BALUBHAI'S TRADING NOTES!

CASH / FUTURES SEGMENT -FRIDAY – 14.03.2008

There is never a reason when markets are on a declining trend with or without a real cause. There is a powerful power behind all this fiasco. We are not prophetic but every one of you reading us daily would remember our write up one day in January when we said "greed and pure greed was poison for the markets and a grand slam correction was likely". When an IPO sucked away over 150000 crores of rupees from the system, and most of it never came back to the investor, what else can we expect except to wait patiently?

At least a very positive sounding budget exercise could have provided the much needed support despite several other worries. But as usual we have none to bother about the markets or about the agonies of the retail investor who is always the one to pay most.

We expected much volatility alright but not to the extent it happened yesterday – just one way – DOWN! It is unfortunate that with this over          $ 500 Billion worth of investor wealth has been wiped out – about 25% or so in such a short span of time. We may be back to where we started six or seven months ago – but we do not as yet know whether the worst is over at all.

The only consolation is our ability as a team and as a family to foresee things with a certain amount of clarity.

We also said that "we were still in an uncomfortable zone" which was a cause for continuous worry. This prompted us to warn you to be on guard through out the trading session yesterday if you were "trading".

Most traders are out of the markets either of their own volition or they have been forced out due to margin calls. Every hundred point rise in SENSEX is bringing in at least a hundred thousand frustrated investors in to the market to sell. Imagine the NIFTY crossing 5000 only the day before to slump with a sucker punch yesterday to below 4600. That is a big lot! Only the very brave, the very rich and the very careless would perhaps venture in to the markets with more money to bet on risk that can neither be clearly estimated or forecast.

The question would then remain whether it is time again for investment. Any suggestion from us in this regard will be not viewed well by most of you. But remember that a 25% correction, though much on the higher side, may be nothing new to a bullish market – which was bullish for over three years. It has happened before not only here but in several other markets across the world.

There are several more un settled issues – like the US nuclear deal, rising oil price ($110 yesterday) , more sub prime worries affecting Indian banks (remember ICICI BANK casually talking about a 1000 crore rupee mark down) and more.  No one knows what is right and whether we
have other banks as well on the mat with news to come on similar lines.

Banks are trustee institutions and supposed to be worthy of utmost trust. Aggressive methods never pay and we have often said in the past that this bank was most aggressive when it came to do business.

Apart from all this is the biggest nerve shattering methodology of charging premium on initial public offers. We had talked about this new trend several times in the past. The promoters and even SEBI may be not to be blamed but the average investor may have taken several risky chances in the past and got away with them. But now when things have turned sour it only adds fuel to fire.

Several of our own readers and subscribers ignored our messages in the recent past to avoid IPO – particularly the aggressively priced ones hitting the market. We are sad to hear that many have even bought at big premium in the open market despite our advice to stay away. Whom can you blame in a situation like this?

But all said and done we firmly believe that the ADAG bunch of shares are getting hammered silly and one of these days the sellers may find themselves in a spot of bother. A hero and a biggest wealth creator in the shortest time is not expected to remain a mute spectator to all this tamasha being meted to his companies – though through no fault of his most of the wealth created has already dissipated in to thin air. The anger the average investor has SHOWS.

One bonus issue has not settled the dust storm the powerful IPO has created. Maybe we have a very long wait ahead of us anyway before some sense and normalcy returns to the market. Now it is highly charged with emotional anger.

Coming back to the Budget very soon we can expect the PM and the FM to announce that nothing is wrong with India and its vibrant capital markets. The Government and the Finance Ministry have always tried to "take" more than "give" more. We may hear arguments that after all the markets were very good most of last fiscal and the current happenings is not "their cup of tea". Why did the enlightened FII who thrilled everyone including the FM with their active role in recent IPO now shun the markets let alone go near the listed scrip. Who is responsible for this "bloody" mess and whose head should roll out for this?

We often hear the sad suicide deaths of farmers. There are millions of "farmers now" in the capital markets who have missed the harvest but also lost most of what they have sown. When are we going to hear more about their miseries?

It is now clear that a huge farmers' loan write off suddenly inserted in to the budget together with the hiking of short term capital gains tax by 50% (from 10% to 15%) have really put off the
market makers and presented the same on a plate to bears. We are not even much worried about the losses already suffered – but what if there is a flight of foreign capital? So far we have not heard about big FII selling but can the PM and FM assure the nation that it will not happen?

Even if concessions were to be announced now by the FM, the markets would not react favorably to that. That is how the markets behave normally.

So thank you Gentlemen for seeing us all together in a spot that we are not supposed to be in today.

We are perhaps more frustrated and depressed to see all the happenings – because we have access to the knowledge of how much our own subscribers have lost in recent times. What a colossus and
mindless waste all this has been. We do not claim that we should always be in a bull market. But we are worried to see that several things that have happened behind all this are "avoidable" and
therefore should have been avoided.

Almost anyone who enters the market with some positive thoughts gets hit for a huge six. If you go to a broker's office and tell you wish to buy, you are looked at as if you are from Mars or Moon. But how many of us are familiar with short selling as a constant process for making profits? Agreed, there should be volatility but this sort of one way traffic cannot contain an average investor who has access to limited funds, knowledge and strategy planning.

Even if your profits have been good this year you may now be helplessly looking at your portfolio with much erosion. To take benefit of loss adjustments you can always sell through a broker
(paying STT) your stocks and book a loss. Your tax paying relatives can buy the same shares at current price and carry over the same to next year. In the process you book your short term losses to be adjusted this year itself against short term capital gains and your relatives will hopefully sell the same back to you in the new financial year.

Talk to your auditor or broker about this. It might help you "avoid tax" and not "evade tax".

There is news today that someone wants a few thousand crores of rupees more for farmers' loan write off. And another report from the US talks about its government's preparedness to sign the nuclear deal even with a minority Indian Government! Very funny indeed this politics.

We may see some relief today but we may be far away from real recovery yet.

In October 2007 at Bahrain we made a forecast about the market in the near term of say six months to ten months. The same was made at an elite gathering of eminent chartered accountants under the auspices of ICAI, Bahrain Chapter.  There were animated discussions on the subject after our presentation and the events post that presentation are now history.

We said that in case of SENSEX the all important crucial "make or break level" was 17440 and for the NIFTY it was 5128. The SENSEX had the potential on the upper side to reach 22563 and the NIFTY 6705. In case of a reversal in trends (due to several reasons but mainly acts of God and the Government) the SENSEX and NIFTY were likely to test lower levels of 14850 and 4338.

We have seen earlier this calendar year the SENSEX racing past 21200 and the NIFTY also hitting close to 6300. These indices are now perilously closer to our projected lower levels.

It is frightening and confusing. After a big fall we believed that some support would lift the SENSEX above 16377 and NIFTY above 4932. When these levels were broken it only has left more confusion. Is it going to be a bottomless pit as some would like to suggest or is it going to improve – suddenly as a foreign (read as "phoren") rating agency has said that worst in the capital markets may be over at least on account of sub prime / credit risk worries. We know no one takes any such agency seriously anymore. At least we have never taken them seriously but depended more on our on calculations keeping Indian capital market conditions in mind.

No one is talking now about the India Growth story being "intact" and the GDP story. Suddenly everything looks gloomy and overwhelmingly down. Do not despair.

As several market wizards have often said "when panic reigns in the market place it may be the right time to create a portfolio of stocks with attractive valuations". But it calls for patience and perseverance. Do you have them in you? Good luck and God Bless.