Kalidas’ Practical Rule for Stocks, Bonds, and Indices

1)
Dear Boarders,

I had casually mentioned once, but it would be interest to many Investors if they carefully follow my practical rule that was tested by me for over 21 years.

For INDICES – 200:800 rule and 30:70 rule

Once I mentioned in this forum that indices usually follow the repeat pattern of 200:800. That is index movement usually moves as under:

Example:
7800 – 8200 – 8800 – 9200 – 9800 – 10,200 – 10,800 – 11,200 – 11,800 – 12200 – 12,800 – 13,200 – 13800 – 14,200 – 14,800 – 15,200 – 15,800 – 16,200 – 16,800 – 17,200 – 17,800 – 18,200 – 18,800 etc.

This applies to all indices in the world. Look at SENSEX and also DOW recently. Dow was always jumping up from 11,200 to 11,800 and once went to 12,200. When it fell from 11,200, it dropped to previous level 10,800 (-400) and then to 10,200 (-600), then to 9,800 (-400) and then again 9,200 (-600)

Because this is Text only format, I can not make table which is easy to read and follow. In my website I will post this article fully re-written with tables.

In India too, the same pattern was followed, so also in Hong Kong and Japan.

How to read this Kalidas Rule?
If the index is rising say from 9200, it will go to 9800 in rising trend. If it is a falling trend, then it will go down to 8800. Right now, the Dow is trading at 9200 level and following downward trend, so it will go down to 8800 first, then if not stabilizes, to 8200. If it breaks 8000, then hell will break loose. Whenever, the magic figures of 8000 (or multiple or division by 10 that is, 8,80,800, 8000 etc), it will drop by 40% to go to 5000 or multiple/division by 10 level ,that is 8 will go down to 5, 80 to 50, 800 to 500, 8000 to 5000 etc. It reverses in same fashion.

30:70 SUB-RULE FOR INDICES
This is particularly useful to Traders of indices. The index rises above critical level by 30 (to 8230 for 8200; 8830 for 8800, 9230 for 9200 etc. similarly when it falls, deduct 30 points way down for support level. For instance if it is falling 8200 will test to 8170, 8800 will test 8770, 9200 will test 9170 etc.

For example, you find the Sensex falling below 11,800. It will test the support of 11,770. If it does not hold, it will go down all the way to 11,200 (with one minor stop at 11400) where it will first test the level of 11230. If it does not hold, it will be forced down to 11170 in less than few minutes. If it does not hold the support at 11170, then it will go down to less than 11000 to all the way down to 10,800 (halting at 10,830 or 835 and then testing the support at 10,770. If the daily fall is more, then after hitting say, 10,770 it will recover to over 11200 by testing upper resistance of 11,230/235 level. This is what happened on SENSEX a few days ago.

You can work out the exact point easily using Excel spreadsheet by inputting the formula properly.

Example: in rising trend
Index rising from say, 10,100 – it will go to 10,170 where it will test the downward support level, if it holds above 10,170 and in rising trend (because it has already advanced from 10100), it will test the level of 10,230/235 level, where it will consolidate for longer time. If it passes this hurdle, then it will rise very fast and may rise to 10,400 level (if it can pass 10,370 level fast) and may in fact test 10,430/435 level and then retrace for correction, but will not fall below 10,370 if the trend is strong, news is positive and other Asian markets are firm, with UK also opening stronger.

The above rules are not absolute but they usually hold well in more than 80% to 90% cases. So if the index is in downtrend, and it is at 10,230, then sell short if the trend is downward, and within minutes it will test the support of 10,170 when you can buy back, making 60 points in less than a minute.

Use it as Demo exercise first, If it suits you it is fine, but do not come back like Kalidas, you told us 2400 rally in 7 days and it lost 2400 points without reading my entire post with preconditions. This is a practical rule from experience. Try it at your risk.

Kalidas, Hong Kong
9-10-2008

2) Qn: wht do for Maruti Suzuki?
Sell for the time being. I you want to stay on in the Auto sector, swap into TVS Motors (Rs 30 or about) in correction if present. Maruti has not dropped much,so in the event of rally, it will come down and those stocks which dropped most will rise.

