment by the bank. Such instances not only discourage individuals to take loans but also create an atmosphere of general distrust of banks. This, obviously, is extremely bad for any economy because it diverts funds away from its most productive uses.

The reason for increasing number of such instances may not be obvious at first but dig a little deeper and it all falls in place. First of all, our economy is booming. This means some banks want to garner huge market share any which way before the saturation sets in. This includes compromising on loan quality and pushing loans to people who really cannot afford them. No wonder then, some banks have credit card activation rates (First time use of a credit card that has been sold) of as low as 30%, forcing them to offer “cash back” on first purchase.

Second, as always, RBI is yet to be stirred out of its deep slumber. Simple measures like getting a copy of schedules of charges signed by customer when opening an account can be of great help to harassed public. How many of us really know charges levied by our bank? Of course almost everyone has one or two experiences of being cheated by sales agents about charges. Yet, RBI fails to take any notice of them.

Third, our criminal justice system is hardly anything to rely on. Individuals just can’t hope to win a legal battle against banks who keep a coterie of lawyers on payroll just for the day when some unfortunate victim takes them to court. Even if some individual shows courage to complain against these banks, what chances he has of getting a verdict in his lifetime?

These factors make India a fertile ground for unscrupulous elements opening banks and looting innocent customers who have no reprieve.

But how does one protect oneself against such harassment. I think its wise to abide by age old wisdom- “live within your means”.If you genuinely need a loan, make sure that you can fulfill your commitments even in worst possible scenario. Then, if you are sure you can afford to take the loan, ignore offers of loans from banks with bad reputation and head straight to good old public sector banks. After all, some documentation and patience is surely better than being driven to suicide…

http://timesofindia.indiatimes.com/articleshow/msid-1315099,prtpage-1.cms

…or being murdered…

http://timesofindia.indiatimes.com/India/4_loan_recovery_agents_arrested/articleshow/2148758.cms

Korean Taxi drivers

It was around 9 pm of a cold day in early January when we reached Pusan (South korea). By the time maneuvering was finished and our beautiful ship was secured to shore, it was already 10. But, as always, I was itching to go out on shore where earth seems reasonably stable.

So, my buddy Nayak (he was a cadet) and me left for the only street in Pusan that we knew of. This street is a night creature’s dream with dozens of beautiful pubs lined up on both sides where party never stops. Unlike other days, that day we walked till the end of the street just to see what all shops were there. At end of the street, I found something irresistible- a small camera shop that stocked some of the best cameras ever made. Nayak had a watch (night shift) and he had to leave around 12. Since, I was busy checking out various cameras, I planned to go on board later.

By the time I left the shop it was 1.45 and I headed for a quick bite of crispy pakodas from a roadside stand. It was then that I realized that my wallet was with Nayak! Now, that would unnerve many. But I was surprisingly calm- maybe because of familiarity of the place or maybe because of the slow processor that I carry in my head that takes time to respond to things. Anyway, I checked my pockets and found 8 dollars in change. That was a great relief- it was 5 bucks taxi ride to the ship!

Luckily, I forgot about pakoras and headed straight to taxi stand. As I was entering a taxi, the driver politely reminded me,
“the night time fare is in effect sir, so you will have to pay the double of day time fare, ten dollars equivalent!”
“See, I am not new here. come very week.”, I replied,” look for someone new to fleece.”
“You can come here every day sir. But that doesn’t change the fare- you can verify it with the cops.”

I did enquire with the constable on watch- the fare was indeed 10 dollars equivalent. Now, the grim reality sunk in- There I was in an alien country with not enough money to get to my ship. So, I went back to the taxi and told the driver- ok, I have got only 8 bucks. I will pay you the remaining once we reach there. You will have to wait for 10-15 minutes till I fetch the money. To my relief, the cabbie smiled, “Sure sir. Happens all the time in this street”

I hopped into the cab and he took me to the pier 12 where my ship was berthed. I thanked him and told him to wait till I fetched the money, because he couldn’t enter the port area. He replied, “Don’t take all that trouble. Its only two dollars. I would have brought you here even if you had no money”. What a shame! I suspected such a kind person of cheating me about double fare! I could just mumble a low voiced “thanks” and got out of the taxi.

