What the Hell is Happening?

Gitanjali 30Jun13I’ve written about my position in Gitanjali Gems earlier (here, here and here). If you go back to those posts, you’d see how I’d likened that stock’s ascent to a Diwali rocket. I guess the sad truth is that now the rocket having spent it’s glory in a sparkling display of fireworks is now descending to terra firma in tattered parts. Bearish international reports on gold must have induced some FIIs to sell off tipping the cart. Given that the June expiry was neigh, brokers seem to have stumbled triggering margin calls to fund leveraged positions that were rapidly turning out of money. Poor people like me can only pontificate and sagely philosophize that apart of 1/3rd of their sales coming from low margin gold sales, nothing much is wrong with the business model of the company. Once the churn is over, the stock will resume it’s upward climb. My position is still in the money since I was sitting on an almost five bagger on this one. I feel like a complete ass however – there was a good deal of time to act between the finmin’s announcement to increase import duties on gold and the stock tanking. If I really am a long believer in the scalability of the retail and Bollywood advertising (therefore costly!) driven sales model of Gitanjali, could I not have sold at around the top (not as a deja vu moment, but as a result of a logical reaction to finmin’s tightening of the Indian gold scene)??? Things are always easier said when in hindsight, but this one I genuinely regret. I do remember thinking about this a couple of times and dismissing the thought telling myself that they mostly sell jewellery and not gold, so shouldn’t be a problem. I hadn’t bothered to check inventory unfortunately. And therein lies the rub. 😦

Tata Coffee_30Jun13The other stock that I have been staring at for quite some time this weekend is that of Tata Coffee. I mean since when have better known counters started dislaying a pattern that looks like a square wave? remember all those electronic waveforms – saw tooth (quite common in Indian markets), sine wave (maybe long term commodity plays show this – haven’t checked) and now this square wave, like the 555 timer output waveform!! This Grand Canyonish stock chart also seems to suggest of brokerage firms triggering massive scale sell offs due to margin pressure on their client positions. It may not be related with the global price of coffee at all. Thinking if this is a cup to sip at all – not personally in the mood to do any research about the stock.

Followup post on Tata Coffee: 

– you may be aware of this, but I wasn’t. Kotak Mahindra Prime, one of the largest institutional investors into Tata Coffee sold a big deal as did one individual investor.

– this again triggered some margin calls and ergo the price is now really lying low. 

– if it falls a little bit more – say 935 – 950, it might be a good position to take.

The NaMo Trap

Came across this flowchart on the net. The poignancy had to make me reblog it after all!! Should one really care??

NaMo Block

Infosys Pay Hikes

With most Indian IT companies announcing wage hikes, it seems quite clear that the moribund economy has impacted pay hikes at most companies. It turns out that the various HR consultancies were off target by around 2% in their general predictions. Infosys has announced a 8% avergage hike this year coming on the back of a 6% – 8% hike in Oct’12. Wipro has said it’s paying up it’s employees by 6% – 8% this year; reports about TCS put it’s hike in the wide 5% – 10% band. Mid tier Mindtree may come in at 6% (same as last year?). Cognizant seems to have deffered hikes to July so that all employees across rank and file get wage hikes at the same time. I also read somewhere that IBM is not doling out any hikes this year! So the scenario is quite bleak and suddenly IT does not seem to be the hot sector that it was made out to be. Unless of course if you happen to be an IT worker seconded overseas. The recent weakness of the INR has effectively increased the value of such folks’ USD holdings by approximately a tenth!

Given this theme, a good part of my last weekend was spent in reading up assorted news stories about wage hikes reported in Indian media. On a lark, I also tried to collect historical mentions of wage hikes at Infosys (long considered by many to be the darling of the Indian IT scene) and since I try to correlate anything with everything, I tried to see how the decisions by the top brass at Infosys regarding this extermely crucial element of their cost have stacked up against their company’s share price over the past few years. As mentioned earlier, the data for the chart below has been collected from old media reports (all of them online) and as hard as I tried, I could not get the average hikes at Infosys for FY’04 and FY’05. If you know, please let me know. So, with wage hike data from FY’06 onwards, the chart below superimposes the salary hikes at Infosys over it’s share price. The share price has obviously been adjusted for the two very generous bonus issues on the stock, but it has not been adjusted for the various dividend payouts on the stock. I don’t know if you can see it, but to my “force fit a pattern where none exists” eye, I can discern a weak correlation between average hikes and the share price! And I can also see a distict lag effect between the time when the insiders (i.e. employees) feel the pinch vs. when the market drops the price!

Infy salaries trend

KSE 100 Rocking!!

It seems that Indian and global (read ‘developed’) markets have finally de-coupled – a theme that people used to talk about immediately post the financial crises. This decoupling means that the US markets are rising and the Indian indices are heading lower!! In fact it is the whole emerging markets bunch that is feeling the heat and some people feel that there is more pain to come. It was this post here that inspired this entry of mine. As you can see in the attached, the BRICS bellwether indices are languishing in the bottom quartile of all the countries tracked there. Interestingly, whenever I have seen similar country stock market return rankings, I always remember seeing Pakistan amongst the top. That piqued my interest and I did some digging around a few days back to test a hypothesis that had formed: since the Pakistani market may not be deep enough, and since it is very volatile therefore perhaps it may have dropped much more than the Indian market post the 2008 crisis. The recovery, therefore, would be higher in percentage terms as compared to India. Pakistan also has inflation. It is perceived by many to be politically more unstable than India. So what’s making FIIs pump money into Pakistan (and Phillippines, etc) on one hand and vaccuum it out of India (and other large EM markets)? What is it about Pakistan bourses that makes hot money go there ignoring the seductive siren song of rising yields in the US? Surely it cannot be asset allocation based weight correction. It doesn’t seem to be an expectation of political stability either. Perhaps it is a feeling that the market is undervalued on a relative basis. Relative to what? The emerging basket? It’s neighbours (India, China & Russia)? Or it’s past? Whatever the answer, I kept coming back to my hypothesis. So some downloads from Karachi Stock Exchange and the NSE and some number crunching/charting yielding the following perspectives:

KSE vs NIFTY historical

Parabolas are very scary. It seems as if of late the KSE 100 is rising us as if KSE 100 = A x t squared. where t = time. Now parabolas require massive amounts of energy to sustain themselves. In the context of the stock market, more money needs to be continuously pumped in for every unit of time elapsed. According to me, if the KSE 100 and it’s ilk form your scene, it’s time to short.

KSE vs NIFTY historical normalized

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