Maruti - SELL (although it is a good company)
Tata Motors: SELL and do not look back
Ashok Leyland : Reasonably good buy but lousy management. The controlling family may come into serious problems in Switzerland and London.
TVS Motors: Accumulate
Hero Honda: Good to own, in steep correction. Better than othr breeds
Hindustan Motors : Ignore it. Even if it has land in West Bengal, who is going to buy it after Tata`s ignominious exit from Rs 1 Lakh car?
Watch for Tractor related stocks - they will do better and are safe except those companies, where they have family disputes.

Kalidas, Hong Kong
13-10-2008

3)
for shahconsult,

The theory of numbers merely informs you the support and resistance level. Whether it is downward or upward trend is to be determined by the investor. Further, index trading in volatile times is very difficult art, where you have to go on buying or selling the position at all times with stop loss at 50 pts (depending upon the Rs per point movement - I am not aware)

Normally, it would have rebounded at 10800 level - in fact it halted exactly there. Today, due to weak market, it went to 10200 level and then rebounded by 200 points.

Right now, the market is in downtrend with no end in sight. Dow is destined to go to 5000 level soon. There is lot of redemption pressure on funds/hedge funds, so they are selling without any respite.

However, if you take the position around the key level points, you will have reasonable chance of success. In this type of volatile market you have to buy opposite options upto 20% of value of major position.

Kalidas, Hong Kong
16/10/2008

4)

for shahconsult What I meant is that if you take a position, say long position in futures, say 10 contracts, buy 2 contracts equivalent sell options even if they are distant price say about 200 or 400 pts away with longer maturity say 2 months to 3 months - of course it depends on the cost. I am not aware of actual pricing, so that I can not guide you into this. The best way to deal with volatile market is to play the calender spread in options. Here you one and sell other and receive or pay the difference. If the market goes up, sell the long position and buy short position again by placing higher limit position. If the market corrects and come down, then sell the higher end position and see whether the trend is still downward or consolitaing. I am aware of option play in USA where the time is on your side (long dated options are available - some leaps are as long as 2 years which are excellent hedge if one takes short timed position) Yesterday, too, the Dow closed at 9978 or close to 9970 - 30pts below the round figure level of 10,000.BSE also rebounded from 10,200 - key level and closed at intermedite level of 10581 (close to 10600 - about 20 pts below against my rule of 30 pts) Please note that at every night or early morning,you have to determine what was the trend in USA and how Asia behaved. Once you have figured out the trend, you roughly know whether you should be on short side or long side. Then apply my Index Movement rule. Kalidas, Hong Kong 17/10/2008

5)
Qn:when to buy house in this time?.

for Rohith (Guest) I would wait until this crisis is fully played out. India always have delayed reaction. south India economy is IT based, so if that sector is affected, you will soon know by downspiralling Rental which is the first sign. My Hong Kong based friend recently had to let out a Bangalore flat (built by L&T) from Rs 14000 to Rs 8000 only (he was in hurry to let out on temporary basis) Watch and study the Rental. Go on calling brokers for rental purpose and see in which direction the rentals are going. Multiply the rental x 180 (or Maximum 200 times) times to have rough estimate of the market valueo of the apartment. Kalidas, Hong kong 17/10/2008

6)
for avi_guddu

It is overpriced. Even my property in Ghatkopar is bidded for Rs 70 lakhs and only recently rental was bidded up to Rs 24000 - earlier it was just Rs 14000. I still consider my propery highly overprices and have decided to sell it.

Rentals never lie - that is a fact and stark reality. Just as when the SENSEX was at 21000, Credit Lyonnais gave a call for 55,000 and now you see the level below 10,000

It takes about 3 months before you see the effect of stock market crash felt in the property market. This time around, no one will celebrate diwali

Kalidas, Hong Kong
17/10/2008

7)
Qn: when to start buying in sensex(now at 9975)?
I would start buying when the Index is at 9200. Yes, 8000 will be a big and solid support, but I would so second stage buying at that time. Please note that you have to consider the sentiments as well while using my figures.

