Friday, June 29, 2012


The market is getting excited; the PM in FM’s role may be on reform path. Really, but what is reform? A steep power tariff hike, or may be a steep diesel price hike?, or may be FDI in aviation, retail, what else? May be double the prices of water being supplied at our home?

Why do we confuse reforms with what capital markets want? Why should you be happy that someone who is already fighting a 10% inflation, has to pay 24% extra for power tariff and that too without the guarantee that the power supply will be uninterrupted or the fact that he may be paying for double of his actual use because of power theft?

Why are the brokerages sulking over petrol prices being cut? Despite the fact that price cut is in no way in sync with the collapse in global crude prices (even in Rupee terms let me say before the usual defence of OMC is spoken up). And worse still why is everyone calling for a steep diesel price hike even after this collapse in crude?

The simple answer is these are relatively easy to predict, easy to call and have direct impact on stock prices. A head of research at a brokerage earns over one crore as salary. He doesn’t mind paying 100 bucks a litre for petrol – but he will be happy if BPCL or HPCL rally by 100 bucks – that would make him much happier.

But should it all be about stock markets? Or let me actually rephrase that – should stock markets only be happy if prices go up? Can we look at a situation where Indian companies make big profits at current prices or may be even lower prices? And that too with a much lower state subsidy burden?

Why is no one questioning the efficiency of the system? Can we improve the absolutely inefficient way some of these companies, especially PSUs are being run? Can we look at a situation where coupled with this improved efficiency, and a sheer economy of scale, some of these companies make much more profits at current prices than asking for a price hike all the time? 

Make no mistake – we are a poor country. The divide between rich and poor is only getting wider and at some point, this greed has to stop. We are making some necessities of life completely out of reach of a vast majority of our population.

Thursday, June 21, 2012

Cement cartelisation or bull cartel?

Now, this is amazing. For last 10 days, one report has consistently appeared in either business channels or pink papers - CCI to come out with massive penalties for alleged cartelisation. For the uninitiated, CCI stands for Competition Commission of India - an institution I have zero respect for, because if it was doing its job properly, the first ones to be penalized would have been the oil marketing companies, which are blatantly indulging in cartelisation. Anyways, that's a separate angst and I would deal with that later.

I am not even discussing the merit of a cement cartelisation or a probe here. I am just presenting some plain facts. Now this sword has been hanging for around a month and normally you would expect such stocks to collapse, given the nature of penalties being talked about (50% of last year's profit in some case). But look at what has happened over the last one month.

Ambuja Cement is up 22%, ACC is up 11%, India Cements is up 10% and JP Associates in up 15%. At a time, when the market has been rangebound, or may be has gained 3-4% and coming at the time of monsoon, when normally investors avoid such stocks.

There is another statistic. In 10 days, we have seen Ambuja adding over 50% positions in futures' Open Interest and ACC has added around 25%. Again for the uninitiated, its the directional position you take if you are either bullish or bearish on the stock. Logic says if a stock is up 20% with 50% Open Interest jump, these positions are long in nature.

And now the most interesting and compelling stat. I have just observed the intra-day pattern of cement stocks and since Ambuja is the most liquid one, just look at the following pattern

12th June: Opens at 149.50; closes at 158.50; intra-day move of 6%
13th June: Opens at 158.6; closes at 153.55; intra-day move of 3%
15th June: Opens at 163.5; closes at 169; intra-day move of 3.5%
19th June: Opens at 164.3; closes at 173.35; intra-day move of 6%
20th June: Opens at 166; closes at 176; intra-day move of 6%

And the genral pattern is that stock opens 3% lower and ends 3% higher with some report of "CCI order today" appearing somewhere. And keep in mind, these are derivative stocks, where nowadays you can play stocks in intra-day trade with as low as 8-10% initial margins. So potential return is as high as 60% with a 6% intra-day move.

Some of these reporters are honest and young and will learn with time on how not to allow themselves being used by some market operators. But the sheer price move over a month and intra-day moves suggests we need to worry more about bull/bear cartel rathen than cement cartelisation.

Disclaimer: This is my personal opinion. I am writing on the basis of what I have seen on screen.