As I was entering the security check, the driver shouted back
” which country?”
“India”
“Please speak good of Pusan taxi drivers there!”
No wonder, I do speak well of the Sonata cabs (yes the cabs there are sonata.), wide clean roads, and honest and courteous cabbies, who follow traffic rules as religiously as we Indians follow babas who preach on TV

My encounter with ICICI Direct

Any MBA would have heard of customer being the king and how customer service is critical for success of any business. But do we really practice what we learn in classroom?? Here is my experience with ICICI bank of "Hum hain na" fame. I had heard that in spite of high brokerage, service of icici direct is bad. However I decided to open an account with them only because of lack of a better option. What happened after that was totally unexpected even from their notorious customer service.

I do not trust sales agents of any bank. So, I took the trouble of going to the icici direct center near BSE in fort, Mumbai and submitted my application form there around 15th may. I was told by a smiling (financially illiterate) “executive” that account would surely be opened within 15 days. However, I knew that I should get a confirmation call from the bank before the account is opened. So when I did not receive any call within one week I called the salesman and he again cheerfully assured me that I would get a confirmation call soon. After another one week I called him again. This time he told me that the proof of address given by me was not acceptable. Obviously he didn’t check my form when I submitted it or even when I called him after a week. And he kept assuring me that the application was under process! Of course, I don’t expect icici to call me when there is some problem with the application- its too much to expect from them. But at least they could have told me of the problem when I called them. Anyway, next day I went with my bank account passbook and told them to get photocopy of entire passbook if they want. The executive kept smiling shamelessly and again assured me that the account will be up and running in 10 days.

Once again I waited for a week and then called him. He told me that he has lodged my form and I will soon get a confirmation call. This went on for another week and then another week. Finally I suspected some foul play and called their customer care instead of the executive who had been dealing with me. The customer care told me, “Your application has not yet been received”!! So I again called up this guy and asked him about it. Now the height of shamelessness- he had the guts to assure me again that the form had been lodged. He said that it takes some time before customer care can locate it in their system! - That’s complete lie, as I know now.

This game between customer care and the executive went on for 3-4 times before I decided that it was best to record these things in writing rather than on phone. So I sent a mail to customer care on July 18, 2007 giving all details. Magic! the very next day this salesman calls me up and says “we have misplaced your form. You will have to fill a fresh form”… now that’s something even for lousiest customer service in the world! Naturally, I told him that I wouldn’t be a fool to open an account with a bank that has employees like him. Thanks God the form was lost!

Unfortunately that didn’t end my encounter with icici direct. The next day I got a call from their customer care with the salesman on conference call. The salesman had found the form and lodged it in the system. To be fair to them, the form was actually lodged on 25th July after more than a month of harassment. Then the very next day the status of the form was changed to “rejected”. This is what the website says:

“Your application for opening an Idirect account has been rejected on 26-Jul-2007 on account of the following reasons:
BANK STATEMENT SUBMITTED SHOULD BE LATEST OF THREE MONTHS. PL. CONFIRM THE BANK BRANCH NAME AND CODE..
Our Sales executive from MAHALAKSHMI - REGION will get in touch with you for rectification of the application within 2 days.”

This, when I had given them the whole passbook and they could have photocopied whatever was needed. I am also sure that they photocopied at least last 12 months transactions!

Of course, no one contacted me to rectify it. So I called up the customer care again on 1st August and asked them to register a request for the same and the call center promptly replied that they couldn’t take a request before two days have passed. I tried to explain her that its four days between 26th and 1st august. But, trust icici to employ people who cant count. What about introducing a training program for employees for counting and alphabets!
Meanwhile, I mailed the customer care about it on 2nd august. Their reply was a short and sweet one “we have registered your request regarding arranging an executive for rectification of the account opening form 9001668020. The Service Reference number is SR33033782. We will confirm the status by SMS or email within 4 working days. ” Knowing how they measure days in icici direct, I have decided to apply for an account with reliance money.

Blame it on immigration… or Pakistan

Is immigration root of all the problems in Mumbai? It has been repeated so often that people assume it to be true without examining it. But is it true?

