GalaTime

For regular observers & investors of gold, its recent behavior has not been easy to understand. Given several geopolitical issues (Iran, Israel-Lebanon, etc.) and inflation concerns, gold bugs were looking for another run towards $700/oz. What’s happened instead is a recovery from the $550/oz June low to ~$600/oz. Chartists will quickly point to a triangle formation, and what looks like a “downward” break (chart shows the streetTRACKS Gold Share ETF, symbol: GLD).

Back home, we are approaching the September-November (festival) peak season for gold purchases. But I’ve read several opinions that Indian jewelers aren’t keen buyers at current levels. Moreover, jewelry demand this year is far lower than in 2005, given higher prices & volatility.

For a very interesting take on where gold could be headed, check out this report by Adam Hamilton, Zeal LLC. Given the emotional/psychological factors that drive gold demand, outlooks on gold vary from a drop to $450/oz all the way to a bull run to $2000+/oz!

The economists at Morgan Stanley have upgraded their GDP growth forecast for India in F2007 to 7.6% from 6.8%, as seen in:

* Corporate sales growth (28% yoy)

* Industrial production data

* Automotive sector

This is being driven by:

* Strong domestic demand

* Bank credit growth

* Subsidized oil prices

But everything comes at a price - “If the growth acceleration trend is sustained by household and government borrowing at a time when the corporate credit demand remains strong on account of capex, it could raise the risks of macro challenges in the form of higher inflation, a trade deficit and a spike-up in the cost of capital.”

As always, the monthly bulletin from the Reserve Bank of India (RBI) is a worthwhile read. Here’s some charts of interest:

Although 10-year bond yields have risen over the past year, the Indian yield curve has flattened as short-term rates (determined by the RBI’s monetary policy) have risen even faster.

Turnover in 2006 has doubled on both the BSE & NSE when compared with 2005, while P/E ratios have moved to the 18-19 range. Of course, what’s driving bullish behavior post the May-June correction is expectation of continued double-digit earnings growth. For a detailed breakdown of corporate performance, check this (large) graphic from the RBI bulletin.

TechMahindra got listed today, and is trading above 550 - a nice profit for those who got in at 365! Have the animal spirits returned to Indian markets? For other IPOs in the pipeline, check NSE.

Note that GMR Infrastructure has only managed to climb to ~225 from the IPO price of 210.

Found via Abnormal Returns, here’s an article by EnnisKnupp that estimates the world total investable market capitalization:

$93.7 Trillion is just astounding! And look how small is the % of emerging market stocks; less than 2%! That’s a huge growth opportunity over the next few decades.

Mark Mahorney has an interesting take on whether FIIs were responsible for the 2003-2006 bull run in the Indian markets:

“Much of the buying in a bubble, like the BSE is in right now, comes from momentum buying and following.”

“When the U.S. stock market was sucking eggs Wall Street, which always takes the path of least resistance selling us whatever we are most willing to buy, pimps the foreign investments heavily. I remember a couple of years ago when it seemed like all you’d hear on CNBC all day long was China this and India that. They got the momentum started.”

The latest (2005-2006) annual report from SEBI confirms the huge increase in FII net purchases:

“The net investment by FIIs in equity was Rs.48,801 crore in 2005-06, the highest ever in a single year. The number of FIIs registered with SEBI as on March 31, 2006 stood at 882 compared to 685 as on March 31, 2005.”

Both IPOs were oversubscribed, but TechMahindra much more so (72x). For details, check here & here.

As I mentioned earlier, I had applied for both, with a bid price in the middle of the range. Given the heavy demand for TM, I wasn’t allotted any shares, but did get my full allotment for GMR. Note that GMR offered a 5% discount on the IPO price of Rs 210/share, for retail investors only - making my effective cost ~ Rs 200/share.

FYI, GMR will be listed on Aug 21 and Tech Mahindra will be listed on Aug 29.