Even today, the market closed at 9975 close to 30 points below 10,000, the intermediate level. The strong level to see is 9800.

At the moment it appears that Stock of Reliance and State Bank is under severe selling pressure. It looks to me that Mukesh Ambani may have faced margin call for the securities (RIL) pledged for some other projects. Since RIL prices have fallen from 3200 to 1300 now, he would have got very large margin call from his financiers in the tight money market. So, the pledged securities may have been sold by the financiers.

Same thing may happen to Anil Ambani who too was floating new company every day. I have mentioned in this forum time and again that i do not like companies who buy some or the other new company or project every day. Where did they get the money from? The banks always need security, which they would have offered their own shares. Now that share values are down, they have to meet the margin call or let the shares be sold in the market.

This is my presumption. The fact will be known only to them and their bankers, because there are no public disclosure requirements for such actions

Kalidas, Hong Kong
17/10/2008

8)
Qn:shall we buy now?how much? and wht abt various scripts?

Reply Post for Shia (your Ref: 18 Oct 2008 05:21 ) My Ref: 08-MMB-R-001-IN
One never knows how much a market can fall. Right now, all actions are in wrong directions that increases the risk.

However, I have turned stock specific rather than market generalist. The preliminary stage of buying has opened. I am buying stocks that have corrected almost 70% or more from the peak of last year (2007)

I am withdrawing my 100% cash call. Invest 15% in the market now in select cases. Invest more 10% when the market is at 9200, 15% more when Sensex reaches 8100.
If the market holds above 8100 for long time and begins to go higher, then invest 10% more.
if it falls below 8100 and does not go much higher, then you may have to be very careful. Under these circumstances the market could collapse further and may go to 5000 level if no positive actions are reported further.
right now, ITC is better than HLL. However, when the market recovers, these stocks will go down and others move up.
Both Punj Lloyd and GE shipping are within buying range. Let Punj come down t0 181 or about and GE shipping - just buy it
One can buy RIL when 1200 or below - at 800 strong buy. Avoid Maruti, Tata motors for the time being. Focus more on 2 wheelers than 3 or 4 wheelers
Hotel stocks (Taj GVK, India Hotels, Hotel Leela in that order) Tata Coffee (watch for major fall and then buy - not corrected enough), Software giants like Infosys, Wipro, Satyam, Airlines are better than Auto (except farm sectors like Mahindra, Punj Tractor), Gas stocks (GAIL, GSPL, Petronet) Essar Oil, RIL (near 1200 or below), some stocks in entertainment ( I will tell later) and some infrastructure stocks (not yet fully studied)
for the moment, you may have a stock list of 20 rather than ideal 12. Not more.

Almost all stocks that you have are good to own - no need to sell them in hurry. IFCI is coming to stage to buy large quantity at 25 to 18 level. Abhishek Industries (about 8.10 to 8.35), Arvind Mills, are attractive for large position. Ambuja Cement (coming to buying range 51 ot below)

Kalidas, Hong Kong
Monday, October 20, 2008...

9)
Qn: abt GUJ NRE Coke?
I am more on gas and oil rather than Coal or coke - Kalidas

10)
Qn:Are you hinting that INR should / would appreciate ?
Where do you INR in that case ?
Does it mean USD will no longer be world currency ? who else ?

and how will gold prices in india vary if this home coming and confidance crisis both play out together .

Ans:
for sd3

You have understood but did not interpret well. India did not overseas, so the question of home coming does not arise. The FII who invested into Indian market, are withdrawing their $, GBP, Euro etc (mostly dollar) by selling the indian equities and buying their own currencies to take them home. This is one of the reason for rupee to depreciate and rise of dollar.

USD is still today`s major exchange currency, and it will play even more important role in future. EUROPEAN MONETARY UNION may ultimately break up in next 24 months due to aversion of each country within EU to withdraw into their own shell. They will say, why should we suffer for the fault of say, Belgium or Netherland? Why should we bear their consequences?

