Pantaloon heading to 500

In the early trades of today Pantaloon has broken the Previous resistance level of Rs. 440-445. The Stock in the intraday look strong is gaining pace rapidly. It has also broken another resistance level at Rs. 450. The share if closes today above Rs. 450 for today then it will surely race towards Rs. 500 in the coming week.



Look at the second graph which shows the resistance level at 500. It should be noted that since long term data on the share is not available proper technical analysis cannot be done. Only last six month data is available because of new listing. My recommendation to risk takers would be buy the share and keep it for next week to book a profit of Rs. 50. On the other hand people who already own the share and want to sell the share and book their profit can do so even at this level, because at this level it is very likely that the share will swing Rs. 50 plus/minus.

Pantaloon: Technical

For the past two months Pantaloon is showing a declining trend. It is showing movements against the movement of index like Nifty. According to the technical chart below of six month period there is a resistance level created by the two peaks created. This resistance level is graphically shown with a red horizontal line at around 440-445 level. This level seems very crucial for the stock. Yesterday the price closed right at Rs. 445 and today also when the market has not shown much movement after the initial gains, pantaloon has only moved around this critical level of Rs. 440 to Rs. 445.


Click to view the Chart in Detail

Friday would be a crucial day and if the stock crosses the resistance level with good volume and closes well above Rs. 450 then technically the stock should start an upward trend and price could reach as high as Rs. 500. On contrary if the share fails to close above this level or even worse falls significantly then further correction in prices seem very likely, below Rs. 400. Earlier the stock had broken the resistance level with but soon could not hold on to the gains, the volumes have also fallen which is a negative sign. Look at the large white candle stick (bar at the end).

Sake fueling Cars!

Japan has always been a technology loving and environment friendly country. Japan imports huge amounts of crude oil like other developed countries. The Japanese are now looking at cost effective and environment friendly alternatives for the crude oil. The Japanese have turned towards their traditional wine “sake.” Sake is a wine (more like a beer) made from brewing rice. This is the stuff every Japanese restaurant would serve after a good meal of “sushi” and “sashimi.” The ethanol made from rice would be used after blending it with petrol. So in future cars would be running on really strong saki.

Lately with record high crude oil prices agri-based fuels have gained popularity. Brazil has become one of the largest producers of agri-based fuels. They have pioneered the technology related to making ethanol from sugar-cane crops. Already up to 85% blend of ethanol and petrol is supplied throughout the country. Also cars that run on 100% petrol or any other blends of petrol is already available in the country. Now Brazilians are looking at bio-diesel in a big way. They are now using castor oil to make bio-diesel that can fuel diesel-based cars.

But still all these technologies seem to be not so cost effective because of their alternative use/demand. Take castor oil for example. In India 20 kg of castor seeds cost around Rs. 400 (from NCDEX). If 36% bio diesel can be extracted from it then one kg of bio-diesel would cost around 50Rs. to 55 Rs. This is nowhere near below Rs. 40 for per Lt. of Diesel being sold at pumps. Now let us take the “Japanese sake”; it takes more than one Kg of rice to produce half a Lt. of ethanol. This would not only mean high price but also could lead to food shortages! Since rice is a staple diet in many places including several parts of India as well as Japan. Use of crops like corn for production of ethanol in US has lead to doubling of prices. This impact can be felt in Mexico where their staple diet tortilla is made from corn.

The answer lies in finding alternative crops which does not use much of resources for production at the same time are cost effective because they are not already used elsewhere in the industry. The switchblade grass or jatropha can provide the answer. Both of these can be grown in arid lands without much use of resources required for agriculture. But lot of research work need to be done before these “non-food-low-resource” alternatives can become practical.

Mkts Wait for i-rates

It is going to be another busy week for traders and analysts, because of the central banks of key economies are about to unveil their policies related to interest rates. US Federal Reserve Chairman Ben Bernanke is expected to release its comments on Wednesday. The Bank of England and the European Central Bank will also come up with its view on interest rates. Widely it is expected that the Bank of England will raise its interest rates by 25 basis points to curb the inflation. On the other hand US and the ECB is expected to keep its rates untouched.

The next two three days are going to be very exciting. In case if the things don’t go as expected then the markets make take a big hit. Already the Dow is at new all time highs and so are the indexes at other countries like the French CAC.

