India: Choice Between 10 % Inflation & Bankruptcy

Let the Retail price of Motor Spirits rise, then see where goes India’s inflation.

Nearly all the pieces are now in place for inflation to strike with increasing speed and fury, catching Wall Street by surprise, throwing government policy into turmoil and, at the same time, opening up broad opportunities for investors.

I know. I’ve seen this movie once before. And the script will forever be ingrained in my mind. It was 1978. Jimmy Carter was president. Oil prices had been surging for nearly seven years.

Other commodities — including silver, gold and food — were following closely behind. Wholesale prices, import prices and the price of critical resources were climbing swiftly.

Most important, the Fed’s pipe-smoking Chairman Arthur Burns, fearing a chain reaction of financial failures, pumped up the money supply with wild abandon, slashed interest rates — and set the stage for the worst U.S. inflation since the Civil War.

I saw it all, but I didn’t believe it. I assumed Burns would come to his senses, see the obvious danger of inflation and reverse course.
But I assumed wrong.

Burns plowed ahead regardless of all the signs. He gave lip service to fighting inflation, while continuing to print money. And sure enough, about a year and half after he left the Fed, consumer price inflation was roaring at double-digit rates.

Today, 30 years have gone by.

Instead of Burns, we have Bernanke; instead of Carter, we have Bush.
And while I marvel at how much the world has changed, it never ceases to amaze me how little the Fed has learned.

Like the Burns Fed of the 1970s, the Bernanke Fed is trying to avert a chain reaction of failures. Like the decision-makers under Burns, the team under Bernanke is talking the talk of moderation, while walking the walk of inflation.

Can’t they add up the numbers? Don’t they see the handwriting on the wall? Maybe, maybe not. But all that matters is their actions — and the consequences of their actions …

Already, U.S. producer prices have risen by almost 7% over the past year. And right now, they’re surging at an annualized pace of 13.2%. Already, U.S. import prices have catapulted 14.8% compared to a year earlier.And in the most recent month alone, they rose at an annualized rate of 33.6%!

And already, critical energy and food prices are rising at a pace that makes some of the 1970s surges seem small by comparison:

Just in the past 12 months, for example, corn is up 70%, sugar is up 72%, and the all-important price of crude oil is up by an astounding 102%.

In sum, with all of these prices jumping and with inflation clearly invading the daily life of average Americans …

It Would Be the Epitome of Complacency to
Assume Double-Digit Inflation Is Not in the Cards

Indeed, by many of the measures I’ve just cited — producer prices, import prices and commodity prices — we already have double-digit inflation in the U.S. today.

So isn’t it suspicious that the only measure that does not yet reflect surging inflation — the Consumer Price Index — also happens to be the yardstick with the most immediate political implications?

Isn’t it a bit worrisome when all measures of inflation are flying higher except the one that means the most for millions of Americans?

Until now, the discrepancy between actual inflation and the government’s Consumer Price Index (CPI) was largely an academic debate few people paid much attention to.

Now, however, with real-world consumer prices jumping right before our eyes … while the government’s distorted CPI still lingers near the 4% area, the gap between the two is about to burst onto the scene as a scandalous cover-up.

According to John Williams’ Shadow Statistics, the premier source of unadulterated U.S. economic indicators …
While the March year-over-year change in the official CPI was only 3.98% …
The true CPI, based on the same standards as those that prevailed before the Clinton administration, is now 11.58%!
This means that the gap between the official CPI and the alternate CPI is now a whopping 7.6 percentage points. In other words, the U.S. government could now be understating the CPI by a full 7.6%!

Moreover, over the years, this gap has widened dramatically. Until January 1982, there was no gap whatsoever; and until November 1986, the gap was usually less than 1%. But then, it started widening like mad, and has been getting bigger ever since. Ironically …

Despite the Shenanigans in
The CPI, the Government Still
Can’t Keep the Number Down!

Even at just 4%, the official CPI inflation has clearly exceeded the Fed’s target range. And even at this artificially low level, it is already triggering a gusher of concern.

In a Thursday posting to his blog, “Officials Ratcheting up Their Inflation-Fighting Rhetoric,” Mike Larson showed you just a few examples:
Kansas City Fed President Thomas Hoenig: We are now facing “inflation psychology to an extent that I have not seen since the 1970s and early 1980s.”

IMF Deputy Chief John Lipsky: “This inflation speed-up must be taken seriously as it creates potentially significant challenges to economic stability.” A return to 1970s-style high inflation and rising price expectations “cannot be discarded out of hand.”

ECB president Jean-Claude Trichet: “There’s no time for complacency in any respect” as far as inflation expectations are concerned.
But talk is cheap. At the Fed — and in many countries — the only action that’s under consideration is no action. In other words, keeping interest rates at their current low levels.

And with inflation surging, the only way they can keep interest rates down is by stepping up the flood of freshly printed money into the economy.

To Better Understand What’s Really
Happening, Here’s What to Watch …

Set aside, for the moment, all the debate about the CPI. Bypass, for now, the various notions of how much money the government is pumping into the economy.

And above all, take with a grain of salt the official rhetoric that they’re “fighting inflation.”

All that is just talk. What counts is action. And the one single measure that best distills the true action is the level of real interest rates (interest rates minus inflation).
Example:
Interest rate: 5%
Inflation rate: 4%
Real interest rate = 1%
Real interest rates tell you if the Fed is just BS-ing or actually acting.
Real interest rates help give you a solid preview of whether inflation is likely to accelerate or not.
And real interest rates will be your best warning of a possible end to the inflationary cycle, when and if that time comes.
The reason: Real interest rates represent the true price of the most important “commodity” of all: Money.
Here’s the scoop in a nutshell …
When real interest rates are high, money is expensive. If it persists, the days of inflation are numbered.

