Another day, same story - the Dow plunged 5% overnight, the S&P was down nearly 6% -percentage point. There is complete mayhem across global markets; Asia is plunging, no resilience here today; all markets are down between 3-5%. So we are waking up to another difficult morning across global markets, chances are hard too in the Indian markets.



The CRR (Cash Reserve Ratio) cut, the P-Note changes have come and gone not made much of a difference to the market.



Today is the last day of the sun outage. So after today, trade will end the regular time but the sun seems to have gone out of our market. We seem to be living in permanent sun outage nowadays in any case.



Asia hasn’t shown anything by way of resilience?



One can understand the pattern when the Dow sells off 300-400 points, Asia tries to think that next year there will be a bounce and in the evening it figures out that the Dow fell 5% more. So the continuous and respite free fall in the US market is now beginning to worry Asia very much. So don’t expect any kind of near-term decoupling happening but things are too bad across the US and you heard what the Fed chief was saying yesterday, short of saying that, “we have had it.” He said it all. We will probably fall some more and you can see that no levels are being held out by the Nifty.



The thing is this is the bear market in full flow; we have seen stops and starts in the bear market over the last few months now it’s flowing like a river. It reminds you of October to December last year for the bull market where it was just a classic bull market in full flow; it was like a flood and now we are seeing the bear market in full flow. Stock prices know no bottom; developed markets are falling 5-7% a day. This is classic bear market stuff. I hope at some point this will end because you are seeing the classic signs of the panic play out but who knows when it will stop.



Asian Indices:



Asia is not a good picture today. The Nikkei is down 5% and Japan has been actually falling much more than some of the other Asian markets of late. China is down 3%, Hang Seng is down nearly 6%, other markets are not a whole lot better; let us say average 4% cuts across Asia.





More to come...


-Udayan Mukherjee, Managing Editor,CNBC TV18...

One can understand what Securities and Exchange Board of India (Sebi) is trying to do and you don’t fault that. Things are difficult they are doing whatever they can. It is not difficult to go back on a decision which was taken less than a year back with great fanfare saying, “We want more transparency in our market therefore P-notes must go and you have to register yourself as FIIs. Then 11-months down the line to eat humble pie and come back and say it was never about transparency, it was only about flows. At that point we didn’t want flows because the Finance Minister told us that the rupee is getting completely out of whack and therefore Sebi should then press for transparency and close the P-note window.”

Now that there is no liquidity in the system now Sebi does not require transparency as much as dollars and therefore we close that door. It’s not an easy move for a regulator to take and their cover to a certain extent is blown on the intention of this P-note move to begin with but having said that if it helps the market then we don’t complain. If it brings in money then we don’t complain, we say okay what is good for the market is fine, we sacrifice principle for the sake of that quite easily.

It is good for the market? - I am not quite sure because there are a few technical things I don’t think that 40% of Assets Under Management (AUM) limit, which was there and which was the guiding principle or the operative principle works anymore because there is plenty of headroom in the system in any case. So removing that 40% cap will not get the dollars in. Also the whole Assets under Management has come down so dramatically that 40% of what your calculating has also changed quite a bit, so all of this is becoming a bit meaningless.

The only one technical point where it might actually help is that people want to shift away some P-notes from a few large investment banks to a few other large investment banks. That shift might be facilitated to a certain extent. I don’t want to mention names but a couple of global investment banks you know the names you are not exactly in the pink of health right now and there are a couple others who are a little better off. So the guys who are a bit better off might be closer to that 40% limit. But that aside, I don’t think this is big news. FIIs still continue to be on the sell side and that won’t change for a while.

-Udayan Mukherjee, Managing Editor,CNBC TV18 ...

Also what will happen right now because everybody is panicking is that all countries will start cutting interest rates because regulators have only few things they can do to stem the panic; they can either throw money at the system or they can start cutting interest rates. I suspect before the week is out you will probably see all the Central Banks in the world putting their heads together and saying, “Everybody is panicking, our markets are just collapsing everyday. We have to do something to lend some kind of emotional supports so let’s all start cutting rates.” So I suspect that will happen in the US and Europe and everywhere that you can imagine perhaps in large parts of Asia as well and that in the near-term might provide a bit of a relief for a market which is oversold.

