Readings: Vietnam dong, IPO lull, Sensex 10000
Vietnam’s currency controls are forcing foreign investors into the black market to obtain dollars, aggravating declines in the world’s worst-performing stock market and pushing benchmark bond yields above 20 percent. The dong dropped 5 percent to 16,846 per dollar, its biggest decline since 1998. Traders are pricing in an 18 percent drop in the coming year to 20,600, according to offshore 12- month non-deliverable forwards.
Vietnam may suffer a “currency crisis” similar to the slump in the Thai baht that triggered the regional collapse in 1997, Morgan Stanley analysts said in a report last month. “The central bank is not providing dollars, except to some importers and some working capital for exporters”. The risk is Vietnam exhausts its currency reserves of $22 billion supplying dollars or that “overkill” in cooling growth causes losses at state banks.
With Vietnam & India being thought of in similar (economic) terms, it’s worthwhile to pay attention to what the consequences can be.
The proposed Rs 1,000 crore-plus initial public offerings by Acme Tele Power, Jaiprakash Hydro Venture and UTI Asset Management Company are shelved for now as these companies have allowed the regulatory approval to lapse. The big three are among the 20 IPOs that have been put on hold owing to the negative sentiment in the stock market.
. . . the lengthened stock market volatility has forced 83 global companies to withdraw their listing plans in the first quarter of 2008. In addition, 24 companies postponed their listings. But some smaller domestic issues of Rs 30-40 crore are still hitting the market.
Note also that most of the IPOs issued in the last 12 months are underwater.
It was an easy call. In this bull run, India was termed an asset class. We were starting to think of ourselves as very special. I started getting worried when such rubbish started going around. India is not any asset class; it is only one of the markets. This kind of euphoric situation can last only for a while. In 2007, every Tom, Dick and Harry could think of making a billion-dollar personal fortune. Employees across industries were getting salaries which were not justified even at the peak of any cycle in the US. It was getting ridiculous—wage inflation, asset inflation. If one had stepped back and viewed it dispassionately, it was quiet easy to figure out.
The maximum downside one had seen in India was about 35% in a year in 2000. We have breached that already by the middle of the year. Now we are entering a situation where long-held theories can be thrown out of the window. We could be down another 30-40% from here. I would not be surprised at all to find Sensex below 10,000. When we made an initial target (for the index) it was based on other factors and the run-away inflation was not in sight. If we factor it in that, the trouble gets compounded.
When the Sensex was at 21000, we saw people predicting 25000, 27000 and so on. Now, we are talking 10000 and below. Linear extrapolation can lead to sub-par results.
And saying that this big drop was obvious is a bit of 20/20 hindsight - coz the key is timing. Even at 5000, the Nifty could be considered over-valued by historical measures, but it went to 6300!
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July 4th, 2008 at 1:49 pm
Read the BSNL IPOs are scheduled for Oct 08, guess that can help.
July 4th, 2008 at 8:43 pm
Hi Kaushik,
Shankar Sharma was categorical even before the Jan 2008 Crash that he was not convinced by the prices and they will come down. One quote I remember from him was that “we are not going to be developed country or some thing like that in near future, we just built couple of buildings here and there and couple of fly overs here and there. but that does not mean we are now developed”.
So he was consistent in what he was saying.
Cheers
TempleTree
July 5th, 2008 at 9:49 am
TempleTree,
That may be true, but at this point, getting overly pessimistic can be as bad for your portfolio as it was to get overly optimistic in December 2007.
If you try to translate what he’s saying to something actionable, what would you do? Sell all stocks & mutual funds - now? Put all your money in a long-term FD?
July 22nd, 2008 at 5:22 pm
People said Sensex would go to 27000 when it was at 21000. Now at 14000 some say that it will go below 10000 mark. I think nobody knows where the market will end but its advisable that one should not mislead investors by giving such predictions.