When real interest rates are low, money is cheap. And with cheap money chasing scarce goods, inflation is bound to continue.

Worse, when real interest rates are zero, money is not just cheap, it’s effectively free. And free money chasing scarce goods puts inflation into overdrive.

Worst of all, when real interest rates are below zero, money is not just free — but borrowers are, in effect, actually getting paid to take the money. And it’s the abundance of this kind of highest-octave money that is the ultimate prelude to double-digit inflation.
That’s what we have today: The Fed has dropped the fed funds rate to 2%. But the CPI inflation, even with all its distortions, is now close to 4%. So the real interest rate is …

2% minus 4% = 2% below zero!

With this upside-down state of affairs, it matters little what the Fed says. Fed Chairman Bernanke could go before Congress. He could get down on his hands and knees. He could swear until he’s blue in the face that he will “fight inflation.”

But until and unless the level of real interest rates rises back above zero — and beyond — nothing Bernanke says will make much of a difference.

Oil and commodity prices will continue to surge. Import prices will continue to jump. The dollar will continue to lose value. And inflation will continue to spiral upward.

This is precisely what happened in the mid-1970s under Burns:

He pushed short-term rates down dramatically.

He ignored the fact that consumer prices were rising at a faster clip.

And as a result, real interest rates plunged to zero … 2% below zero … 4% below zero … ultimately as low as 5.2% below zero in February 1975 (red areas to the left side of chart).

And above all else, it was this super-money (borrowers virtually getting paid 5% to borrow it) that was the prelude to double-digit inflation in the late 1970s.

Now, here we are again — in the same place and with the same danger! Here we go again with real interest rates far below zero (red areas to the right side of chart)!

Does it matter that real interest rates today aren’t quite as low as they were 30 years ago? No. What’s more important is the fact that they’ve been kept at these low levels for so long.

And remember: The true inflation rate, stripped of the government’s cover-ups and shenanigans, could be as much as seven full percentage points higher. That means that the red areas in the chart today could actually be much deeper in the danger zone than prevailed under Burns.

Bottom line: Brace yourself. Double-digit inflation is on the way.

Even if the Fed pauses its recent rate-cutting … even in the Fed actually raises rates … as long as real interest rates in the U.S. remain below zero, it’s unlikely to provide lasting support for the dollar.

Market view - by Sonia Sharma

I will be only bearish if price dont hold ..after R power money refund ……… There is no liquidity in market …let the liquidity return…than bulls will take the control …mind it we need only 4-5 billion USd to make a new high whereas FII will get 12 billion dollars ( 10% of 120 billion) and qib will get 6 billion usd and retail will get ( 43 lakhs * 97k or 25k) liquidity …. by tuesday ………. bear r smart and they will cover their position as they know this will happen . Just wait for 20 billion usd to return to market and even if 25% get deployed we are in for next bull phase…..

Know when to sell ….

“It’s different this time” are the most expensive words in the investment business. They are a rationalization trap of the highest magnitude, particularly in reassuring yourself to hold on to a share when it’s clearly better to sell it.

Confronting Reality

Although business situations are seldom if ever identical, success in business can be analyzed; patterns of managerial behavior are recorded, categorized, and taught in graduate business school classes. In the same way, there are common contributors to failure which are discernible in deteriorating investment situations. Following is a list of some of the danger signs:

• Heavy promotion of the stock by management or agents
• Projections of unusually strong/lengthy growth
• Use of round numbers for predictions (e.g., 50 per cent growth, or a “$ 10-billion market”)
• Questioning the motives or expertise of reasonable doubters
• Strong claims to being the best, unique or exclusive in a business
• Defining the market narrowly so that, by definition, one is the leader
• Ready excuses faulting outside forces when performance falls short
• Lateness in reporting earnings (against either prior practice or SEC filing deadlines)
• Change in outside auditors
• Change in lead banker without improvement in interest cost and/or size of credit facilities
• Substantial insider selling of the stock
• Resignation of key officers or of directors
• Sales or margins trends diverging negatively from those of the competitors
• Inconsistent management statements
• Identical (seemingly rehearsed) management statements
• Stonewalling when trouble is obviously present.

Faced with some combination of perhaps three or four of the above, an investor can reasonably and prudently conclude that something is wrong and should get out of the stock. To insist that a particular combination of adverse events as seen in another situation can be fully repeated before concluding the stock is in trouble is naive, and probably costly.

Things do not get better by themselves. When a company’s affairs appear to be deteriorating, even if certain negative events have not been reported, investors are well advised to assume the worst by projecting that the situation is likely to continue worsening.

The point is, investors should be looking diligently for disturbing similarities to other problem situations rather than watching for comforting differences. The objective is to detect trouble as early as possible, thereby preventing or limiting loss of one’s capital. There is an analyst’s clich that the first earnings disappointment will not be the last.

Similarly, be suspicious at the first signs of any type of trouble. Unless a neutral or skeptical observer can be convinced that all is well, exit before things have a chance to become worse. Ask dispassionately whether, in light of today’s facts, it is a good idea to buy now.