What mistakes committed by the Banks and Brokers are committed by various governments in hordes. All are clamouring to guarantee the bank deposits, and debts of their countries` private banks. How could they do that?

The very mistake committed by the banks and brokers was that they guaranteed the third party obligations without understanding the transaction. They never evaluated legal position behind the trasaction. This is why they lent themselves into hot soup.

Now, the respective countries are guaranteeing the obligations of their banks without understanding the transactions and legality of the deals. They are making the same mistakes as their banks and brokers did at first instance.

After banks, there were these stupid governments. After governments who? The crisis is deepening. The losses of banks and brokers are ultimately sought to be thrust on the taxpayers like you and me for no fault of ours.

I have mentioned about gold prices and their behaviour many times in this column, so avoid its duplication.

Kalidas, Hong Kong
22-10-2008

11)
Qn: About zero coupon bonds.
Ans:
I have to search for my well written article when I was the stockbroker. Right now, there are no such instruments that will help the investor. This is why I am taking a bit long. Except for South Africa, where there aree several long dated Zero coupon bonds extending into 2017 to 2032, there are no more such instruments.

When the interest rates go up very suddenly, and the companies find difficult to raise the money through normal bond channel, they come out with Zero coupon bonds.

IDBI, SIDBI, ICICI Bank and Sardar Sarovar(gujarat) were the only the issuers in the past in India when India was undergoing the severe Forex crisis. Only Sardar Sarovar is still traded on BSE. The issuer tried to redeem the bonds several times ahead of maturity, but failed. The yield on these bonds were 18% at the time of issue.

Kalidas, Hong Kong
22/10/2008

12)
Qn: abt FII buying/selling
Ans:
I have no idea how these statistics are compiled. It looks like (and I may be wrong)that FII while selling were also buying some futures or options just to hedge their Sale positions, so that, in the event of market breakout on the upside, they are not caught on wrong foot.

May be some other persons from Moneycontrol board itself or those who are familiar with this situation might clarify.

Personally, I care a damn what FII are doing. The information that we get if often confusing, so why let them dictate us?

Kalidas, Hong Kong
22/10/2008

13)
Qn:
The fiance minister said 'They will follow conventional and unconventional measures'As needed
In your opinion what should be the unconventional measures

Ans:for gv

If Finance Minister is practical, he will not cut the interest rates, but cut Corporate Taxes (and also Individual Income Tax) for just current year and next, by say 3% corporates and 5% for individuals.

He should cut corporate income tax further by 2% in coming 2 months, when the market is in recovery mod. The special tax cut may continue until March 2010.

If Corporate profits are revalued after tax cuts, and if it is found that Corporate tax profit may rise by Rs 2000 crores collectively, then based on at least 15 times, theoraticlly, Rs 30,000 crores of fresh funds coming in. May be due to crisis, the inflow may be less immediately, but when the market stabilizes later, the very first thing the FII and Funds will look at how much profit tax benefit each company will get and buy those shares accordingly.

Offering tax cuts to individuals does not help because they are not listed on stock exchange

Kalidas, Hong Kong
24/10/2008.

14)
Qn:How to play now
Ans:
Yes, but it applies more to indices above 8000. For index lower than 5000, use 50% target, that is, 100:400 and 15:35 ( I have not tested them because most of the times, the index were above 6000 everywhere. so trade carefully

Kalidas, Hong Kong
24/10/2008

15)

A Nation on the Grill

1) Dear Baorders,

I have posted highly investigative article "US- A Nation on the Grill". There are many questions like instead of such mesmerizing troubles in USA, why $ is going up and Gold/Oil going down (Gold went up only yestersay)

WHAT THE HELL IS GOING ON is the subtitile of my article. Please visit my website http: //anilselarka.wordpress. com (remove the blank space)

Following are the few paragraphs of myarticle. Since it contains many graphics, it may take little more to load.o have the patience.

Quote:
Oil down, Dollar up, Gold Down
What the Hell is Going On?

A true nature of a person or nation comes to the fore, when it comes under extreme duress. A bankrupt person, corporation or a nation tries very hard to project itself as a person of extra ordinary means, contrary to facts, figures and market rumors, and go on shopping spree.