Right now there is complete panic in the medium-term, which is the next few quarters you have a very bad situation to muddle through globally in terms of basic economic conditions and there is no getting away from that whether rates come down 50-100 bps or not the damage is done. But in the near-term I think you will probably get a pullback and it could be a significant pullback as well because the damage is being extremely hard and many markets have ground down to five year lows. So you could get a pullback and I think the chances of getting a pullback at some point of this week are fairly high.

But these are difficult to time; it could happen today, tomorrow or could happen next Monday but its coming because there is too much panic visible and that doesn’t last very much long.

We were whacked out of shape yesterday:

Yes and 3,800 has gone but we have some policy action, so at least sentimentally the first signal of a possible monetary easing though I am not sure about. But that plus some emotional relief on the FII front for a market which has fallen 300 Nifty points in the last two days could be a trigger for a bit of a pullback. In any case 3,600 was one target for the traders and that has come about rather too quickly.

So is it conceivable that the market pulls back a little bit? - I think it’s possible but the flow situation is still very bad. So from 3,600 can we pull back to 3,800? - It is conceivable, likely not impossible. Could we go to slightly higher levels? – That is also not implausible but 4,000 plus is very difficult for the moment. We could get a 5-7 to 8 % kind of a bounce depending on how strong the global action is and over a period of time you will go back and retest 3,600 and the way things are I won’t be surprised if it breaks and we go and test a new low. But we have already come off quite a bit and formed a new low and therefore one could expect a bit of a trading bounce but trading bounce is all that there is.

Is it an irony of the times that this Participatory-note (P-note) opening up has actually got people sulking rather than cheering?

It is the first reaction, it is a bear market, so when you open up capacities and say will people come and short right now and that’s the first reaction that you open up the window now at this kind of a time, then people will come and hammer your market because that’s where they see the market going - down. So its possible that there could be some shorting and fresh shorting is probably easier now on futures because of the overseas- derivative instruments (ODI) rules but that aside if the purpose of this move is to attract more capital into this country, I doubt that will happen right now because the problem is not regulatory ease of capital flowing in, the problem is there is no money in the world to put into any emerging market or any asset class indeed. So when there is no money, what’s the point of opening the door?

-Udayan Mukherjee, Managing Editor,CNBC TV18 ...

The world keeps changing every night and we come back with a completely fresh perspective - so much has changed since the markets closed last evening or yesterday afternoon. The Participatory-note (P-note) regulations have changed; the Reserve Bank of India (RBI) has surprisingly cut cash reserve ratio (CRR), global markets continue to tumble though Asia is weathering it a little bit better this morning. So global turmoil, lots of policy changes - it will all go into the melting pot today, who knows what will win; policy action or global turmoil.

On global markets:
These are difficult times, unprecedented times in the global markets and therefore the kind of action that we are seeing is also quite unprecedented. Things are very fluid at this point in time. You do not know what the market will react to this morning, it could easily snap back because of the concerted regulatory action, which is happening or it could continue to drift down along with global markets. So it is a tough call.

We are seeing history unfold in front of our eyes. This is something that we do not see in a decade or a couple of decades, the kind of action that we are seeing in global markets and the way regulators across the world are forced to respond to it to at least keep the patient alive. There is absolutely history unfolding and therefore the less you take in terms of big directional calls in the market, the better because we have no clue of where the situation might land us in finally. It is tough times and absolutely historic times for financial markets around us.

For many markets, it is almost like the hemorrhaging right now?

It is and I suspect that will continue because this is not about small interest rate change and it is not about throwing a little bit money at the system or anything like that. We are probably hurtling towards the global recession not just the US recession at this point in time and the kind of economic distress, which might unfold over the next few quarters, is making everybody very nervous and justifiably so.

So right now you don’t want to get into that, okay inflation at 11.99 so we are fine, Cash reserve Ratio (CRR) down more 50-bps, so we are fine or to get extremely bearish between points and say now the market will go to 8,000 Sensex and the Dow will plunge to 5,000. None of us know what is going to happen. Could any of us have predicted the events that have unfolded in the last 4-5 weeks? The biggest analyst in the world couldn’t have seen of what is going to happen.