There is a real but subtle difference between the “this-time-it’s-different” rationalization and “this can’t be happening to me.” If what is going wrong is like something that went wrong once before, there is probably a reason. Putting it bluntly, the same mistake has been made again.

Simply hoping that the same mistake could not have happened again, however, is just across the reality-denial border from “this is not happening.” This indicates a need to deny that anything is wrong, a blocking of the pain caused by a mistake. And, of course, when a mistake is public knowledge (the broker knows, and at year’s end the tax accountant will know, too) the distaste is all the more deep and embarrassing.

What usually happens in these situations is that the investor focuses in the wrong direction; he turns subjective and inward. But the reality is that whatever is happening (collapsing earnings, a dividend cut, executive stock sales or resignations) is happening to the company — not the investor — in the objective plane, entirely unconnected causally to this particular investor’s current ownership of the stock. It is happening, period.

The personal internalization that says “it is happening to me” and eventually “this can’t be happening to me” is a rationalization. Sometimes an investor grasps at the discernible differences from a disastrous past investment experience and uses them to tell himself shakily that it will be alright, it is not at all the way it looks.

Instead of rationalizing, sell the stock at the point in time when trouble strikes the company and reassess the situation from a cooler distance. Remember that things do not right themselves. And realize that some serious buying power from other investors will be required to get the stock back up to higher levels.

A smart investor asks this key question: If I did not own the stock, with today’s knowledge would I be a buyer now? When trouble first appears, prepare for the worst. This includes developing a mental scenario of what other shoes might drop, how long it all will take to play out the situation and how the market will react to the problem.

The most important aspect of performing this mental exercise is to examine prior situations in search of their similarities rather than differences. Then from a big-picture standpoint, remember that history does repeat.

Excerpt from It’s When You Sell that Counts by Donald L Cassidy .

The brilliant Anil Ambani plan to make billions from thin air … WOW !!!!

Is Reliance Power just ‘Reliance Power’?No.

It is actually ‘Reliance Power Limited’ - a limited company.

So what does this mean for Reliance Power Limited?

It means if in the rare case, the calculations of the management go wrong and the company somehow goes to insolvency, none of the shareholders will lose anything expect the value of the shares.

If you are a share holder of Reliance Power and it goes into insolvency (unable to pay back debts), what do you stand to lose?

Rs 430 per share.

Lot of money….right?

What does Anil Ambani’s AAA Project or REL lose?

Both of them had got their 45% (post-IPO) stake for Rs 1000 crore each. Plus they will each subscribe to 1.6 crore shares each at Rs 450 in the IPO……which works out to be Rs 720 crore.

Thus, AAA Project will be getting 101.6 crore shares of Reliance Power for Rs 1720 crore and REL will be getting 101.6 crore shares of Reliance Power for Rs 1720 crore.

Little less than Rs 17 per share.

This is what both the promoters are risking in this project….Rs 17 per share ; while investors will be risking Rs 450 per share.

This is exactly the reason why Reliance Power was created.

First, by contributing just Rs 1720 crore each to Reliance Power, the promoters have shifted all risk to investors.

Second, by getting 45% stake (in REL’s projects) to AAA Project for a mere Rs 1000 crore, AAA Projects (and Anil Ambani) have created wealth out of thin air.

Anil Ambani’s Rs 1000 crore investment will be worth Rs 100000 crore when Reliance Power lists at Rs 900.

If the gamble works, the promoters (holding 90% stake in Reliance Power) will be worth billions of dollars.

If the gamble doesn’t work, the promoters will lose Rs 1720 crore each and investors will lose Rs 10000+ crore which they will be paying for a mere 10% stake in Reliance Power.

What a way to create wealth…!!!….I don’t have words to describe the brilliance of Anil Ambani’s plans… .

First, other companies are much cheaper.

Why should I keep a company valued at Rs 200000 crore -

when another company (with similar capacity by 2013) is available at Rs 30000 crore with much smaller debt burden and Rs 10000 crore worth of investments………..referring to Tata Power.

If Reliance Power (at Rs 900) is available for Rs 200000 crore, why not buy NTPC for a similar price ……Rs 225000 crore. NTPC plans to have a capacity of 66000 MW in 2017, while Reliance Power will have 28200 MW capacity in 2016.

Second, the risk is higher than other existing companies.

With marginally cash flows for next 5 years and Rs 70000+ crore of debt, the risk for Reliance Power is high. Tata Power and NTPC have existing cash flows to handle expansions….Reliance Power does not.

Third and the biggest factor is….the valuation of the company doesn’t make much sense.

Why should Reliance Power be valued at Rs 200000 crore, when in highly optimistic scenario, it will not make more than Rs 15000 crore of profit in 2016? Even if it touches that figure of Rs 15000 crore, its market value in 2016 will not be much more than 225000-300000 crore. (if given a 15-20 times multiple).

A fixed deposit will make more money than that in 8 years…..and that too without any risk.

Also, I got the optimistic Rs 15000 crore figure by assuming two times margins as NTPC.

The fact is….. at least till 2014, Reliance Power will still be carrying most of its Rs 70000 crore debt and its interest costs will squeeze margins to a large extent

Views invited

Thank you, Mr Tata, for thinking of the common man!

Mr Ratan Tata, thank you very much!

You have created history, not because you have created the cheapest car in the world but because you have touched our emotions, our hearts. Thanks a million.

For more than 900 million Indians, who live ordinary lives, this is a rare moment when they feel like they are being taken care of by the rich and the mighty class.