This is why billions of dollars are being paid by one bankrupt bank or corporation to the other in take over process lasting only a few hours. No due diligence, no submission of bid to the board, No minority interest, no news out – just black out.

Today’s scenario reflects “blind game”. No one knows about self or other party. The suitor does not know what he has, and the target does not know what it is worth. The vultures circling on the prey, ask for $700 billions with no questions asked.

The President of United States, Senators, and Congressmen are stunned at the attack of unknown origin and extreme brutality. This is an act of extortion of $700 billions. Call it “Blackmail of Greenback” if you like.

With worsening scenario being played out every day, no one in right mind will ever buy US dollar. Look at the box under Dollar Up and consider the following:
• Fannie/Freddie Mae got $200 Bln,
• AIG $85 Bln,
• JP Morgan got $59 billions ($30 Bln for taking over Bear Sterns and $29 Bln given to Bear Stearns itself),
• Washington Mutual Bank (WaMu) was given $230 Bln in last 3 months, all zero now,
• $673 Blns flooded into the market on Dow’s fateful day losing 778 points, and
• Billions of others not yet declared but given to host of banks, brokers and investment banks.
• $700 billions are now planned to be spent to buy the rotten and Zero value assets of the bankrupt banks.
• Bernanke opened up the empty treasury and also opened up largest currency printing press in the world, working 247365 or 24 x 7 x 365 (24 hours a day, 7 days a week and all 365 days a year) Never before in the history of United States, the dollar was printed with such intensity and also disappearing with the speed of hurricane category 6 into a giant black hole

No foreigner in right frame of his mind would at this point of time buy US dollar against his own currency, be it Euro, Pounds, Yen, Yuan, Aussie Dollar or any damn local currency.

With Dow falling, bonds collapsing, properties dumping, interbank dealing sine die, who is buying the US dollar? Why Euro, the most alternative currency for US dollar is falling, when it should have gone to almost magic 2.00 figure?

If any foreigner wants to buy stocks or bonds or $ class assets, he has to sell his own currency and buy $. Then only $ could go up. But when the foreigners are not buying $, in fact they are dumping dollar assets. In that case who is buying this bankrupt dollar?

About 10 years ago, whenever Dow rose, dollar also used to rise, because foreigners have to buy $ first before buying stocks or bonds. For the last 5 years, especially in last 3 years, dollar is falling while the Dow and Bond rising. This means that there is no demand for $ from overseas, it is only from within. The dollar so printed by FED is being used to manage (or manipulate) various sensitive commodities like Oil and other foreign currencies like Euro.

Who is Buying Dollars, Why and How?
Of course, the Americans by themselves. Not the ordinary resident Americans. They are just naïve and innocent law abiding citizens. The crooks are in the corporate world.

Some US institutions, in US and newly floated off shore corporate entities, under the ostensible authority from US administration, are now buying US$ index and shorting Oil heavily on NYMEX. They appear to have been commissioned to search and destroy the vicious circle of oil price rise which is the major cause of inflation.

This is similar to the practice being adopted during the days of Clinton Administration when the Rupert Rubin was the Treasury Secretary. He was a proponent of strong dollar policy, and during his administration, the Asian crisis unfolded, Enron was created and busted, LTCM with over $1 trillions of exposure to the market was bankrupted. His policies and practice were known as “Rubinomics”. He engineered the rescue package for LTCM with the help of local and foreign banks and brokers, raising $ 3.6 billions .....

The article is long; contains charts and flow diagram, please visit my blogsite.