We are in unprecedented times and none of us know how things will shape up over the next few weeks and months. It is best to say I don’t understand what is going on; it’s beyond my comprehension completely. I don’t want to stick money into assets and all right now, if I could I would dig it under the ground and sit on it since I can’t do that I just need to be in cash at this point and not be brave trying to fool myself by thinking that I am the best analyst in the world who knows exactly how this thing will pan out. When in doubt just keep your money under the mattress that is always worked in history and that is going to work right now.

Asian Indices:

Asia is okay this morning it is not such a bad picture the Nikkei is down about 2%, Straits Times is actually up 1.5%, China is down 1.5%, so mixed bag but no great sell-off as you have seen across the US market things are little bit calmer out here though they started negatively, the most Asian markets seem to have come-off the morning’s lows.

It’s almost like a vortex situation everyday?

It is and the way things are now capitulating in the West is quite alarming because yesterday Europe was down 8-9% apiece. I do not remember in my memory when European markets fell 8-9% a day, Russia was down 19%. These are indices for large markets which are falling 18-19% a day; it’s not a single midcap stock. So it’s very scary, but the pace at which these markets are falling right now lead you to believe that for the near-term you are probably headed to another intermediate bottom because things do not fall 20% a day for very long. So its getting completely overdone right now, you are seeing the absolute peak of panic, it could last for a day or two sure or maybe in the next 48 hours you will probably see a spike back in the global markets. I know not the best morning to suggest that but it inevitably happens when market falls 7-8% a day.

-Udayan Mukherjee, Managing Editor,CNBC TV18...

Does it help any that there might be a relook at the P-Note situation?

I doubt it very much. The problem right now is not ease of operation or ease of entry into a particular market. The problem is there is no money going for emerging markets. So you cannot do this now and say, “We will make it a bit easier in terms of getting into India and therefore you can come in.” FIIs (Foreign Institutional Investor) are not selling because it’s difficult to enter India because they do not want to be in whatever they consider as risky assets and therefore Participatory Notes will not make an iota of different sets at this point in time.

Also it may send out a bit of a confusing signal on what we are trying to do, because when this policy actually came in the reason which was put up by the regulator was that because we need more transparency in this market and therefore we need to throw out PNs and get FIIs registered directly.

Now if they go back on that and relax it then it would be showing their hand completely that this was nothing but to regulate the flow of money for the rupee. You cannot go about tweaking entry norms of capital into the country that too in market like equities because of what you view on the rupee is. I think it will be shown as a bad regulatory gesture if we were to change the norms now. Not only will it not bring fresh money into this country at this point, I think it will also confuse people about how our regulators are thinking about policy.

We might be buckled under little bit for the Nifty this morning?

We will for sure, 100-points will go quite effortlessly this morning on the Nifty but after that what, traders have got used to buying the breakdowns below 3,800 and then playing for a little bit of bounce back. These bounce backs have become more and more modest over the last few days but they have been happening, so the markets have not been breaking 3,800 on a closing basis quite decisively.

So we could have a slip down this morning may be we get a little bit of a bounce back from there and who knows may be there will be another gulf or wave of selling, which will engulf this pull back again. I think the bears will try and break 3,800 on a closing basis today because they have got a lot of support from global markets, so they may let a pullback happen early in the day after a weak start but in the second half they might come and try and hammer down the market a little bit more to just break that psychological barrier down.

The way this is going for a fifth time and approach at these levels, I doubt whether this level will hold out, it may hold out for a day or two or a week more but it doesn’t appear that this will be a firm bottom, which will hold out for this market, given how things are evolving around us.

-Udayan Mukherjee, Managing Editor,CNBC TV18...

We come back to trade after an eventful weekend - the bailout package may be through but global markets are not showing any great strength at all. Asian markets are deep in the red today; so it is not a pretty picture at all as we go into trade, earnings season also kicks off this week but that may have little bearing given the kind of global vortex that we are caught in. So it looks like a tough morning after closing virtually at the lows of the year on Friday.