Your class, I mean the others who are amongst the richest Indians, must be feeling a little squeamish today as they saw the overwhelming coverage of you unveiling your pretty car in the Indian press and on television.

Frankly, the best part of your endeavour is that you have taken terrific care to make sure that your car does not resemble a superior version of a Bajaj autorickshaw. That would have made us feel humiliated. Instead, you have done it with style, and class. Thanks again.

The stock exchange might not reacted favourably to your history-making venture, but that is also the proof that Tata Nano is not just about money. It’s about profits along with creating a great product.

Very soon the Bajajs and the Munjals, the Japanese and the Koreans will also realize this. We are told that you may be making a humble profit of only Rs 4,000 per Tata Nano, but life in globalization is about ideas plus profit.

In one single stroke you have created a new class within the Indian society. Overnight, my canteen manager Sitaram-ji, my driver’s elderly father who is a retired army man, my grocery supplier Mr Arora, and all such nice people with decent but limited income can start dreaming.

That’s wow! Really!

Till the 1990s, Indians were striving for roti, kapda, makan, water and roads. Then, the desires expanded. Consumerism started to find a foothold in the country, but glitzy acquisitions were still within the reach of only the fairly well heeled.

• Tata Nano, world’s cheapet car: Complete Coverage

But, now, I cannot but be amused as I visualize a supervisor stepping out of his Alto-deluxe and his salesman disembarking from his Tata Nano for an informal meeting at a Barista outlet.

As expected, Bajaj Auto Ltd managing director Rajiv Bajaj talked about profits the other day. He said: “We have seen the car (Tata Nano) and it looks good, but I haven’t heard them (the Tatas) say that it will be profitable.”

No one can be so off the mark. To be an industrialist in the new economy is not to be a new zamindar. It is about inclusive growth without losing out on innovation, technology and growth.

Mr Tata, you have given shape to our secret desires. In all seriousness, India’s hyper-energetic middle class and the impatient poor who want to break into the upper economic layer salutes you today. You have accomplished what CPI (M) general secretary Prakash Karat — with his bagful of idealism — could not do, or what Prime Minister Manmohan Singh — with his five-page-long qualifications as an ace economist — could not do, and what all Karl Marx-quoting hypocrites could not dream of doing.

Tata Nano is the great symbol of Indian-ishtyle socialism. This is socialism suited for the 21st century. As a nano favour, Karat should write a letter to the United Progressive Alliance government recommending you for the Bharat Ratna because by thinking so big on behalf of those smiling and struggling Indians travelling awkwardly on unreliable two- or three-wheelers, you have given us something to boast about.

For the first time, our favourite pro-people activist and Centre for Science and Environment director Sunita Narain looked out of sync on TV on Thursday when she talked about congestion, pollution and the other inherent problems ’caused by’ the auto industry.

Right now, there are about five million cars and 70 million two-three wheelers on Indian roads. In the coming five years there might not be more than 500,000 Tata Nanos in the Indian market, but there will certainly be 500,000 ordinary Indian families enjoying a safer ride in their own four-wheeler.

The entire Nano event is important from only one point of view. We are taught that social democracy is all about the majority of people having an equitable share of the resources of the nation. Water, land, metals, food and roads — every basic requirement for living should be distributed in such a manner that more and more people reap the benefits. Since the last 60 years the rich who constitute a single digit percent of the population had all the roads to themselves except for the footpath.

“Yeh road tere baap ka hai?” is the common aggressive sentence ordinary pedestrians heard from insensitive car drivers. Yes, the road should be more the property of the common people of India, but those who can afford Marutis, Hondas and Skodas wrongly think that they should be given the right of way by pedestrians on wretched Indian roads. Yes, road common people ke baap ka hai, this is what Tata Nano is shouting from the rooftops. For that we are so happy, Mr Tata.

Creating roads was a capital-intensive development and took away a large share of the planned budget and ended up helping the rich and upper class much, much more. Huge chunks of land were taken away to build highways and expressways, but 80 per cent of people living around them have no use for them because they simply cannot afford the cars or even autorickshaws to drive on them.

People without cars had to struggle to have their share of the roads. The most shocking fact is that when the New Delhi government built a magnificent cluster of flyovers near the All India Institute of Medical Sciences, it simply forgot that there will be many people on foot too! Only after UPA chairperson Sonia Gandhi inaugurated it were some amendments made.

It’s so difficult to walk or even cycle in cities. Tata Nano is important from the point of view of having a piece of the pie of the national asset called ‘road.’ So far, only the rich could boast of driving on roads and highways.

But now the ‘other class’ will enter. Sunita Narain’s argument about pollution and congestion is first class but it comes at a wrong time and at the wrong place because it is a general argument applicable to all and mainly to Central government which is bereft of ideas on development.

The real reason behind the euphoria caused by the Tata Nano is the negligence of mass-transit systems in India since decades. Every ordinary Indian has his or her tale to share about how they have suffered in jam-packed and rickety state transport buses, how they are crushed in Mumbai local trains, and how elderly people dread travelling by any means of public transport.

It is a national shame to see the way women, children and the elderly travel in Mumbai’s local trains, but no government or industrialist thinks about putting their act together to help more than 4 to 5 million people even when Mumbai is reaching a breaking point.

For the first time, the Kolkata and Delhi metro rails gave ‘respect’ to the common man’s need for better transport.

We would like to believe that Tata Nano is a symbolic gesture to bring the common Indian in national focus. If India had better public transport, we would not have given a rousing welcome to Tata Nano.