Kalidas, Hong Kong
7-10-2008

2)

for diliphm - Agreed that domestic Corporate Tax rates are very high at almost 35%. This is disincentive. However, the US corporate contribute very little to taxation. Most of the taxes are paid by the Individuals. In my book I have suggested complete overhaul of taxation system. - We can not take into billions of dollars of drug and other vice money. However, US may announce Amnesty scheme to ask all American corporations and citizens to declare their income and pay once say 25% to legalize the money, so that official money supply is more. - Off shore is the main problem. They should de-legalize activities of all corporations and citizens operating in Off shore - Unaccounted money portion is very small in USA. We can not take the money out of drugs, prostitution etc for officializing them Kalidas, Hong Kong 7-10-2008

3)

	Consumers never leverage themselves into billions as the banks and brokers do. The banks, brokers and Investment Banks deal with other people`s money (OPM) whereas the individuals deal with their own, even if it is creadit card. How many times in the history of the world, the consumers have played so havoc as the few banks did this time? Kalidas, Hong Kong 8-10-2008

4)
Gold is certainly going to blow up on upside, and personally I would not be surprised if it moves up by $100 or 300 a day if major bank collapses.

I would keep 30% of total investment assets into Gold and Silver ( I love Silver). However, at the moment I am more bullish on gold for few reasons - leas storage cost, higher demand from Central Banks, higher demand from Individuals for safe heaven when even treasury pays nothing, then why not Gold? and there is strong possibility that FED and Central banks do not have as much gold as they claim to have. And that, future reformed financial system will see more backing of gold to the paper currency. The era of low priced gold is effectively gone. This will be known when the demand will be made on the Authorities to sell the Gold when they will have to come out with the truth.

Never keep entire investable amount in one item, even if it is Gold. I do not know how much is your portfolio, but Yes, Gold will make money under current circumstances, but it can not make that much money as the equity can make if you have bought it during most depressed period. The present market is very fluid and every one is sitting on huge losses. they are more willing to average down the price of their holding, so any good news will be used by them to invest more in equities. Kalidas

5)

You have to consider Gold to Oil ratio rationally. In normal cicumstances, the ratio may work, but there is no steadfast rule. In present scenario, the Oil prices rose from $ 70 to $140 in matter of months due to manipulation from Middle East countries versus dollar. When the oil prices were jacked up artificially twice, the Gold to Oil ratio no longer hold good. If the oil goes back to $70, then your ratio of 14 will give the price of gold to $980 against current price of $880. Please note that oil is manipulated against dollar. In 1984 or about, Gold rose to $ 800 and Silver rose to $50 before Hunt Brothers collapsed. that gave the ratio of gold to silver at 16. If we use that ratio, then silver prices sholud be $55 (present price about $11.35 only). The silver is most undervalued precious metal today. Once it runs, it will go to $60/oz. However, it is most volatile and dangerous metal to trade. I have been accumulating physical silver from $4.19 onwards (Average cost about $5) for over 5 years now and sold some when it was around $19. I am not selling any more. In fact, I bought some in last few days. What I am telling you that “ratio” is relative term - it is not a rule. Kalidas

6)

Oh my God! You have bought the whole market!. There are 34 scrips on your list. How many children do you have? 2 or 3 or 34? There used to be a slogan - Small family is happy family - or Laan kutumb sukhi kutumb during days of Indira Gandhi. That applies to even stock market. One should not have more than 12 stocks in their portfolio, because you lose the focus. it is more like shephard in charge of hundreds of animals pulling out in different directions.

Do the following:
1. Identify the stocks you want to keep (where you are comfortable)
2. Sell the stocks where you have least loss (say 10%) and buy the desirable stocks where you have maximum loss (say 20% to 70%). By doing so, you are not investing new money, but just reallocating the existing money by booking the least losses and average down the costly purchases.
3. Prune down the list to 20 first, and then in every rally, sell other undesirable stocks until the list is reduced to just 12 stocks.
4. Do not fall in love with any stock and also never count the average cost. Treat every transaction as a separate one. For instance, if you have bought stock A at Rs 70 that has come down to Rs 30, and you are buying 3 times at Rs 30, then when the stock goes to say, 40, sell the 70% of new purchase at Rs 40 and retain the cash. Do not reemploy. If the sold stock comes down to Rs 30 or about again, buy back again with same amount of money. Example: you bought 3000 @ Rs 30 and the stock goes to Rs 40, sell 2000 at Rs 40 (realized 80,000) and hold the cash. If the stock goes to Rs 50, sell the other 1000 and if it comes down to 30 or about, buy back the 2700 shares (utilize 80,000). Do not count the average cost. This is the biggest mistake an investor makes.
5. Manage the situation like this for other stocks without investing new money. When the market recovers from all time low by 10% in sufficiently longer time (say 3 months of more), then only decide to put in new money. The reason is that in bear market, it is easy to see jump in index by 8% in single day. That is not the indicator of rising trend.
5. Treat each stock as Book Entry. This will help you avoid falling in love in any stock. Display your loyalty to your wife, children or pets, not the stock.
6. Prepare a list of stocks held by you. Play a demo game, when you are unable to decide. This will help you sharpen your skill to understand the particular stock and its trend. Please note that catching the trend is more important than actual price you pay up.
7. Do not try to buy the stock at absolute bottom and sell it at absolute peak. There is only one person in both cases.
8. Also, do not keep “round figures” as your target. “Round figures and beautiful girls never come to one’s hand” When you want to buy at 8, try to buy at 8.10 and when you want to sell at 8, sell it at 7.85.