An important week:

It will be an important week and an important session of trade too because we closed very precariously on Friday and we are almost at the lows of 3,800 and the way global markets are going, it is possible that today 3,800 breaks as well. It is the fifth attempt at that 3,800 level now or 12,500 Sensex whichever one follows, last few times we have managed to claw back somewhat. So the hope is that the second half of the day would be bit better than the start because the start almost inevitably will take us back down to the lows of close to more than 3,700.

So the morning doesn’t look good but the closing will be very decisive today less than earnings more how the global situation is just unfolding and degenerating everyday.

Asian Indices:

The US was not good on Friday night and Asia is not good either. China has reopened after many days 3.5% down, Korea is down almost 4%, Taiwan 3%, Hang Seng has recovered a bit from the lows but it is still down nearly 3%. So average cut across Asia would be 3% this morning and that is what the SGX is indicating for us as well.

After that bailout package there wasn’t even a sell on strength option?

No, the Dow collapsed some 400-points from the highs of the day that was a very disappointing close. So it’s not how much it lost in real terms but how much it came off after the bailout package came through. Also the economic data there is really bad now. For the most part of the last week; all the economic data points have been so bad non-farm payrolls, unemployment and that is just driving home that point that big bailout package or not, things are crumbling in the US. What the world is getting really concerned about is the pace at which things are worsening in the Euro zone as well there too over the last three or four sessions, we have seen consistent bad news.

The bad economic news in the US, the bad news in Euro zone all of that, I suspect is just breaking sentiment quite a bit. I doubt very much, if we will get terrific global cues in the next few days, if we just look at most of the Asian markets are trading at 2008 lows. We have got big global challenges ahead of us and that’s probably the reason why earnings might get overshadowed this time around.

We have got money problems as well?

We do. That provisional figure for Friday, I think will be very disappointing for a lot of people because that was the day when many largecap names were selling off and by the end of the day sure enough we have got a Rs 1,600 crore negative figure in the cash market.

The additional disturbing thing this time around is that earlier when the market has got weak globally, we would see quite a bit of shorts piling up on the Nifty futures which FIIs (foreign institutional investors) would sell. Nowadays the selling does not come in the futures market, they are not shorting too much by way of Nifty futures, they are actually selling quite heavily in the cash market, which probably reinforces the kind of redemption fears that we have been talking about.

Over the weekend, there was a note out from one of the hedge fund trackers suggesting that fund of funds still need to pull out another USD 100 billion by the end of this year. I do not think global markets can absorb, in this fragile situation, USD 100 billion more of selling that I think is the big problem. Whether more redemption are coming and more redemptions came at the end of September, which is the reason why we are seeing this kind of selling and it will not stop right now. It will probably carry on through till the end of the year. So we have got a bad situation on our hands with FII flows and I doubt whether things will get better in a hurry.

-Udayan Mukherjee, Managing Editor,CNBC TV18...

The markets will be rangebound and may probably shift down to a lower range of around 3900-4100 today. Indian markets are unlikely to react to the bailout as the markets have not been reacting to news from the US. We may fall in-line with the rest of Asia.



Here is a verbatim transcript of Udayan\\`s comments on CNBC TV18. Also see the accompanying video.



We come back after a day’s break but the picture is not quiet what one would have been expected to see from the US markets. Yes, the deal looks like it will pass through, the bailout package but the Dow Jones Index was down 350-points, there is one more go-ahead which is required but the market is not convinced and nearly a 100-point cut in the Nasdaq as well.



The good news of course is that Asia is not reacting as violently to it just like last time. So, Asia is down but not quite out this morning but that’s the backdrop; the US sell-off deal almost through, Asia is quiet and we are trading the last day of our week as well which has been a truncated one but quite a volatile one.



It is almost like yes bailout, but so what?



Sort of and I think a lot of people who might have kept positions open on Wednesday hoping that once this market against this sense that the bailout will come through, you will have at least a bit of a pop up in the US but the Dow is very close to, where it was on the panic low which was hit after the deal got rejected. So two days after that big pull back rally we are pretty much back to square one and that’s not very comforting. Of course the market is pretty much signaling what we have been talking about and that is bailout package done but so what? Does it change things materially for the medium-term? - Perhaps not.



For our markets, I think we are in a fairly range bound kind of situation now. The range is shifted lower and within that we will probably grind around. So perhaps a boring kind of a session, a little bit of a nick in the morning and then hold a negative kind of a range for a bit, but don’t expect anything special on the last trading day today.



