India…. Capitulation/Economic Data to Peak

Before we start on the technical analysis and view detail on Sensex lets briefly review the observations on fundamental/economic view i was looking at .

Since June/July our technical/fundamental projection through the blog/ppt has been that the correction could make a low around5/8 or in the extreme case make a correction till Jan 09. But the preferred scenario was Sep/Oct 08. Many a times it has been mentioned Economic data would peak out around this month!!!! Of the peaking out things Crude has peaked out / inflation peak is not far/Global skeletons are out n will get buried soon.

2) Also since June/July i have been very critical of Private Banks /Real Estate and Capital goods and have not given any long term investment bets on them ( ICICI , Kotak ,BHEl etc ) and have maintained an avoid rating. All through the period our favorite sector has been PSU banks ( SBI , BOI , BOB , LIC Housing( not bank though)) . PSU banks have stood out in the correction and are trading much higher from July ( 12500 ) lows.

The view for Sensex was clear to exit all at 17500/16800/16100 and wait for 14700/14100/12500 zones to buy systematically which was yet again suggested book fully at 15100/15500. We have initiated buying at 13100 which can be termed a little early also but the next lot can now be delayed if scenario weakens.

NOW lets have a look at current views and what could be the projections from
Fundamental/Economical :

Many investment banks/insurance bigwigs/mortgage in the US have gone bust and a couple of skeletons may still be left. This is going inline with the projection of September peaking out with worse economic data. Sub-prime /mortage /leverage/real estate /forex exposures etc have been the reasons for the collapse of US machinery. My expectation is that by end of October the major skeletons would be out !! although repercussions and lagged effect would stay till Jan 09 and a new thought process could emerge around March - May 09.
Although this is a projection which may go wrong as i am not an economist but these are my views which can be very naive.

For India majority of the banks have only commercial banking as the core . The mortgage/home loans market has a distinct advantage compared to the develop countries. The advantage is the 60/40 or 70/30 % of white black component which insulates the Banks from getting into a highly leveraged scenario. On the forex derivative losses its been a known thing that many of the corporates had been trying to hide them through accounting measures but as its open will definitely lead to M2M lossed being converted to books and substantially reducing the exposure and the risk involved. So there can be good amount of losses on books of pvt banks /aggressive corporates but still the structure of Indian system keeps them far faraway from bankruptcy. The timing period of change in view remains the same Sept/Oct may see inflation/commodity prices peaking out and good base effect could come into play after Jan or March.

Many of these projections are based on my personal view which may be naive and short sighted. This is what the scenario seems to me as of now.

Best Regards,

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