By the way, in Ratan Tata’s mother tongue Gujarati, ‘nano’ means small.

Investor’s Checklist: - Seven Mistakes to Avoid

(Timely advice)

• Don’t try to shoot for big gains by finding the next Microsoft. Instead focus on finding solid companies with shares selling at low valuations.
• Understanding the market’s history can help you avoid repeated pitfalls. If people try to convince you that “it really is different this time,” ignore them.
• Don’t fall into the all-too-frequent trap of assuming that a great product translates into a high-quality company. Before you get swept away by exciting new technology or a nifty product, make sure you you’ve checked out the company’s business model.
• Don’t be afraid to use fear to your advantage. The best time to buy is when everyone else is running away from a given asset class.
• Attempting to time the market is a fool’s game. There’s ample evidence that the market can’t be timed.
• The best way to reduce your investment risk is to pay careful attention to valuation. Don’t make the mistake of hoping that other investors will keep paying higher prices, even if you’re buying shares in a great company.
• Cash flow is the true measure of a company’s financial performance, not reported earnings per share.

Kudos to Ratan Tata & team !!!!

  India’s one lakh car – From Ratan Tata’s dream to reality When Mr. Ratan Tata expressed his intention for the first time about making a people’s car which would cost just one lakh, his critics mocked at him calling his idea as naïve. They even went to the extent of saying that in a minuscule amount of one lakh, car may be designed with curtains in place of doors. Now when the car is ready to be launched on Jan 10^th  at Auto Expo in New Delhi, they have not relented yet and tonnes of stuff are written calling the car as polluting device and one that will increase congestion on roads. Interestingly, his critics comprise not only media men and politicians but competitors and learned men like Osama Suzuki, Chief Suzuki and Jagdish Khattar, MD Maruti. I just don’t understand why everybody is after Mr. Tata’s life. In the write up that follows, I have tried my best to answer all the questions raised by critics of one lakh people’s car. When RNT joined JRD’s camp, he was handed over the charge of some of the worst performing companies of TATA group namely Empress Mills and Nelco which were loss making. When he turned around these companies, even then the critics turned their back against Mr. Tata and this time not give any credit for turnaround and blaming him for not generating enough profit. Later when Jeh handed over the charge of TATA group to RNT in 1991, it was once again publicized as grave mistake on Jeh’s part. Seventeen years has passed since Ratan took over the charge and I am sure that his critics are not left with a single doubt that there could not have been a better successor than Ratan Tata for the group. Even Jeh must be rejoicing his decision which was strongly opposed when he made Ratan Tata his successor. If critics are still having doubt about Mr. Tata’s capability to run the show, let’s take a look at his recent achievements – It was under his guidance that two years back, TATA Tea acquired Tetley to become the second largest seller of tea in the world. Biggest ever overseas acquisition by an Indian company, which made TATA steel the fifth largest producer of steel in the world must be still afresh in everybody’s mind. TATA Chemicals acquired Brunner Mond in 2005 to become third largest soda ash producer in the world. It was under his lordship that TATA Motors which is fifth biggest commercial vehicle producer in the world acquired Daewoo Commercial Vehicle in 2003. When all the IT companies including the behemoth Infosys are struggling to maintain their margin, last quarter it was only TCS which declared a smart rise in operational margin while other peers like Infosys and Wipro could not bear the burnt of rising rupee. I hope his critics are aware that TCS is the biggest IT Company in Asia when they make comments doubting the credibility of Ratan Tata. Indian Hotels acquired Ritz Carton recently and is also looking to spread its footprint across the globe. The credit for taking TATA group to the world entirely goes to Ratan Tata and his team and it has reached a stage where ~ 50% of the revenue of the group can be attributed to business from abroad. If still not satisfied, you may be thrilled to know that TATA group is the leader in UK in steel, tea, chemicals, hotels, and IT industry and close to 16% revenue of the group comes from UK. Coming back to the hot topic, RNT’s dream project – people’s one lakh car, as the name suggest is targeted towards the common man and not for the one’s who ride Mercedes, BMW, Ferrari or the likes of Limousine. On the one hand, we talk about a growth which is ‘all inclusive’ and on the other hand, one lakh car which is to bridge the gap between vehicle owners and the lower strata of the society who cannot afford any vehicle is criticized strongly in media. Critics eat up their own idea of inclusive growth when they speak against this unique achievement of TATA group. Interesting and astonishing fact is that the car is opposed by those who call themselves the caretaker of inclusive growth. The ‘inclusive growth story’ gels well with one lakh car and needless to say, majority of consumers would be those who are still waiting to buy their first car and not the one who already own a car. Isn’t it all about inclusive growth? The preachers of ‘inclusive growth’ are not justified when they are opposing one lakh car which would further push their propaganda of ‘inclusive growth’. They say that a car which is so cheap and affordable for common man will increase congestion on the already bleeding traffic. I feel this is the most absurd and illogical reason posed by critics. I hope critics would agree to the fact that whether we sell a Mercedes or one lakh car, it means the same for traffic congestion. They are not even clear whether it is traffic congestion or one lakh car which is centre of their opposition. I agree that a car which comes in $2500 will definitely increase traffic on roads but this does not mean that Ratan Tata or his one lakh people’s car is to be blamed for it. If we are so worried about congestion issues, we should build better transport and infrastructure rather than standing against something which is a unique achievement by India. If my memory serves me right, our Finance Minister reduced the excise duty on small car two years back, encouraging the production of small cars in India. Where were our critics when Finance Minister expressed his intention of making India a small car hub? The beauty of one lakh car lies in the fact that, world over companies like Volkswagen, Eicher, Kinetic, Renault and many other Japanese companies are struggling to produce a low cost car but none of them are able to breach the 100K mark. So, when TATA Motors took this project, there was no benchmark or model which they could follow. The project had to be started from scratch and there were major concerns like safety, pollution, engine capacity and many other issues which had to be taken care of. It will cater to the needs of not only Indian market but across the globe as nowhere in world, a car can be produced at a cost as low as one lakh. There are speculations that TATA group has already entered into talks with Thailand for production of one lakh car in their country. Entire world would be watching with their fingers crossed when Ratan (global) Tata would raise the curtains to unveil his dream project 48 hours from now at Delhi Auto Expo. I feel this is the time to stand up to this great creation and pay due credit to Ratan Tata and his team when he will unveil one lakh car which still remains a dream for his competitors. It would be very unjust on part of my critic friends, if they still feel there is no point to rejoice on this auspicious occasion. One lakh car is not the project of TATA group alone but it is the project of India which sent shivers down the spine of global conglomerates like Suzuki and Renault who are still struggling to produce something which is close to one lakh car. The car is a testimony to the fact that India has so much to offer to the world and we have equal competence to deliver something which can be adapted across the globe. People’s one lakh car is a tribute to Jeh and I hope he must be cherishing his decision to hand over the charge of the group to Ratan N Tata in 1991, when the world doubted the fire inside RNT. 

