Monday, May 31, 2010

Things are not as bad as they seem

The author, chairman of Thunderstorm Capital in Boston, is a Bloomberg columnist


The US stock market reels. Europe cringes at the prospect of serial defaults by Greece, Portugal, Spain and Italy. A computer glitch triggers anear-crash on stock exchanges. Rules for financial firms in the US are being overhauled. North Korea and South Korea rattle sabers.
No wonder investors’ stomachs are jumpy. Yet, in my opinion, things are not as bad as they seem.
The stock market correction that began on April 23 in the US has carried the Standard & Poor’s Stock Index down more than 10 per cent. A decline of 10 per cent or more occurs, on average, once every 11 months. Let’s examine the anatomy of this correction, looking for indications of its severity, duration and nature.
This is an international market dive. Since April 23, benchmark indexes have fallen about 11 per cent in the UK and France on a total return basis. Germany has held up slightly better, down about 7 per cent.
As I see it, Greece’s problems are more of a morning-after hangover from the worldwide recession than a harbinger of new ills. The index of leading indicators in the euro region rose every month from March 2009 through March 2010.
More pep So, it’s likely that the economies of most European countries will soon start showing more pep. Meanwhile, the recovery in the US seems to be accelerating. Corporations are reporting higher earnings, gross domestic product has risen three quarters in a row, and the leading indicators point to more improvement ahead.
Iexpect the US unemployment rate, 9.9 per cent as of April, will start declining soon —to less than nine per cent by the fall.
The sudden stock crash of May 6, in which the Dow Jones Industrial Average plunged about 1,000 points in minutes, only to make up most of the ground before the day’s end, was unsettling. Bear in mind, however, that a 1,000-point decline in the Dow today represents a loss of about 10 per cent. When the index dropped by 508 points on October 19, 1987 – now known as Black Monday –it was a loss of more than 22 per cent. I am no more adept at predicting the stock market than many other people. To mangle an old song from a James Bond movie, “Nobody does it better, but nobody does it very well.”
Prediction For what it’s worth, here is my prediction: I think the current correction has almost run its course and will end within aweek in the US and within amonth in Europe. My guess is that the S&P 500, which started this year at 1,115, will end 2010 ahead by 10-15 per cent. That would put the index at about 1,226 to 1,282.


  1. Rajiv bhai
    i think for indian market after june 21 monsoon position clear all over india.Euro crisis almost discounted by mkt in this month.
    we see clear direction for mkt in begining of july.
    till than better policy is buy on every dips only good under value scrip

  2. Q: If it’s a yearly abrasion how will FY11 look for you because right now in FY10 you are still down about 10% revenue growth? As you earlier indicated it’s your US subsidiary which has also come on stream. So what is the contribution that we can expect from there?

    A: Taking the US first, we have a spill over contribution that will come automatically in the next year, approximately of Rs 400-500 crore, that’s already available on the books and is currently under execution and we have bid projects that we expect to come to fruition and then to execution in the US. Speaking for the Indian market, it’s not a yearly abrasion. It’s a set of tenders that was delayed due to design, engineering and other factors but the number and size of the tenders, GAIL’s tenders, Indian Oil’s tenders which are now either already submitted and bid and awaiting award or expected to be tendered is huge. So we are actually looking at the substantial growth in the market and not a slowdown.

    Q: About 20-25% growth in FY11?

    A: If we are successful in the tenders that coming up, it could be even higher than that but yes, that would be a target and a minimum achieve.

    Q: On your margins, while they are higher as far as year on year or even quarter on quarter comparisons go, a couple of analysts believe that they expected even better margins. Was there any forex hit in any of the quarters that lead to margins getting adjusted little lower?

    A: We have been doing forex adjustments on a regular basis. So I do not think there was any particular hit and I have already mentioned earlier in this interview that in the current period we are seeing an improvement in the situation because of the lower or stronger rupee but margins in our industry, generally the pressure comes from volatility in steel price. So we saw rise in steel prices earlier, we are looking at softening now. This is probably the single major factor that affects the cost in our industry.

  3. Dear Rajeev,

    PSL sees atleast 25% growth in FY11
    Published on Tue, Jun 01, 2010 at 14:23 on Moneycontrol

    PSL has declared its FY10 results. Its revenues are up 9.45% at Rs 3993.6 crore versus Rs 3648.9 crore. Its net profit is up 29.3% at Rs 122.7 crore versus Rs 94.9 crore. In an interview with CNBC-TV18, Ashok Punj, Managing Director of PSL, spoke about his outlook for the company post results.

    Below is a verbatim transcript of the interview. Also watch the video.

    Q: Could you tell us how the quarter looked because on your revenue front you have seen a de-growth of about 35% year on year. Even on a quarter on quarter basis there has been a decline of about 6%. How is the volume growth looked and on the price realisation front?

    A: For the domestic operations the quarter on quarter as well as year on year topline was lower than previous year, but that has been part due to delays and postponements of certain tenders which should have been executed in the current year were in the last financial year and have spilled over into the current year.

    You will however notice that the profit has maintained itself despite the lower topline and that took a little doing, but we were fortunate in that because of currency being favourable and lower cost at the time of procurement for steel. The consolidated numbers show an overall growth and that’s because for the first year the full year’s operation in our US subsidiary and in our Sharjah subsidiary have been added in the consolidated result. These are new operations and their contribution has helped us achieve an overall consolidated numbers growth for the year.

    Q: There were concerns from the analyst community that your order book has declined considerably that their intake of orders in the Q4 was less than expected. Can you take us through the order book and your own comments on whether orders are trickling slowly?

    A: We have an unexecuted order book at the start of this year approaching Rs 2,000 crore on a consolidated basis and you are right there has been a slowdown in the accrual of orders. However, that is largely because our business is a tendered driven business and there has been some slippage in certain tenders which have only now come into a tender and award stage that means in the Q1 of the current year and they should have appeared in the last quarter of last year. So it’s not a matter that concerns us unduly, but three-four months delay in some major tenders has happen.

    Q: Would you say that it’s just a one quarter abrasion?

    A: I would say it’s a year abrasion because there were some slowdown in the early part of the year and throughout the year, but we see all signs that this is corrected and there is a pressure on new tenders. The numbers and the size of new tenders will more than offset any perceived slowdown in the previous year.

  4. Rajeevji, please let me know on Punj LLoyd. I have around 10% in my portfolio and I am in big loss. Should I completely exit?

  5. sanjay,
    I do not track Punj Llyod....