Archive for the 'Politics and Economy' Category


Election strategy on L&T..

In my previous post I had written about strategy on Nifty ( Volatility should increase after last phase of polling on 12th May. With this thought process I am thinking about initiating similar strategy as in Nifty on Larsen & Toubro. Capital goods giant had a good run till last couple of weeks when it started correcting from its high of 1388 on NSE. Correct way to put it would be to say stock witnessed some profit booking ahead of an all important event on 16th May.

Since I am not sure which way election results would pan out, I am not initiating one way position and seeking to benefit from increase in volatility. I am planning to buy L&T 1260 straddle (1260 call & 1260 put) and sell 1400 call 1120 put. You need movement of 7.7% in L&T stock to make money from this strategy. Given the fact that stock had corrected from its recent high of 1388, it looks very much possible that L&T will go beyond 1400 on favourable outcome on 16th May. L&T is high beta and proxy play on Indian economy so its stock would react violently in negative direction in case market doesn’t get what it thinks as favourable outcome.

Disclaimer: These are my personal views and you should do your own due diligence before acting on anything written in this blog. Please take reasonable care while trading in options, especially while selling. I am not advising anyone to sell or buy options. My purpose of writing this blog is to highlight my trading strategies.


Soniaji presents UPA-2 achievements and Rupee hitting fresh new lows..

Rupee at a fresh new lifetime low kind of sums up congress led UPA 2 rule at center. PM and FM keep on harping about challenging global macroeconomic environment which is resulting sharp Rupee decline. Every time we hear the same reason – Eurozone crisis is impacting our growth. Yes, to a large extent Eurozone troubles are impacting all EM currencies. But INR is outperforming every other currency on downside on account of twin deficits. Without any major shock and FII outflows, Rupee is above 56.

It is difficult to believe that a man of  such stature is doing nothing but just holding onto his PM post. May be the center of power is somewhere else and he has no choice but to be a rubber stamp. Few days ago, PM commented that “Policy paralysis perception can be corrected by reality”. I wonder if he is still in real world or in the paralyzed world of congress. Sometime back,  Soniaji also commented that it is fashionable to criticize government. It just shows the state of mind this government. Intellectuals at the center are still not willing to accept that much of India’s misery is a result of our own doings rather than the outside world. Suddenly after parliament session got over, the government increased petrol prices sharply by Rs. 7.5/Lt. Everybody including myself thought that the center has become hyperactive and we might see slew of decisions in coming days, especially diesel, LPG and kerosene price hike.  But everything is back to normal in the paralyzed world. Petrol is to a large extent deregulated and its subsidy share is like a drop in the ocean of overall subsidy bill. Petrol hike should have been managed better in terms of its quantum and rather diesel, LPG and kerosene prices should have been hiked moderately. But now the government has shot itself in the foot and is finding difficult to increase prices.

Rajeev Malik wrote an article in BS: It kind of sums up the frustration with this government.


Poor IIP figure..

Newspaper headline news across India yesterday were about decline in India’s Industrial Output (IIP). October decline in IIP is the first contraction since June 2009. Capital goods, Mining and Manufacturing output declined from last year. Capital goods decline at 25.5 percent was the most dramatic. IIP figures have been erratic and most of the analyst don’t even trust it. But if we take moving average of IIP, it does show general slowdown in economy. There is widespread pessimism among investors due to policy inaction from government. Stock markets and Rupee fell sharply yesterday after poor IIP figures. Selling in markets got accentuated after EU zone downgrade fears from Moody’s.

I have been negative on markets for quite some time. I was not completely sure if Euro zone summit will resolve this EU debt crises. Fiscal union formation is positive, but in the short-term only ECB intervention in a big way can stem the downside. Either way EU countries will be downgraded, if EU summit wouldn’t have produced any result on fiscal union then they would have been downgraded, now that they have done it and imposed strict austerity measures on suffering countries, on account of growth concerns they will be downgraded. Anyways Euro zone is in a recession and will deepen further during first half next year. I am not even sure if this fiscal union will take shape and all core 17 parliaments would pass it. Even if all core 17 countries are able to pass, there would be a lot of discontent about losing fiscal autonomy. What if in country like Greece, new government comes into power after elections and under public pressure they decide to opt out of Euro zone. Already there are a lot of protests across streets of worst hit Euro countries. It has to be understood that there is a lot of difference among various Euro zone countries. German Industry is highly competitive, whereas lot of countries are not and if they don’t have fiscal and monetary autonomy to maneuver, it would be very difficult to come out of recession. Lot of analyst have pointed that Euro present levels 1.33-1.34 is also overvalued and it should come down. It has happened in last few days and Euro currently is closer to 1.3 levels. In the meantime Rupee tracking Euro and widening current account deficit of India has touched it’s all time low at 53.52 versus dollar.