Kudos to Ratan Tata & Team!

Break Out Trading

Thanks Sameer, you are a genious !! 

WHAT IS VOLUME BREAKOUT?

W.D.Gann,a great forecaster of the stock market, has said that there are three parameters that govern the price movements,namely PRICE,VOLUME AND TIME(SPACE). There exists a particular relation and behaviour pattern between these three parameters. Obviously the price movements are the results of the supply and demand, but the time and volume parameters are very important background players who affect the price movements. I personally feel that price movements are the effects of movements in volume and time frame. So the real reason behind any price movement is the volume and time.

Volume breakout is a term used in technical analysis to indicate the unusual rise in volume( in the above sheet i have taken the volume of 2.5 times the average as the unusual). It has been revealed that the first thing that happens before any pricing action is the change in volume.

,so as a rule the jerk in price is followed by jerk in the volume. The above sheet taps the scrips in the market in which there is unusual volume in positive direction.(Means the volume has taken the price of the security up,indicating that the volume is in the interest of buying and not selling).

WHAT IS LIVE VOLUME BREAKOUT?

Mostly those who follow the eod(end of day data) for technical analysis come to know about the volume breakout after the closing of the market, and next day when they try to enter into the stock it has already ran up by considerable amount, to avoid such situation,my page tracks the securities volume during the live market and informs you as soon as the volume crosses the threshold value in positive direction, so i call it as the LIVE VOLUME BREAKOUT.
ENTRY AND EXIT RULES:

Rules for entry:

1.The stock has appeared in the live volume breakout sheet.
2.The eod chart for the scrip shows the rising RSI.
3.The eod chart for the scrip shows rising slow stochastic:
4.The main trend of the market is positive ( as obtained from nifty chart) i.e close above 20day ema.(The volume breakout doesn’t works when main market trend is negative).
Rules for exit:

1.Target achieved.
2.Stoploss triggered
3.Inactivity exit i.e if no price movement seen even after 12 trading days.

My own trading system with volume breakout:

1.Trading capital allocation

I have allocated a total of 80,000 rs/- for volume breakout, and i invest rs 8000/- in one scrip at a time. Thus at a time i have maximum of 10 positions in different scrips.(everybody should have such plan depending upon his own capital)
2.Entry decision

I prefer to enter into the scrip as soon as it appears on the sheet (with a quantity 4 times that of calculated for rs 8000, means if a scrip appears into the breakout page i buy in a quantity equal to rs 32000/-) and on 3:15 i square off the ¾ th quantity and keep the quantity equivalent of rs 8000 . The intraday gain brings down my average entry price. Rarely the price falls from the entry price in that case my entry price goes up, but i strictly square off the ¾ th quantity. Further i prefer to enter on the days when nifty is in upswing and avoid the entry on the days when nifty is closing near the days low.(because mostly when nifty closes near the low of the day, there are few chances of market zooming next day.) further as stated above i check the eod chart for the scrip before making the entry decision.
3.Free trade stoploss:

On next day of entering the scrip, i prefer to not to put the stop loss, on the third day i put the stop loss equal to ( entry price + brokerage), i call this as the FREE TRADE STOPLOSS. The logic behind is that even from the third day your stop loss is hit you don’t loose a single rupee from your capital. This is the key to capital preservation.

In case the stock has not moved in my favor on next day i prefer to apply the yesterday’s low as the stop loss or the stop loss indicated in the sheet. I prefer the manual exit at the time of market closing rather than applying the stop loss because sometime in high volatility we get stop loss hit unnecessarily.
4.Inactivity exit:

When i see that the stock is not moving towards the target even on the 12 trading day, i prefer to exit from the stock, and book the profit or loss whatsoever it may be. This opens to doors to trade in other better moving scrips rather than getting stuck in inactive scrips. But at least allow the 12 trading days to move it.
5.Booking profit( i book shares and not the cash)

One of my friend always use to repent on the fact that he had so and so stock at so and so price but booked profit and it is zooming now. To avoid this i use a unique technique to not to book profit in terms of shares and not the cash. Let me explain this with example :

suppose i bought a scrip XYZ at rs 50 a qty of 160 shares(50 *160=8000) and my target price is 56. now when the scrip reaches the target i sell only 144 ( 56*143=8064) and my profit is not in terms of money but my profit is 6 shares which i call free shares.