Asian Indices:



A couple of Asian markets are shut like China and Korea. The others which are open are okay; Singapore is down 2%, Hang Seng is down 2%. One should remember that this is a reaction to a big sell off on the US markets. Taiwan has actually recovered some of its losses; Japan has to a certain extent. So they are down but not quite out this morning.



On the bailout and its impact:



I don’t think we will react as much to the US fall because that is typically what we have not been doing, as in the US sells out 3-4% quite regularly now-a-days but Asia and India does not do that. So perhaps we will be spared that big a cut. We will probably fall in line with the rest of Asia, may be loose 0.5-1% this morning and then amble around there but violent reactions like that may not happen.



I think the market there is trying to put pressure on the regulators and the Congressmen - it is almost like a warning; a sell off before the final vote happens that if you do not pass it, then heaven help you because the stock market is going to take another big tumble. I think it is the market’s way of probably adding a little bit of pressure on the policy makers there. I think there will be more that the US policy makers will have to throw at the market, this bailout package will have to pass and then later in the month you have to see rate cuts from the Fed as well, because the market is clearly signaling that this is not enough to bail it out of trouble.



We had a big fall then a smart recovery and then in the next couple of days we have pretty much given back much of those gains and gone back to virtually the levels which existed when the panic sell off happened that is probably the markets way of saying, “We have priced in the bailout package but materially life does not change for us.”



There are many other things which are very problematic out there and perhaps they are as important if not more, than this bailout which has consumed investor and media attention over the last 48-72 hours. The way London Inter-Bank Offered Rate (LIBOR) shooting up everyday is hugely problematic out there for companies. If you just look at the macro data, the jobless claims data is just worsening, home prices continue to fall, and none of this is good. Even if we get that bailout package through, is it a magic wand after which you say from Monday onwards everything is hunky dory? - No.



The market is probably just reacting in a correct way, which is the relief and the despondency reactions are knee jerk but after that they are pretty much holding a downward drift out there in the US, which probably is the right way to be because the problems are just humungous.

We may not collapse like the US markets have but we have got our own downward drift to deal with?



The range has shifted down there is no question about that. Earlier we were talking about maybe 4,000 to 4,500 kind of range, stretched down to 3,800 to 4,500 but I think the higher end of the range is looking more and more remote now. It would require quite a bit of push to take the Nifty back up to 4,500. On current reckoning I do not think it has strength to get back to 4,500-4,600. So it’s possible that we are shifting now after the drubbing that we have seen this month or last month to a lower kind of range. The lower range could be defined by the lows that we saw a day before or at the start of the week when that bad news came in from the US which is close to 3,700 mark and the higher end could be that maybe 4,100-4,050 those kind of levels beyond which I think people will start selling, shorting and the level of conviction on the up move will go down further.



So on a good day, on a bit of short covering you will see those bounces which take you to 4,000 perhaps take you to 4,100 but now from 4,000 to 4,500 Nifty which was around for quite a bit, I think we are probably now getting resign to a 3,700-4,100 range. That’s not very comforting. This morning again you will get stuck in the middle of the range, probably start the day around 3,900 then just amble around a bit. But we are range bound and the range is lower and therefore it’s suggesting that the market continues on its downtrend.



I also do not think there are huge trading opportunities in this kind of a market because it continues to be volatile in a narrow range that too a downward drifting range so you could get it right once or twice. But this is not the kind of market where you typically end up trading and making a lot of money because at 3,800 kind of levels or 3,900 kind of levels, it requires a lot of courage to short heavily also because you have fallen quite a bit and going long as problematic because news flow is against you so again upsides get capped 150-200 points higher. So, from the mid point of the range it’s difficult to open up fresh trades either.


It has been a miserable month- it has been down like six out of nine months this year and October is really big that way in terms of which way it could swing?



Yes, September was disastrous and I do not think most people expected that we will lose 12% as we did in the month of September; the Sensex is down nearly 12%. So that is quite disastrous.



