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Update – 1: Meet with Jay Prakash Sinha, Research Analyst – Kotak AMC

June 15, 2006

Hello:

I happened to attend an inevstor meet headed by Jay Sinha, Research Analyst @ Kotak AMC. This meeting has helped me change a lot of my own practices. Here is a brief summary of Jay’s persentation.

Why did the Markets fall ?
Evereybody knew that the correction was long overdue, but why such a drastic fall ? Is it the beginning of a bear market ?
Jay has dismissed in the past and still is of the same opinion,

India is NOT heading towards a Bear Market. Loud and Clear 🙂

The correction was more than expected because of the following reasons.

  • India is no more a secluded economy, it is globalizing and hence dependant on global factors.
  • Indian economy is now driven to a considerable extent by FIIs. If FII pulls out money of our system, then our markets collapse. FIIs pulled out around USD 2 Billion and that action eroded the wealth on Dalal Street close to USD 65 Bilion.
  • Why did the FIIs pull money out of India ? Mainly emerging markets valuations were overstretched. Then the US raised interest rates by 25 basis points. Jays explaination of this helped me clear lot of doubts as to why the inverse co-relation exists between rising interest rates and falling stock markets. Say you manage a fund. 10% is your money and 90% is borrowed money. We all know that Debt funds or Deposits are risk free. When the yield for such instruments rise, then managers and investors look at those instruments and hence some sell off was triggered.
  • Indian short terms rates were also raised by 25 basis points to fight inflation. 1 of 3 CEOs were of the opinion that their CAPEX is now a bumpy ride and has to be managed very carefully. Check out my earlier post, I had told that all the companies will now go for CAPEX and only the sound ones will execute rest will die. This will make borroing of funds little bit difficult and also eat into corporate profits thus bringging the EPS down. All though to a minor extent.
  • Then the retail investor started selling in panic (no where near to the extent that FIIs have sold). All these factors had a ripple effect and the markets corrected further.
  • All of a sudden India’s current account deficit begin to bother FIIs. This is around 2.8% and has always been over 2%. Jay’s thoughts were this contributed to larger fall for SENSEX.

NOTE: Jay is extremely bullish on India. The growth story is intact. Jay spoke about two factors, Indian economic growth and Indian economic flexibility (Political and other Policy matters). Both are sound enough to attract foreign investment. Have a long term view and stay invested. He also spoke that no matter how much the manufacturing & services sector strive and grow, it is actually the Agriculture growth which is mere 3% which requiers thrust and Government of India is all determiend to provide the same.

To be continued …

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