Posts Tagged ‘State Bank of India


SBI rating downgrade and opportunities..

SBI was downgraded on Tuesday by Moody’s over capital adequacy and deteriorating asset quality. More than poor SBI, credit for this downgrade can be claimed by congress intellectuals at centre. Government has been dilly-dallying over capital infusion for past several months. Being largest shareholder at 59% of country’s largest lender, government will have to fork out its share of required capital. In budget speech, our FM had said that all Public Sector Banks (PSB) will be recapitalized by Rs. 6000 crore. SBI alone would require more amount than that. But one thing to note is that it is not composite rating downgrade, rather it is downgrade of a segment of the bank’s debt instrument that is the perpetual tier- I bond.

Finance Ministry officials have been fuming over the downgrade ( Some of the things pointed by them makes a lot of sense and you can not avoid, but pointing out rating agencies of bias. Most of the western countries take AAA credit rating as their birth right. Despite having poor fundamental than lot of emerging countries, European Nations continue to enjoy higher credit rating. But in SBI case, it has to be pointed out that its fundamental has worsened over past few quarters. NPA’s have increased and if capital infusion does not happen soon, it will impact the growth prospects of SBI in FY13.

Should you invest on the basis of company ratings ? I don’t think so and rating never tells you about future performance of the company. SBI share price corrected sharply post this rating downgrade. Options data of SBI tells you that even 1300-1400 puts are open.  It also tells you the kind of panic and fear of capitulation which is prevailing in market. For me, it is an opportunity. IV’s are at high and I have sold some lower level puts. Obviously one has to be careful while writing options in current market scenario.


SBI follow up..

In my earlier post I had mentioned about selling SBI 2600 call for July series ( Yesterday I covered my sold SBI 2600 call at a slight loss. SBI crossed 2440 levels and even on a down day it was up 1.5%. I felt uncomfortable and cut my position. At this point of time I am not sure about SBI movement, but in case SBI goes up further from here than I might re-look at selling SBI calls.

In last 10 days India has seen lot of FII flows, close to USD 2 billion ( Significant amount of this money has obviously gone into large caps. Some stocks like SBI, Tata Motors had lot of shorts which got covered. I have to be careful while writing calls of some large caps. From next week, Q1 FY11 results will start pouring. Its better to wait for cues from result season and then proceed.


Interesting times ahead..

All the news flow makes case for interesting and tough times ahead. US Dollar Index rose  by 1.7% yesterday (the largest single day gain since Aug’10), resulting in all risk assets falling sharply, including crude oil. Why USD Index rose is a bit confusing for me, since report after report shows that US growth on life support system by QE is slowing. Yesterday, Federal reserve bank of New York manufacturing index dropped to its lowest level since November last year. Part answer of USD Index rise could be trouble in its biggest constituent, Euro (57.6%). It is like a tussule between who is weaker between Euro and US.

Indian market should be happy with commodity sell-off. There might be some knee jerk negative reaction, but if crude keeps falling it should be good news for the Indian market. Another major concern, Interest rates should be nearing its peak after RBI  rate hike of 25 bps today. Is Indian economy slowing down sharply? Yesterday some of advance tax numbers did not give evidence to that. Infact advance tax numbers from top 100 companies in Mumbai region has increased by 14 percent.

As option writer, what does all this news flow means for me. Lot of major stocks RIL, Tata Motors, SBI, Maruti and ONGC are looking weak and they have already come down quite a lot. Its difficult for me to write any OTM calls since premiums are low and also there might be some rebound from oversold zone. Normally I don’t write puts and in this global turmoil I would be very cautious in doing so. Except for some oversold stocks like Reliance communications, I won’t write puts. Can’t do much at this point of time except wait and watch..Anyways for June series all my margin money is blocked in existing contracts.

February 2019
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