Now after such a bad month, could you play for a bit of a bounce back? In ordinary circumstances, you would have expected to see a bit of a pullback and that might well happen but these pullbacks do not have much velocity nowadays. Earlier when we were seeing those massive 20-25% kind of pullbacks, markets would go back to 3,800, bounce back to 4,600 those are getting tempered. The pullback rallies are getting shorter and more and more compressed. Nowadays 200-300 points is all you get in the pullback not those 20% kind of rallies. So let us see what we strike out in October. I do not think all this bailout package and nuclear deal will take you anywhere beyond a point. It will only be those couple of 100 points on the Nifty if that.



The two big triggers for me in October are if there is any kind of surprise on the earnings. I doubt if there will be huge positive surprises, which takes the market up 15-20%. We just pray that there are no negative surprises because the market’s tolerance for negative surprises is quite low now. It is that kind of earning season, which may not take you up a whole lot but has the potential of breaking your bad and hopefully that will not happen.



Towards the end of the month, a lot of interesting triggers are stacked up because I think there is every chance that the Fed will cut rates. Around that time, you will hear a lot of talk and maybe there could be some intermittent rallies happening predicting or playing for that Fed rate cut this time around because they badly need anything. There would be a monetary policy here as well and let us see what theReserve Bank of India (RBI) has to say.



The wildcard in October, aside of these two main triggers is that the parliament session that will also get underway and since the Prime Minister has a little bit of tailwind going after the nuclear deal, let us see if he can push through with one or two things because we will take help from any quarter in our market right now. So it will be earnings and monetary policy here and overseas but wildcard being the parliament session if it can throw up any positive surprise.



On Asian markets:



Asian markets are not down too much; it’s a flattish kind of morning. A couple of those markets are down 2.5% in a single session and our notions of volatility have completely changed over the last few months. A few months back if we saw the Hang Seng down 450-points we would worry very much in the morning but nowadays 2% we treat like it is nothing, the market is flat out there. So this global volatility has whacked us completely over the last few weeks.



On nuclear deal impact:



I think the market is not focused on this kind of news flow at all. It’s important for our country and will probably help some of our power, capital good companies in the medium-term 4-5 years from now but the market is in such a mood that it ignores most positive news in any case and this kind of news which is medium-term to long-term positive, I don’t think the market has much time for it.



So maybe some trader will but NTPC or Larsen and Toubro (L&T) or BHEL for a half an hour this morning. All of those things will happen but the market is not focused on these things, they will come and go and it will not make an iota of difference truly there are much bigger things on the market’s mind at this point in time.


-Udayan Mukherjee, Managing Editor,CNBC TV18...

Dear Udayan Grim is too small a word to discibe the situation it actually turned into a crisis and soon we will be bleeding more sensex is making its lows and this has to stop some were but no stopping is visible. Regards...

Cheers Udayan, Appreciate your great views, I am Venkat, Training8m, Queensland, Australia ...

Most worldwide and in India specially finacial analyists, experts pundits are not only blind, deaf and dumb, but also stupid . The simle laws of economics and nature were defied by these persons, to unimaginable levels. This was mainly to satify there collective greed for highr pay and bonusses. Never in the history of world (except) in last 15 years or so, specially in last 5 years executive compensation grown so fast and so much that it dwarfed the interest of the company and shareholders. The govt also bacame party to this. Even the bankrupt LB, wants super severence package for their executives under the bail out plan. This is ridiculous. Unless companies revert back to modest and reasonable expense on employees, and stop incurring massive CTC for executives, the companies are doomed to bankruptcy in coming days. Too much money in young hands is detrimental to public and economic health. I cant understand that such simple thing were not understood by the so called graduates from elite institutions and creanm de la cream of the society, that they couldnot forsee the disaster in the offing. ...