First of all, a city, by definition, is created and grows only because of immigration. If no one immigrates to Mumbai then Mumbai will become Airoli. It doesn’t need much understanding of basic economics to see why immigration is necessary for creation of cities and their growth. Cities are nothing but a concentration of people where it becomes easier for trade and commerce to flourish. For example, it will be economical to open multiplexes only in a city because of higher density of population there. Immigration serves two purposes here. It helps create such concentration of people and, more importantly, it provides human resource for the thriving trade and commerce. Both are critical functions, which cannot be performed by small native population for a growing city. This is because as a rule, immigrating population is younger, better educated and better skilled. (As an aside, for this reason, we shouldn’t be gung ho about social status of NRIs in the US. It’s a rule rather than an exception). So, it would be impossible for any city to be created without immigration. . (If you have any doubts about it, imagine any business house in Mumbai that can run without support of immigrants, be it in entrepreneurial, managerial or menial jobs).

However, immigration leads to a self-propelling cycle of growth. As city grows more people migrate to it and as more people migrate the city grows more. The growth stops and dies when the city is not able to provide the basic infrastructure to new immigrants. Slowly the city is overtaken by other cities and is lost into oblivion. (Remember Calcutta of 60s?)

That brings us to natural conclusion that immigration is essential if we want Mumbai to grow and must be encouraged. In fact, there is always completion between cities to attract best talent. How far we succeed in becoming a major financial hub is greatly dependent on our ability to provide world-class infrastructure and hence attract talent from all over Mahrashtra, India and preferably world, though that sounds a bit too far fetched when we are losing even Indian talent to upcoming cities.

Now, if it is such a basic fact why exactly we keep hearing that immigration is the root cause of all problems in Mumbai? The reason is simple- it helps our politicians. First of all, stroking such sentiments helps them get vote and an office. And the icing on the cake is that once in office they don’t have to work because they can always blame it on immigration.

Interestingly, such theories are not unique to Mumbai. We have another national theory- blame everything on Pakistan! Suppose I leave door of my flat open while leaving for office and find all valuables gone when I return in the evening. Who is responsible for it- the thief or me? It’s me! Contrast that with my office at makers tower where they don’t even pretend to have any security. Not only that, we leave our parliament, cities trains and buildings totally unprotected. And if someone blows them up, we conveniently blame it on Pakistan! Again, it helps our politicians to win elections and avoid responsibility!

So next time someone talks of Pakistan or immigration let’s ask this: it’s fine Mr. politician… Pakistan is a rogue country but why the f*** there was no security? And of course immigration is a problem. But when did you last increase the capacity of suburban rail? Do you think it doesn’t need expansion in 40 odd years, immigration or no immigration?

Vada pav, Virar fast and a pile of filth

I have spent most of my 25 odd years in different cities in India (including a short stint in international waters). Fortunately, I haven’t stayed anywhere long enough to lose perspective on things. But more about that later. This blog is about Mumbai. I had stayed in Mumbai for quite some time before moving to Gods own campus in Gods own country. However, when I returned, I felt a strange bonding with the city because I knew I have to spend most of my life here (unless I move out to major financial hubs like New York or London.) So this made me think more deeply about the city than I had ever cared to in past. Here are the two things that bother me.

First, the transport system of this city is already dead and buried. I am sure that in developed countries if we transport animals like we transport people in Mumbai, we will be in serious violation of law. We might even face prison terms for cruelty to animals. However it didn’t surprise me much. (What shocked me was the thought that I will have to continue traveling by train for at least next five years till I can fund a home at driving distance from my Colaba office.)

What did surprise me was the realization that this city is a pile of filth! I had never noticed this before. May be because I never thought I will have to spend my life in this city or may be the city wasn’t so filthy. But the truth is Mumbai can win the award for dirtiest city in the world without a doubt. The irony is that in the same city private spaces are so neat and clean. However, as a rule, public places are full of garbage. Add to that our insurmountable love for pets. So, early in the morning you have to watch your steps carefully if you don’t want to skid on some cute doggy’s shit! And don’t fool yourself, pet lovers not only use footpaths, they often use platforms and roads! So walk as carefully as you drive- don’t be under influence of alcohol or strong medicines and never use mobiles.

I am looking for one square feet of mumbai, which is really clean. Till date I have had no success. Please let me know if you find such a piece of sacred land. Till then, as they say, wherever you go stinking garbage follows you!

By the way, here is a suggestion for our chief minister. If you only want a catchy slogan you can continue with Sanghai or new york or whatever sounds good. But if you are serious about improving things lets begin by making Mumbai Delhi (or even humble Calicut).