Posts Tagged ‘Index of Industrial Production


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.


Opportunity: Maruti dealers have inventory for 28 days

As soon as I opened today’s BS newspaper and saw the headlines, I sensed my new opportunity.

New Index of Industrial Production (IIP) series figure released last week, Q4 FY11 GDP figure, May Auto sales figure, HSBC Purchasing Managers Index (PMI) – all point in one direction of slowing economy. All auto-makers were struggling with margin pressure on account of rising commodity prices, but with rising interest rates, signs of demand destruction are also quite visible.

Passenger car segment in India is highly competitive. Today country’s largest car maker, Maruti Suzuki’s chairman Mr. RC Bhargava said, “company dealers have inventory for 28 days”. It clearly shows that the company is struggling with sales growth and consumers are deferring the decision to buy a car. As if, all of this was not enough car-maker is also struggling with strike at its Gurgaon plant for past one week, leading to several crores of loss every day. Given all the concerns around automakers in general and Maruti in particular, I don’t expect stock price to cross 1300 level in a hurry. In case RBI does not increase repo rates in its 16th June review, there might be some rally in rate sensitives including Maruti. I have sold 1350 call and looking to sell 1300 call for June series, just waiting for the RBI meet…

July 2018
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