Yet Again - Analysis Comes true I Going Forward I

'Business is a cycle. It cannot stop. If it stops, business falls. Banking is to channelise money. Directionless flow, imbalances and aggressions are shortlived. Eating habbits, investment habbits and health related habbits much of the same kinds and act as triangle.'

Sustainable and consistent development with in range and under close monitoring alows creation of equity cult and overall increase in purchaing power of people which is key to economic development.

Analysed on Jan 04, 2009 that
1)USD/INR to be 51 in March 09 - It was 50.75-51.25
2)Crude to cross 60 USD/ barrel- Comes true breaches 60 USD/barrel on 12th May
3)Turnaround and revival in lending and economic activity fro June 09 onwards- Stress Testing over, Fed and other central banks want lending to resume, LIBOR
one of the lowest, capital markets have moved up by almost 20-30% world over
4)Investment banks and couple of other banks have shown profits.
5)Fed's Bernanke, Asian Economists and major daily's are reporting of
the possibilities of revival from June 09 onwards

Analysis on 13th May 2009

Going Forward:
India
Padding extended by RBI by allowing banks to restructure NPA accounts is a huge volume and amount. The same has been given one year time to regularise. The accounts belongs to Airline and Real Estate Industries. The total quantum could be in excess of Rs.25000-35000 cr (rough estimates). The package includes interest and principal repayment moratorium for a year. It is unlikely that the growth in Investable surplus and banking support will be there to bring the required revenues and gains considering the high cost of carrying and existing costing of these companies.

We should expect another change in clasification of NPA by way of a directive by RBI. May be by extending the period of non repayment of principal and non servicing frequency of interest to 6 months / one year. Simply to avoid NPA's , provisioning and losses.

Indian banking thus is at the cross roads and may test waters of health again with in next one year.

Interest Rates should remain soft for another 3 years. After three years we should expect movement in interest rates inline with the expected increase in rates by Fed as well.

Indian Corporates should take rest and selectively consolidate / grow org

anically /inorganically as the couple of industries which will shine are

1.Healthcare

2.After 2 years enormous boost in OEM auto ancilliary sector

3.FMCG

4.Agriculture, pulp, paper,

5.Education, tourism

6.Power, ports,roads - infrastructure

Industries which will be under caution could be textile, commodities, steel, real estate, Aviation, chemicals, paints etc.

Currency & Loans

For treasurers this year they should try and swap one year loans to cheaper interest rate curencies as one year to three years is predictable on interest rates. With an exit at one year will reduce the duration(interest rate sensitivity). The recent SEBI directive of reducing the investment periodto 6 months from 12 months is in line with this thought.

Forward Covering should be done on selective basis and on each of favourable spike someof the percentage should be covered. The volatility itself gives the room.

USD/INR - USD to depricitiate on three 3 year horizon. There will be spikes based on reports from OBAMA administartion on outsourcing and impact of the downturn in steel and automobile sectors.

INR should be able to jump and breach 47 levels in another 3-6 months time. There will certainly be spikes and USD will gain temporarily based on demand and supply and psychi factors.

EUR/USD - EURO should appriciate and has already crossed 1.36 levels. There is a possibility that it crosses 1.5

GBP/USD is to remain range bound and GBP to gain over a 12 m period. On a longer perspective it is expected to depriciate again with in a year though marginally.

JPY to strengthen against most currencies. Against USD it is expected that it may breach 90 levels and during spikes it may breach 110 leavels in the near future on news of losses. Japanese banks and securities funds and corporate debt market is intact with huge cash surpluses. The next wave will be of Chinese and Japanese banks when in couple of months time we all will hear news of their taking stakes in major banks, which they have already done in last 6 months.

Companies should subscribe to Superderivative and also go for reuters kondor suite to evaluate and rund dry run protfolio of loans and structures to gain. Caution- Aggression and greed should be avoided whole doing so; Difficult;

Hedging of Raw Material

Depends on the Industry output and throughput. Considering output prices- stable, pessimistic and optimistic, volatility vis a vis raw material, consolidation & mergers, demand and supply, view should be taken. Open market purchases may make one to go for hedging but a Vertical / backward integration may call for tax and transfer price benfits rather than hedging unless there is enough to sell in open market. Airline Industry is a n example in the year 2008 wherein some of them made billions and some lost billions. At the end Speculation is a zero sum game unless the benefits are taken out. Corelation and regression analysis have been successful in giving a high degree of coefficient.

US Economy

Much is analysed ad written all across. What is to be understood is that unwanted playing with Money Supply, Inflation and interest rates creates a mess. Thats precisely has been done by FED so far. Against this policy, Japans 20 year zero rate policy has been able to create market for yen, create market for debt, create surpluses and helped banks to consolidate.

Unwinding of carry trades also have not affected japanese economy due one of the biggest almost 6trillion USD debt market created with in 10 years. Though democrats have been known for doing good to people and economy, this time the challange is to manage finances, expectation of faster reversal coupled with inculcating the working and other productive aspects in Americans. The habbit of Americans of getting things done and ruling is costing them. Even the patents in pharma have expired.

267b USD of tax collection, additional taxes etc will certainly have positive impact but will eventually reduce the PPP. This will further depricitiate.

European Economy

Much of the europe is in the same state of affairs. There is resistance layoffs and comparatively less of hit has been taken by the european operations of major corporates across all sectors. It is the liability arising out of the international operations more so from US operations that the european companies are under trouble.

Also european operations are not cash cows for them. Cash cows are third world countries and they will all look for investments in these countries and in products meant for these countries.

Next 10-15 years belongs to India and China. Companies which have invested in these countries and for the products meant for these countries have created Cash Cows.

Eastern Europe Kirgistan, Kajakistan etc are agriculture based economies and gives a room for absorbing international funding.

Winner is here; China Land;

With Hong Kong china hjas more than trillion dollars of reserves. Its currency, banking and interest rates are all controlled. With feeding of 4 chinese banks with 100bUSD in 2007, largest public issues by Chinese banks, they have been able to make the most of the highest markets.

Chinese economy is able to absorb further 10 years growth. The same will eventually help European and American companies who have invested alot. Cosnidering reduced imports from China, China will force them to sell at cheap in home country or else they will be taken over in another 2 years. In Cement most of the large international players have moved out and now local chinese control the cement sector which is one of worst sectors in china.

Indian Economy is expected to sustain 6% growth levels for the next 2 years. A spurt in lending after August 09 shall help India and China to cope up with the requird funding inmany sectors.

Happy Investing; Happy Cycling;

Disclaimer- views are personal, author is not responsible for any impact due to the same, the views are presented without any prejudice;