Bank Stocks ready for a trading bounce?

Bank stocks have been badly mauled in the last one to two months in the Indian bourses. An interesting correlation can be seen between the BankNIFTY index of NSE and the Assets Under Management (AUM) of Benchmark BANKNIFTY Bee in the chart below. In fact the AUM change appears to be a leading indicator for the BANKEX’s performance.



The AUM of Benchmark Nifty Bee is racing towards zero. It is likely that there will be nothing to sell soon. This will reduce selling pressure on the bank stocks in near future .
Looks like a bounce is on cards for bank stocks in the remaining part of March. Can it be traded?

Nifty: Will it break 2500?

All of us are watching the 2500 level on the nifty with great interest. There is growing consensus amongst the commentator that it will be broken sooner rather than later and many technical experts are predicting a dive towards 2000 and possibly 1800. Normally when we find such a consensus the market usually proves us wrong and heads in the other direction. Unfortunately this is what the entire trading community is thinking and all are positioned for a strong bounce off the 2500 level. There are hardly any shorts in the market and strong PUT writing at 2500 level confirms this. Thus, its look like this time market will do exactly as what pundits are predicting as hardly anybody is positioned to benefit from the downward dive. The 2500 level has been successfully defended in the recent past primarily due to insurance inflows which are set to dry out as March unwinds. So fasten your seat belts and get ready for a dive.

The Indian GDP growth for 2008-09 the great debate

March 9, 2009

 

It was amusing to watch the economic debate on the TV channels about 2008-09 GDP growth rate. While one economist predicted 2008-09 growth rates to be between 4% and 5%, the other estimates ranged from 6% to 7%+.

The year is about to end and we have hard data for nine months and trends for the two months of the last quarter and yet to see such a wide divergence of view amongst the elite economist and politicians and business persons of India left me wondering does anyone prepares for these debates or is it so complex to project the Indian economic growth rate with 11 months of data?

Let's look at the facts. Table A provide the actual GDP data at constant prices.

Table A (Rs. Lakh Crore)
	2005-06	2006-07	2007-08	2008-09
Q1	606,416	664,989	725,572	783,052
Q2	598,065	658,827	719,004	773,687
Q3	695,835	761,313	829,172	873,426
Q4	715,786	785,991	855,965
Total	2,616,102	2,871,120	3,129,713	2,430,165

 

Table B provides the year over year change in the above data

Table B
	2005-06	2006-07	2007-08	2008-09
Q1	9.05%	9.66%	9.11%	7.92%
Q2	8.88%	10.16%	9.13%	7.61%
Q3	9.67%	9.41%	8.91%	5.34%
Q4	10.30%	9.81%	8.90%
Total	9.52%	9.75%	9.01%

 

Table C provides the quarter over quarter change in the data in Table A

Table C
	2005-06	2006-07	2007-08	2008-09
Q1	-6.55%	-7.10%	-7.69%	-8.52%
Q2	-1.38%	-0.93%	-0.91%	-1.20%
Q3	16.35%	15.56%	15.32%	12.89%
Q4	2.87%	3.24%	3.23%

 

 

 

The analysis of these three table leads to the following conclusion

1. The third quarter of the year is traditionally the best for growth in absolute number. And in terms of absolute number the actual increase in GDP in rupees is the worst in Q3 FY2008-09 compared to any quarter in last three years on a year-over year basis.
   
2. The actual yearly growth rate of Indian economy has been very close to the third quarter rate in the last three years.
   
3. The trend rate of growth has shown the tendency of slowdown in the last three quarters of FY 2008-09 and the pace towards the downside has accelerated over Q3 FY 2008-09.
   
4. The quarter over quarter changes in the growth rate of GDP have been remarkably stable for the prediction purposes over the last three years
   
5. Thus, if assume that the country repeats, in 2008-09, the best Q4 quarter over quarter growth performance recorded in the last three years (an extremely unlikely event given the trend) the growth rate of GDP in FY2008-09 will not exceed 6.5%.
   
6. The chances of actual growth rate significantly below 6.5% are significantly high.
   

To conclude it appears that actual growth rate of the Indian economy will be significantly below the official projected target of 7% and likely to be close to the actual recorded in the third quarter. Most of those who appear on TV providing comments on the Indian economy are at best, mathematically challenged and serve no interest of the viewers. It is best to ignore them.