Indian markets are also showing a similar trend. The Nifty is still hovering above 4000 points. In this market global markets are going to have a significant impact. Keep watching this space for more articles on Interest rate policies and its affect on markets.

Dow to beat S&P

The Dow is touching new highs and so is S&P.In this rising market it is important to know if the blue chip companies are going to be better or the Mid-caps. In my opinion exports and foriegn operations of compaies is now going to matter. Given the economic conditions where dollar is constantly depreciating companies with higher proportions of income from abroad are going to benefit. Traditionally companies in the Dow make a lot of money outside the country because of their multinational operations.Historically large caps have outperformed S&P by close to 15%. But in the last few years small caps were getting more attractive. This trend is now goin to change with MNC companies of DOW reporting higher earnings from abroad incomes.So in my opinion the Dow should confrotabily beat the S&P, in future at least in earinings.

Now lets get back to Indian Stock Markets.

The heavyweight companies in india are very much dependent on exports. So with current appreciating rupee it is logical to think that their performance will get worse compared to the Mid Caps. But in Indian context, my opinion is that the large caps will outperform the Mid Caps. The reason is that Large caps like TCS which rely heavily on exports are better prepared with hedge positions to protect themselves from adverse currency movements. Majority midcaps which are also into exports don't have highly hedged positions. This means that in the end the Large Caps basically comprising of Nifty (top 50) and Sensex (top 30), could still outperform the Mid caps and Small caps.

The first part of the article was written as comment on "US Market Watch"

i-rates & Monsoonomics

Latest annual inflation figure for the week ending 21st April came out at 5.77 percent, lower than the expected 5.87 percent. It was lower than the previous months figures of 6.09 percent. The RBI in its annual policy set inflation target of around 4 to 4.5 percent, which seemed impossible. The Finance minister commented that the monetary measures of the government before the policy are the reasons for the decline in the inflation rates. Last week RBI was very confident that there was no need to revise the key monetary rates, the Repo rates and the Reserve ratios.

The RBI must also be good at predicting the weather. Commodity prices like pulses and other agricultural commodities were the main culprits behind the burgeoning inflation. A good monsoon along with bumper crop could actually solve the problem related to inflated food prices. The RBI must have predicted a low inflation on the basis of good expected crop or in other word good expected monsoon.

This gives new twist to the “internationally popular” fisher’s formula. Which says that nominal interest rates are just and addition of real interest rates and expected inflation. Now at-least in Indian context the economists have to also include Expected monsoon next to Expected inflation to perfect the equation.

Read other articles related to inflation on the blog by clicking at the tags placed at the end of the article.

Global Hedge Fund Alert!

The New York Federal Reserve gave an alert on accumulated risks created by the growing Hedge Funds. They concluded that this could be the biggest threat to the financial world since the fall of LTCM (Long term Capital Management). LTCM was a Hedge fund founded on the shoulders of mathematical / Economic geniuses, Robert C. Merton (and Myron Scholes (who won Nobel Prize in 1997.

LTCM took full advantage of leverage and used its size to create a huge diversified portfolio. During the 1998 economic turmoil their funds lost the diversification advantage and this resulted in a highly correlated portfolio. In the end within months the whole fund collapsed and in the end the Federal Bank of New York had to step in with support of close to $ 4 billion to stop a “systemic fall” of the financial markets.

The Federal Reserve of New York compares the current scenario of Hedge funds with the LTCM crisis. The Hedge funds are showing a huge correlation in their returns, predisposing the markets to a “systemic downfall.” The total size of the Hedge funds now stands at $ 1.4 trillion, larger than many economies of the world. The funds are now betting aggressively with fewer strategies and by taking higher leverage through use of derivatives.

Corus Repurchasing Debt

Corus which was recently acquired by Indian Tata Steel is offering a share repurchase worth 800 million euro due in 2011. The company would buy back these bonds at 101% of the face value of the bonds. This means that they will be paying 101% + 1.375% (accumulated interest) for these bonds. The investors showed negative reaction to this because the face value of the bonds was at 106.5%, much lower than what was offered by Corus. Due to this the five-year credit default swaps on Corus rose 10 basis points to 133 basis points on the news. Credit default swap is a type of insurance where in case of default by the borrower the swap buyer will end up paying for the debt, which was unpaid. The credit derivative market is concerned that the credit default swaps would be useless if the investors redeem the underlying debt.