views on RBI policy .. and sensex
Bridge over troubled waters
“ when you are feeling down….. I will lay me over, like a bridge over troubled waters”
In the US in the good old times of Alan Greenspan the denizens of the Wall Street and Corporate US believed in a strange option which they called the Greenspan put. They believed that if the economy went through a downturn then the Fed will take measures to provide a bastion to the investors and the Corporate and allow them to recoup from their financial problems. Hence provide a virtual put to them on their investments. When the hedge fund LTCM went down after the Russian crisis and the crisis created fears of strangulating the liquidity in the markets and pushing the economy on the edge of a reversal ( the South East Asian crisis had already created a huge expectation factor towards an impending crisis ) . Alan Greenspan reduced the interest rates gradually in steps 17 times. This prevented a spiraling liquidity crunch ( liquidity crunch >> rising interest rates >> panic withdrawal >> more crunch ). Greenspan did a reverse ( falling rates >> expectation factor towards a favourable FED>> rejuvenated investments >>economy booming >>falling rates). The US economy emerged standing the twister of global contagion.
Do we have a Reddy put if our economy. If India ( God forbid) loses its sheen as a investment destination and our economy reverses. Overheating.. emerging markets becoming riskier…. a commodity downturn….
RBI rising the CRR successively and talking of credit control sent alarm bells ringing and the stock market tumbling by the second highest fall ( absolute terms). Is the Central bank being overcautious about the inflationary pressure and administering a stronger medicine that may have nauseating effects on our otherwise healthy economy. Or is it UP elections and the Central Bank kowtowing to the Southern and Northern blocs. In the overheating economy with bank credit @71% of their deposits and bubbles building in the housing and probably the capital markets and Indians on a consumption binge the RBI is going by the axiom “precaution is better then cure”. So investors in India have a call option assuming that the strict measure taken now will allow them to reap benefits later ( as the economy stables on the growth trajectory with a inflation under control and fundamentals justifying valuations beyond even the most vocal doubting Thomasses ). So probably we all have a call option on our economy.
India is really calling to all the global investors.
Are we really that costly?
People say we are overheating but it is probably becoz of hot babes at bollywood
The foreign funds are constantly and repeatedly talking of the sensex trading at PE ratio of 16/18.With the RBI moves triggering a correction the valuations have come to PE of 14/15. The foreign fund managers like Morgan Stanley recommend a PE of 12/13 i.e. according to them sensex is 1500 points too high based on the current fundamentals. But the Companies on the sensex have invested a huge amount of capital in projects that will give them huge cash flows once they break even. If we consider the NPV of all these projects that all the sensex Companies have undertaken then surely that will boost the fundamentals enough to justify a 1500 more on the benchmark index. Professors told us never to mix investment, financing and capital budgeting together. But this was just a passing thought…
“ when you are feeling down….. I will lay me over, like a bridge over troubled waters”
In the US in the good old times of Alan Greenspan the denizens of the Wall Street and Corporate US believed in a strange option which they called the Greenspan put. They believed that if the economy went through a downturn then the Fed will take measures to provide a bastion to the investors and the Corporate and allow them to recoup from their financial problems. Hence provide a virtual put to them on their investments. When the hedge fund LTCM went down after the Russian crisis and the crisis created fears of strangulating the liquidity in the markets and pushing the economy on the edge of a reversal ( the South East Asian crisis had already created a huge expectation factor towards an impending crisis ) . Alan Greenspan reduced the interest rates gradually in steps 17 times. This prevented a spiraling liquidity crunch ( liquidity crunch >> rising interest rates >> panic withdrawal >> more crunch ). Greenspan did a reverse ( falling rates >> expectation factor towards a favourable FED>> rejuvenated investments >>economy booming >>falling rates). The US economy emerged standing the twister of global contagion.
Do we have a Reddy put if our economy. If India ( God forbid) loses its sheen as a investment destination and our economy reverses. Overheating.. emerging markets becoming riskier…. a commodity downturn….
RBI rising the CRR successively and talking of credit control sent alarm bells ringing and the stock market tumbling by the second highest fall ( absolute terms). Is the Central bank being overcautious about the inflationary pressure and administering a stronger medicine that may have nauseating effects on our otherwise healthy economy. Or is it UP elections and the Central Bank kowtowing to the Southern and Northern blocs. In the overheating economy with bank credit @71% of their deposits and bubbles building in the housing and probably the capital markets and Indians on a consumption binge the RBI is going by the axiom “precaution is better then cure”. So investors in India have a call option assuming that the strict measure taken now will allow them to reap benefits later ( as the economy stables on the growth trajectory with a inflation under control and fundamentals justifying valuations beyond even the most vocal doubting Thomasses ). So probably we all have a call option on our economy.
India is really calling to all the global investors.
Are we really that costly?
People say we are overheating but it is probably becoz of hot babes at bollywood
The foreign funds are constantly and repeatedly talking of the sensex trading at PE ratio of 16/18.With the RBI moves triggering a correction the valuations have come to PE of 14/15. The foreign fund managers like Morgan Stanley recommend a PE of 12/13 i.e. according to them sensex is 1500 points too high based on the current fundamentals. But the Companies on the sensex have invested a huge amount of capital in projects that will give them huge cash flows once they break even. If we consider the NPV of all these projects that all the sensex Companies have undertaken then surely that will boost the fundamentals enough to justify a 1500 more on the benchmark index. Professors told us never to mix investment, financing and capital budgeting together. But this was just a passing thought…
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