Concerns on Euro zone and more so growth concerns in India will make sharp rise in Indian market very difficult in near future. I have sold quite a bit of Nifty OTM calls. I don’t expect RBI to cut CRR in its 16th December meet.


Retail FDI drama continues..

Political logjam continues over retail FDI issue in Parliament. Indian government had finally woken up from its slumber and cabinet passed one of the   boldest reforms in the history of modern India. Although, its timing may be questionable (just before UP assembly elections). I think, government might have been forced to act on reforms front on account of sharply depreciating rupee, ballooning fiscal deficit and policy paralysis criticism from every corner.  For once, I won’t criticize the Congress government. Opposition led by BJP have been protesting against this move. Left which is fighting survival battle has joined hands with untouchables (BJP), as they fondly call them, in stalling parliament proceedings during the winter session. It’s a shame that the world’s largest democracy parliament has not been allowed to function on account of this reform. Instead of discussing the pros and cons of the issue, opposition just wants voting. They are well aware that with allies (TMC, DMK) deserting them on the issue, the government is on a sticky wicket. If voting is done in parliament, government might not have majority on its side.

Retail stocks led by Pantaloon retail rallied hard on account of this FDI reform. Pantaloon was hammered out of shape after its Q2 FY12 results. Short covering and new longs helped India’s largest retailer to rally hard. If news reports are to be believed Pantaloon is in talks with French retailer giant, Carrefour for JV. In long-term this JV will surely help Pantaloon and improve its valuations. But if you read about country politics, then you might have been skeptical about the sharp rise in retailer share price. These kind of reforms are not difficult to pass and especially just before important UP elections. Lot of chief ministers have also raised their voice against allowing foreign retailers setting shops in their respective states. Traders are powerful lobby in this country and they will also protest. I have sold December series OTM calls and puts of Pantaloon retail (I have covered some calls after share price decline). Eventually this bill will pass and Pantaloon share price will rise, but not very sharply ( Neither its share price will fall very sharply now, as I don’t think this FDI will be rolled back. It might take some time but eventually this reform will be passed. In fact, on very sharp declines, I am looking to buy Pantaloon retail shares.


Why I would vote for congress in next general election..

State of affairs at congress government can be summed by the PM Manmohan Singh’s recent meeting with the press. Instead of talking about future or any new policy initiatives, which have completely stopped, he was defending himself and the government from various corruption charges. As the head of the most corrupt central government as yet, he never knows anything, and everything happens behind him. He was a good economist and policy maker but now looks like a product beyond its best before date.

Recently, there was Deepak Parekh’s interview in TOI, It seems a lot of business groups are frustrated at delays in getting approvals for their projects. Instead of working on land acquisition bill, the government is busy on working with minority quota. As if, current reservation quota is not enough, they are keen on introducing one more quota within quota for minorities. Everybody wants our forests to be protected but not if it stalls development and growth. After 6 years delay, India’s largest FDI as yet by POSCO was given environmental clearance. I wonder if it would help India’s image as an investment destination.

After several months of delay, the Government found time to decide on the fate of Cairn-Vedanta deal. Being a politically sensitive matter in India, delay in petroleum products hike is understandable. Not sure how long this adhoc policy on petroleum products can continue. I hope UID project helps in directing subsidy to the target segment in a more effective manner. How can you provide subsidy to actor sunil shetty doing hayyy…hayyy…in his movies and driving his gas guzzler hummer on Mumbai roads (My friend Vinod Tirupati imitates him better). I don’t know what’s the extent of black money stashed abroad, but instead of bringing tax evaders to justice, government is busy fighting with Supreme court on SIT issue. Sad part is that, we don’t have alternative either. BJP is busy with infighting, Communists are struggling with ideological crisis. I think congress knows this very well, otherwise they would have done something. There is a widespread frustration and discontent among general public.

Congress government has introduced F-word on stock exchanges. F-word or FPO has been instrumental in wealth destruction of a  lot of PSU’s. Still government can’t understand that FPO is not an efficient method of divesting stake in Public sector units. As an option trader, predominantly option writer I love this government’s inaction. They allow me to play on my friend, time value. I am thinking about becoming a congress member and campaigning for them in 2014. I request all of you to vote for congress government in every election.

February 2019
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