Investor's have a "Left out feeling...."

Stock markets have rebounded 70% to 13,900 levels (25th May) from its recent lows it touched on 9th Mar.’09 (Sensex 8,160), however lot of investor’s have missed on the major rally, including the MFs & HNIs.
Now the serious investor will not like to miss the next up move, but the big question is which way is the market headed now….? Let me give you a quick checklist before touching upon this question …..

What has changed in last few months?
a) Stimulus packages announced few months back seemed to show it tickle down effect.
b) Companies (Read US Bank & Finance Co.’s) have declared positive numbers (albeit with some accounting jugglery).
c) World leader’s has come together to handle this problem of global slow down, as it is effecting the developed nations more then others,
d) Economic growth is bottoming out (atleast falling at lower rates).
e) Business Confidence and Purchase Manager Index is showing sign of revival and confidence.

Back home in India:
a) UPA Govt. is back in power, more stronger then before.
b) RBI has moved Interest rates down and over next few months Banks would be in position to also lower rates further (once the high rate deposits come up for renewal around Sep/Oct’09).
c) Headline Inflation rate is close to zero and expected to remain at lower end for next few months, due to high base effect (WPI had touched double digits in 1st week of Jun’08 and had peaked in Aug’08).

However much more needs to be done on global economic front:
a) Problems created by developed nations cannot be solved overnight.
b) The economic conditions continue to be challenging, un-employment rate in US is inching towards 10% mark,
c) UK as well Japan has shown negative GDP growth for qrt. ended Mar’09.
d) After UK’s AAA stable outlook rating been changed to negative, it seems to be turn of US AAA rating downgrade

Thus all in all, still a mixed data. Markets are expected to remain volatile. For India the near term triggers are:
1. Union Budget
2. Announcement of other key portfolio at the centre
3. Monsoon forecast
4. Oil price movement
5. FII flows

While Investor should remain cautious, they need to continue with discipline investing and remain invested for the core holding. (I continue advocate SIP style of investing).

Markets have run up quite fast and thereby have build in lot of expectation, especially on reforms front. Any negative surprise from budget may not be welcomed.

For the bottom line answer question – Should I enter now or wait? – My view would be that if you want to punt and play short term – you better don’t go long now and if you investment horizon is 4 to 5 years, then you can start getting your feet’s wet now and done wait of the big wave to hit the shore.
Jetha N.Punjabi

2 + 2 = ?.....Answer depends on whom you are asking this question

An Accounts professor once in the college canteen, over a cup of coffee, asked a group of three students, in their first year of management studies, a simple question - How much do you thing is 2 + 2 ?..... been post-graduate management students, they were sure that professor was not looking for simple straight forward answer ......

First student from a Engineering background said the answer to this to be precise will be between 3.999 and 4.001,

Second student from Advertising and Mktg. background, was very loud and confident that it will be 22,

Finally third student from Accounting & Finance background in a low tone answered in professor's ears - How much you want it to be ?

.......but jokes apart, I was searching for similar answers when i saw some great results been declared by US Banks for qtr. ended Mar'09, who till few months were struggling to survive and US Govt. had to pitch in and lend funds so that they can see the next day.

After some reading I got some clarity and I thought of sharing the same with you. The case in point is that of Citibank....

CITI reported net income of $1.6 billion (appro. Rs. 8,000 crores) during the first quarter (Jan-Mar09), up from a loss of $5.1 billion (Jan-Mar08) a year ago...digging deeper into the numbers reveled the following:

1. It has booked profit of $2.7 Bn on decline of its own debt.

The Bond (Tradeable Debt) issued by it say at $100 is traded in Mkt. at $30, hence under US accounting rules, it can book one-time gain, equivalent to the decline in its bonds because, in theory, it could buy back its debt cheaply.

However in reality it is just a paper profits, it would be real profit, if it actually buys it from the open mkt. and cancel the bonds in its books.

2. Bank has made lower provisions for future loses. Loss provision was reduced to $2.1 Bn in Jan-Mar'09 from $3.4 Bn provided in Oct-Dec'08. Thus improving profit for the qtr. by $2.1 Bn.

This is surprising because on one hand we see the US economy is in negative growth path (-ve 6.1% for Jan-Mar09 qtr. & -ve 6.3% for qtr. Oct-Dec'08, to be specific), job losses nearing 10% (presently at 8.5%). These job losses will result in rising defaults in Housing EMI, Credit card dues, Auto loans, personal loan EMI and other consumer loans.

3. FASB altered rule # 157 provides more flexibility

This is mother of all flexibility and subjectivity allowed in accounting in recent history. This altered rule allows American banks to value toxic assets "at their own discretionary judgement".

This "mark-to-mkt" provision is now more of "mark-to-make-believe" accounting, which enable US Banks to conceal losses and use obscure methods and models to inflate their balance sheets. The amount that has been hidden behind this rule is left to your own judgement and quantification.

As the CITIBANK commercial Ad. runs....."CITI never sleeps.....indeed accounting creativity has been put to good use, during these tough times."

Jetha N.Punjabi