Economy & Markets : Recalibration begins ----------------------------------------- This is the very beginning of recalibration of Economy and markets (Indian as well as global). Things will get far worse and the process will be painful. People`s day to day life is going to be impacted; for some, very severely. However a time of great opportunity for the long term investor. A decade from now Indian economy will emerge far far more stronger. Stock Market outlook -------------------- - No change in my assessment. Given a 12K breach, there is now more than 70% chance of a 10K breach - On the upside , my estimates suggest that Sensex likely to go up to 40K (min 25K) by Sept 2013 and 80K (min 45K) by 2016 Investment Strategy ------------------- - Begin Accumulation. If you have Rs. 100 in free cash, invest Rs 50 right away. Remaining Rs. 50 post 10K breach. Monthly savings – hold off half for 10K breach and use the remaining for regular accumulation. - Existing holdings – Hold on to existing investments, unless you need cash urgently. Be ready for a long haul. - Be ready for a seven years kind of time span. Key Drivers : Global Economy ---------------------------- - US in recession : the question now is not if so, but, how bad will it be and will the country go into a depression. - Credit markets : in US and Europe have absolutely frozen out. Nobody is ready to lend to anybody. There is a deeps sense of mistrust. Banks, corporates and even government bodies are looking at severe cash crunch. If the liquidity situation does not improve in next month or so, US risks a complete economic shutdown, similar to the great depression of 1929. - US financial markets: At best there will be complete restructuring and at worst a complete meltdown. More big names will go down under - Europe / Japan : Europe and Japan already in recession like states. Japan Q2 GDP contracted 0.6% QoQ. Europe growth estimates for 2008 at 1.7% and falling. - China – in slowdown mode, similar to India. - Global impact of US and Eurozone meltdown/ recession : Economies across the globe would be impacted significantly though by differing degrees. Global slowdown certain, global recession likely. Key Drivers : Indian Economy ---------------------------- - GDP Growth : 5% or lower levels over next two years - Slowdown across all sectors. As is the case in all downturns , the hardest hit would be the cyclical and commodities sector. - IT/ BPO : Margins coming down. Outsourcing will become more difficult as US/ Eurpoe jobless claims mount. - Steel / Cement / Mining/ Refining /Commodities: Will be worst hit as the price cycle takes a downturn. - Banking : Will be badly hit. Credit offtake falling , margins getting squeezed and defaults rising. - Telecom / Pharma / Consumer goods : Not so badly hit. Though growth rates will come down with varying degrees. - Capital goods : Badly hit. Corporate will hold off capital goods investments. - Infrastructure : Growth will slowdown. Government will be short of cash to fund projects till the economy goes on a recovery path. - Auto / 2 Wheeler : 4 Wheeler will be badly impacted. 2 Wheelers less so. - Labor prices : Salaries, bonuses and increments would be adversely impacted. - Labor market : Layoffs will start in H1-09. - Land prices : Prices will come down. Distress sales likely by developers as even the big ones will run out of cash in 18 months. Some will go bankrupt. - Interest Rates : Will start coming down. In a couple of years we`ll again see housing interest rates at 6% levels....

One can understand what Securities and Exchange Board of India (Sebi) is trying to do and you don’t fault that. Things are difficult they are doing whatever they can. It is not difficult to go back on a decision which was taken less than a year back with great fanfare saying, “We want more transparency in our market therefore P-notes must go and you have to register yourself as FIIs. Then 11-months down the line to eat humble pie and come back and say it was never about transparency, it was only about flows. At that point we didn’t want flows because the Finance Minister told us that the rupee is getting completely out of whack and therefore Sebi should then press for transparency and close the P-note window.” Now that there is no liquidity in the system now Sebi does not require transparency as much as dollars and therefore we close that door. It’s not an easy move for a regulator to take and their cover to a certain extent is blown on the intention of this P-note move to begin with but having said that if it helps the market then we don’t complain. If it brings in money then we don’t complain, we say okay what is good for the market is fine, we sacrifice principle for the sake of that quite easily. It is good for the market? - I am not quite sure because there are a few technical things I don’t think that 40% of Assets Under Management (AUM) limit, which was there and which was the guiding principle or the operative principle works anymore because there is plenty of headroom in the system in any case. So removing that 40% cap will not get the dollars in. Also the whole Assets under Management has come down so dramatically that 40% of what your calculating has also changed quite a bit, so all of this is becoming a bit meaningless. The only one technical point where it might actually help is that people want to shift away some P-notes from a few large investment banks to a few other large investment banks. That shift might be facilitated to a certain extent. I don’t want to mention names but a couple of global investment banks you know the names you are not exactly in the pink of health right now and there are a couple others who are a little better off. So the guys who are a bit better off might be closer to that 40% limit. But that aside, I don’t think this is big news. FIIs still continue to be on the sell side and that won’t change for a while. -Udayan Mukherjee, Managing Editor,CNBC TV18 ...