Now i forget about these shares i have earned, and my profit is also active now which also goes on multiplying. Further i need not to fear about this holding because my investment in these shares is 0 rs.

Thus as the time passes your portfolio goes on accumulating such free shares and it is active profit which goes on rising as well as gets dividend,splits etc.
6.Stick to your laws even in unfavorable situations:

The key to success of any system lies is following it strictly and having faith in it even when the system is going against, because in most cases when few stoplosses are hit the follower looses confidence and starts modifying the system as a point from where the system starts giving good output. I have personally back tested the system and found good results, you can also test the system with paper trade and then start actual trading with it.
For any clarification etc contact :engr.sameer@gmail.com
Disclaimer: The calls generated here are automatically on the basis of certain conditions, it is implied that users take positions at their own risk and in no case the owner of web page is responsible for the direct or indirect loss caused due to use of these recommendations.

http://breakouttrading.googlepages.com/vb

The RPL stake sale by RIL & THE LOGIC behind it

Reliance Industries Ltd. (RIL), holding company of Reliance Petroleum Ltd. (RPL), has sold about 4.01% stake of RPL, being 18.04 crores equity shares, for Rs.4,023 crores, at an average price of Rs.223 per share. This has reduced stake of RIL in the RPL from 75% to 70.99%.

The share price of RPL has witnessed a lot of volatility, especially in F&O segment, in the current month series of November, when share price fell from Rs.295 to now at Rs.215. The scrip RPL, was also under ban, till Friday, in F&O, due to Market Wide Limit having crossed 95%. But now, from today, the scrip has resumed trading again in F&O. This was also first instance when a scrip of NIFTY 50, came under ban in F&O segment.
 
The market report indicates that about 12 crore shares are in open interest in future segment, apart from additional open interests for Put and Call, in options segments at various rates for three months. While taking a feel of retail investors’ position, majority of them are long on the scrip, and since the scrip was under ban, they kept continuing with open position, even after paying mark to market losses and incremental margins, imposed due to higher volatility. Conversely, informed circle is reported to be short in the counter, for matching open interest.
 
Initially, short positions seems to have been created by the informed circles, at the higher levels of Rs.275 plus, obviously, finding these price levels as unrealistic, and subsequently, actual sell has been triggered by RIL in cash market, thus realizing an average of Rs.223 per share. This has resulted in reverse arbitrage, till last week, when cash segment ruled higher than F&O. This also indicates paucity of floating stock.
 
Shareholding pattern of RPL is as under :–

1)	RIL	337.50 cr shares being 75%	Rs.3,375 crores
2)	Chevron	22.50 cr. shares being 5%	Rs.225 crores
3)	Public	90.00 cr. shares being 20%	Rs.900 crores
	Total	450.00 cr. shares being 100%	Rs.4,500 crores

RIL has acquired its 75% stake as under :–

1)	270 cr. shares at par	Rs.2,700 crores
2)	67.5 cr . shares at Rs.60 per share	Rs.4,050 crores
	337.50 cr .                             Total	Rs.6,750 crores

RIL has almost realized its cost of Rs.4,050 crores for subscribing 67.50 shares, in April 2006, at Rs.60 per share. Since, investments sold are based on FIFO (first in first out) basis, shares having subscribed at par were presumed to have been sold, on which long term capital gain of Rs.3,842 crores, has been earned by RIL, which is tax free.
 
So, effective cost of 71% stake in RPL, for 319.46 crores shares are Rs.2,727 crores, translating into, cost per share at Rs.8.54 . The market value of this is close to Rs.67,000 crores.
 
One may recall, that Chairman of RIL, Mukesh Ambani, in company’s 33^rd AGM held in October in Mumbai, had stated that the company would be capitalizing on the investments held, including that of RPL. Nobody, could predict this move, likely to be taken by RIL at a future date.
 
Now what could be likely move and developments, post this minority stake sale: -
 
1)       The control of RIL on RPL is not affected as this is a minor dilution, and 71% stake is quite reasonable, in the mega refinery, which would vastly improve the consolidated results of RIL.
 
2)       RIL would have an other income of Rs.3,842 crores, in quarter ending December 07, which would give an extra EPS of Rs.26.50, on enhanced equity of Rs.1,453 crores, post IPCL merger. 
   
3)       RIL has been able to mop up close to Rs.4,000 crores (tax free) when it needs funds, for its capex programme at K G Basin.
 
4)       RIL may further decide to offload .99% stake, being 4.46 crore share, and realize close to Rs.1,000 crores, and keeping its stake in RPL at 70%. 
   
5)       Chevron, presently has 5% stake in RPL, with an option to raise it to 29% by June 09, post commencement of refinery. The preferential allotment can only be made, based on SEBI formula, which would be at Rs.200 plus, (presuming market price to remain above Rs.200). At this rate, Chevron may not be interested in raising its stake to 29% as it would need close to Rs.30,000 crores. Hence, Chevron, would opt to offload its 5% stake in favour of RIL, at Rs.60 per share, as per the terms of the share subscription Agreement.
 
6)       On happening this event, RIL would be able to raise its stake, back to 75%, at a cost of just Rs.1,350 crores. 
   
