Monday, May 25, 2009

Revenue Shortfalls and EPS beats

SocGen confirms in Barrons what I was suspecting. While companies were beating EPS estimates in 1Q, they were falling short on revenue projections - i.e. margins were expanding. So margins were expanding between 2003 and 2008 when there was expansion, and margins are expanding now when there is contraction. That is not possible beyond a couple of quarters. 

The next fall in the markets is going to come either from revenue/earnings shortfalls in 2Q (July), or if something happens in the commodity/currency complex (oil goes above 80 if dollar keeps falling). People are bullish and afraid to miss out on the wonderful 2010, and it is unlikely that a couple of bad macro data points are going to derail the optimism for the time being. 

So, we need to enjoy while it lasts, with a firm eye on the exit door. 

Friday, May 22, 2009

S&P expresses concern over UK AAA - so pound strengthens!!

Dollar weakens. Because investors are now concerned about US debt. But wait a sec - the concern has been expressed today on UK, not US. It is very strange.

Gold is strong when markets are strong because dollar weakens, and strong when markets are falling apart as a safe haven. Seems like gold is going to cross $1100 this year.  

Tuesday, May 19, 2009

Sensex goes up by 17%

Even on Sunday, after hearing the election results, I thought markets will go up by 5%-7%. This is a shocker, and to some extent indicates the illiquidity of the Indian market. I am sure there are some sellers of Bharti above 1000. 

I am looking for some studies which show which other indices went up by 17% in a day, and under what conditions. Yesterday, after Sri Lanka ended a 25 year war, its index was up 7%. If I remember correctly, Taiwan was up 13% over 2 days at end April, when the Chinese govt allowed mainland companies to buy shares on the island. India is an extremely high beta market - that is the main lesson to be drawn from this episode. 

Friday, May 15, 2009

Hindustan Lever & Procter & Gamble India

HLL (Hindustan Unilever) has decided to go for pricing to retain market share in soaps and oral care (toothpastes). HLL made a very interesting comment - in times of low commodity prices, new small competitors come up. I guess smaller competitors dont need to invest as much in working capital during times of lower commodity prices, so they become more aggressive. 

I am pretty sure that what has started in soaps and oral care will slowly spread to other categories - investors wont get price increase, volume increase as well as margin expansion in these companies.

P&G has a listed company in India - Procter and Gamble Health and Hygiene - through which they sell Whisper and Vicks. They also have a 100% subsidiary, through which they sell everything else. There seem to be serious corporate governance issues here - at a time when media costs are falling for all other FMCG companies, this company has a huge jump in media costs on no new product launches. The same is true for employee costs. I guess P&G India is booking its costs in the listed company, so that they can depress the share price and then delist it at a later stage.