Also what will happen right now because everybody is panicking is that all countries will start cutting interest rates because regulators have only few things they can do to stem the panic; they can either throw money at the system or they can start cutting interest rates. I suspect before the week is out you will probably see all the Central Banks in the world putting their heads together and saying, “Everybody is panicking, our markets are just collapsing everyday. We have to do something to lend some kind of emotional supports so let’s all start cutting rates.” So I suspect that will happen in the US and Europe and everywhere that you can imagine perhaps in large parts of Asia as well and that in the near-term might provide a bit of a relief for a market which is oversold. Right now there is complete panic in the medium-term, which is the next few quarters you have a very bad situation to muddle through globally in terms of basic economic conditions and there is no getting away from that whether rates come down 50-100 bps or not the damage is done. But in the near-term I think you will probably get a pullback and it could be a significant pullback as well because the damage is being extremely hard and many markets have ground down to five year lows. So you could get a pullback and I think the chances of getting a pullback at some point of this week are fairly high. But these are difficult to time; it could happen today, tomorrow or could happen next Monday but its coming because there is too much panic visible and that doesn’t last very much long. We were whacked out of shape yesterday: Yes and 3,800 has gone but we have some policy action, so at least sentimentally the first signal of a possible monetary easing though I am not sure about. But that plus some emotional relief on the FII front for a market which has fallen 300 Nifty points in the last two days could be a trigger for a bit of a pullback. In any case 3,600 was one target for the traders and that has come about rather too quickly. So is it conceivable that the market pulls back a little bit? - I think it’s possible but the flow situation is still very bad. So from 3,600 can we pull back to 3,800? - It is conceivable, likely not impossible. Could we go to slightly higher levels? – That is also not implausible but 4,000 plus is very difficult for the moment. We could get a 5-7 to 8 % kind of a bounce depending on how strong the global action is and over a period of time you will go back and retest 3,600 and the way things are I won’t be surprised if it breaks and we go and test a new low. But we have already come off quite a bit and formed a new low and therefore one could expect a bit of a trading bounce but trading bounce is all that there is. Is it an irony of the times that this Participatory-note (P-note) opening up has actually got people sulking rather than cheering? It is the first reaction, it is a bear market, so when you open up capacities and say will people come and short right now and that’s the first reaction that you open up the window now at this kind of a time, then people will come and hammer your market because that’s where they see the market going - down. So its possible that there could be some shorting and fresh shorting is probably easier now on futures because of the overseas- derivative instruments (ODI) rules but that aside if the purpose of this move is to attract more capital into this country, I doubt that will happen right now because the problem is not regulatory ease of capital flowing in, the problem is there is no money in the world to put into any emerging market or any asset class indeed. So when there is no money, what’s the point of opening the door? -Udayan Mukherjee, Managing Editor,CNBC TV18 ...

70% chance of a 10K breach. As per my previous estimates, If 12K breached, then another 70% chance of a sub 10K Sensex levels. A 10K breach over next 9 months is fairly certain now. Slowdown of global and Indian economy remains the key driver. On the upside , my estimates suggest that Sensex likely to go up to 40K (min 25K) by Sept 2013 and 80K (min 45K) by 2016 In a Nutshell ---------- At best we are looking at a global slowdown and a severe impact to the financial systems of countries – impact varying from country to country At worst we are looking at a Global recession accompanied with a complete meltdown of major financial systems across the globe Either ways, the worst is far from over for India and the World ; US economy will be the worst impacted. Key Factors : Global economic landscape -------------------------- US : already in a recession and it is likely to continue for another few quarters Bailout Plan : poorly designed – wont work- at best a confidence building measure even if it gets passed later US Financial system : high risk of a complete meltdown Europe / Japan / China : varying degrees of slowdown – slide continues Key Factors : Indian Landscape ------------------------ GDP Growth : 5% or lower levels over next two years Slowdown across all sectors Factor price correction as the cycle progresses : salaries , land prices, interest rates will come down as the economy recalibirates ...