7)       The informed circles, having initiated shorts in F&O at an average of Rs.275 per share, are repored to have made a gain of Rs.1,000 crore plus.
 
Now, let’s take a call, how share price of RPL is likely to behave, in coming times.
 
1)      As majority of retail investors are long, they would opt to roll over their positions in December series, as bullish outlook on the stock, continues, for various reasons (no need to elaborate them).
 
2)       Informed circle, holding short position of close to 10 crore shares, may not be interested in rolling over, as market perception has changed positive, on the stock. But, in this case, they may be interested to see a lower rate, on closing day, (Thursday 29 ^th November) to enable them to have a better close out. 
   
3)       Since, no more, delivery based selling is expected on the counter, weakness may not be seen from beginning of December F&O series
 
4)       If informed circle, tries to bring down the price on closing day, lot of interested buying may be seen, below Rs.200 per share, from investment and arbitrage view point.
 
In nutshell, this was a calculated move, by RIL, whereby, huge cost has been recovered, coupled with retaining majority and respectable stake. Also, the market (cash and F&O) is in full control of the management, which would take direction, on the next move of the management, as that will have far reaching consequences

Why You Need Market Timing

(From EWI) 

Excerpted from Prechter’s Perspective, published 2004

Q.: Your contention is that we’re experiencing a long-term top of historic proportion. Is there evidence that the long-term orientation is the predominant orientation today?

Bob Prechter: The Elliott Wave Theorist has gone to great lengths to show that the entrenched “focus on the long term” buzzphrase of recent years is of paramount importance in judging the psychological condition of today’s market. Such exhortations are always made at market tops. “Buy and hold stocks regardless of anything you see, hear or read,” the wisdom now goes, “Focus on the long term and hold your stocks” is what people said right after major peaks in 1930, 1946, 1969 and 1973, too. If a long-term bull market ever “rings a bell” as it forms its top, this is it. Back in 1974, 1978, 1979 and 1982, you almost never heard that kind of commentary. The public certainly had no truck with it. Today, it’s everywhere. People are writing books about how if you just buy stocks and hold them, you’ll get rich. I think that’s an excellent description of the past, but I don’t think it’s going to describe the next 10 years at all.

Q.: When will we know for certain that we have seen a market top?

Bob Prechter: For certain? When it’s too late to act!

Q.: If you don’t know until it’s too late, should traders try to pick tops?

Bob Prechter: By all means, yes. Waiting for certainty means waiting long enough to miss it.

Q.: At what point in the Dow would a crash scenario become a possibility?

Bob Prechter: Any time it’s open.

Q.: You know, if the most popular investment gurus of the day, Peter Lynch and Warren Buffett could hear our discussion, they would say, “It’s nice to talk about declines, but nailing down when they are going to occur is almost impossible. So, individual investors should just buy the best stocks they can….” What would your response be to that?

Bob Prechter: I have a lot of respect for those people, because they have risen to the top of their field. However, their field is stock picking. They have been professionals during one of the most rewarding periods in history to be a stock picker. The trend, for the most part, during the past 40 or 50 years has been up. When that situation changes, so will the fortunes of the stock pickers.

Q.: But they have a point. Buying and holding works.

Bob Prechter: It has worked. That’s different from saying it works or will work. It is also easy to say now. It was not easy to say in 1949, when almost no one followed that advice. So this supposed intellectual point is simply a description of the past. Has it “worked” for bonds since the mid-1940s? Has it “worked” for gold for the past twenty years? Buying always pays off as long as the relevant trend degree is up. When the trend is down, you could just as easily say that one should sell short and hold. If buy and hold is in, then market timing should be out, which it is today. It’s more or less routine to hear about some new study that shows all the gains over the last 100 years came in less than 100 specific days, and investors should therefore be in the market every single day. In the second half of the 1970s, after the market had cycled for a decade, market timing was all the rage.

Q.: You’ve said technical analysis is up against “something of a brick wall” when it comes to gaining acceptance among fundamentalists but added that technical analysis has had its moments, such as the 1970s and the 1930s-40s, when it was widely in vogue. Did the bull market of the 1980s and 1990s help or hurt the cause?

Bob Prechter: In long-term bull markets, no one really needs market timing, because the market is always going up. This was true during the 1950s and 1960s, a period of market strength. And it has been mostly true since 1982. From 1966 to 1982, though, the market was very cyclic, so investors couldn’t sleep like babies with a buy-and-hold blanket like they do today.

Q.: But timing is still the most important thing?

Bob Prechter: R.N. Elliott said quite properly in 1946, “in the matter of investment, timing is the most essential element. What to buy is important … but when to buy is more important.” Regardless of today’s bull-market rhetoric, that is still true. Once you are satisfied that the trend is safe, you can then concentrate on stock selection. In fact, just to demonstrate that this is not a new viewpoint for The Elliott Wave Theorist, I will read this quote from April 1983: “Large institutions will probably do best by avoiding a market timing strategy and concentrating on stock selection, remaining heavily invested until a full five Primary degree waves can be counted.” That statement was possible only because of the luxury of having a perspective on the market from a timing standpoint. The gist was, “Now you can forget about timing for awhile.” Now that timing is wholly forgotten, it is again absolutely crucial to success….

Q.: So who’s right?

Bob Prechter: Technical analysis is the correct way to approach markets, because it accommodates both bullish and bearish positions. “Buy and hold” is not ever right philosophically. It only appears so when the trend is up.