Just yesterday,the Senior Editor of one on India’s most respected Investment and Finance magazine called me yet again….” Is this 1000 point rise in the Sensex on Monday and Tuesday fake or is it for Real ? : he inquired
In June 2008,the Country Bureau Chief of China’s biggest National News Agency came to vist…he had inquired of Not only India but also of what I thought would happen to China Stocks….I had emphatically warned him that after the Beijing Olympics in August just watch out…The Downward Trend would intensify strongly
Just see how Chinese Stocks have capitulated…the CSI 300 Index measures 300 of the most representative A-Share Stocks traded either on the Shanghai or on the Shenzhen Stock Exchange
From levels of 5500 inside a year ago and from levels of just 3500 in May/June 2008 and 3000 in August 2008,post Olympics in August 2008 the CSI 300 has simply had a freefall to dive under 2000 now !
For Indian Stocks In fact on August 21,2008 in this Blog I revealed this uncanny feeling that the Sensex from 14500 levels would move towards 12000 soon after the Olympics…I had chuckled that “We were Not Playing the Sensex…It was Playing Us !”
Nothing is Fake or Phoney in the Markets…You may be a Guru but the Market is the Final Guru….These are prices and levels at which you can transact your convictions…so how can it be fake ?
The Question is whether such a rally would sustain and Markets would stabilise.
I told the Editor who called yesterday that whatever sense I have left tells me that this is a dead cat bounce…there is more pain…laggard effects of Significant Earnings slowdown,loss of Business,recessionary conditions,liquidity crisis etc…will all play out some more.
As I blog this,the Time is 12.35 pm and the Sensex is already reversing out 509 points to slip below 11000 to a level of 10974 as it did on Friday…Continuous Trading closes at 3.30 pm everyday on BSE…I don’t see any recovery in the next three hours…probably slip even lower
Two clear Macro Parameters point to Sensex drifting even lower and the Recovery to be even slower…Both indicate a Pivot Sensex of 9000
The First Macro Value is Sensex Earnings and the Second is Value of FII Holdings…The rider here is that in Panic Situations there is a complete disregard of any type of Valuations,Macro or Micro..I see such situations as great opportunities
Aggregate Sensex EPS Growth has already slowed down..I have covered this in earlier blogs in detail…FY 09 should see the Sensex EPS be in the 925 to 950 range and a derated P/E Multiple of 9 or 10 would indicate a Sensex range of 8500 to 9500
FII Inflows were US $ 10 b in 2005,US $ 8 b in 2006 and US $ 20 b in 2007…In 2008 the outflow so far has been US $ 10 b……However the Value of FII Holdings was a handsome US $ 200 b in January this year….This has shaved off by more than half to fall to levels of US $ 80 b …Another 20% downward Sensex Movement from todays levels of 11000 to 11500 range should take it into the 8500 to 9500 zone and FII Holdings will drop Value further to US $ 60 b
Sensex at 8500…Now That’s a great Entry Level and we would see Distress Pricing