7)

Ashish,

Qn:For three State owned refineries (HPCL, BPCL, IOC)

I must have missed your post or possibly may not have replied because I wrote at length how State Owned Refineries stocks like HPCL, BPCL, IOC would behave. These stocks have already outperformed the entire market by yards. When oil reached the peak of $145, I had mentioned that the SOE stocks were good long term investment for minimum 24 months horizone. HPCL came down to Rs 180 , BPCL to Rs 230. Even after the Sensex’s fall of over 35%, these stocks reached recently Rs 240 and Rs 380 respectively (up 30% to 50%) though they corrected only on previous day.

Refinery stocks have inverse relationship to oil prices. If oil prices go higher, they go lower, and if the oil prices go lower, they go higher. The reason is these companies can not pass on the increased cost to the consumer due to price control. similarly, when the price falls, they benefit because they do not pass on benefits to consumers as fast as the oil [rices fall.

On 2-Jan-2008 I wrote to one boarder as under:
“I am taking the view that Oil prices are near peak and will come down to US$ 70 or about, because if there is a market correction, the money will flow back to US, which will result in demand for the currency, regardless the state of economy. If the $ rises, the oil will also fall. Also there is a perception that recession will reduce the demand for oil. Although India and China are major player for oil consumption, they are no way match for US for at least another 20 years.”

I also wrote on 24-Dec-2007
“HPCL/BPCL/IOC
These trio are gem. I hold HPCL about 2K but my favored one is BPCL that I sold because selling BPCL gave me 33% more shares in same industry via HPCL with same valuation. All these stocks will quadruple in next 3 years. The Dec Quarter should be good, depending on how Oil bonds income accounted. These are the stocks for retirements. Oil price policy may change soon. Better than MRPL or RPL, though Essar Oil is in different category (like ONGC - Oil production + Refinery combined”

When there is equity crash, there will be margin calls. and almost all large funds will run for exit. they are the holders of these large cap stocks, so they also come down regardless of fundamentals.

You are witnessing the equity market crash today. In last 15 minutes, 500 points were wiped out. This is what I mentioned on 2-jan-2008 to one boarder:

“Further, credit market is extremely bad, and in my personal judgement, we are steadily heading towards massive equity crash. A leading American bank and a large Investment bank in USA are near collapse and may wind up before January 2008 in spite of massive investment promised by Abu Dhabi and Singapore government by way of Convertible Bonds at very very high interest rate.

With this collapse, there may be collateral damage to other banks directly involved with these bankrupt banks. Please note that “there is no Chapter 11 remedy applicable to Banks and Investment Banks, including Brokers. For them compulsory winding up is the only possibility under Chapter 7″”
further…
“You are merely looking at Indian markets, ignoring the tremendous risk developing at very fast pace in the world market, especially USA which will have immediate fall out in Europe and also arrive at India with full tsunami like force. Remember, while FED pumped in only USD 40 Billion in the system, ECB (European Central Bank) pumped in US$ 360 Billions and massive subsequent US$ 460 Billions in two trenches (Total US$ 820 Billions) clearly reveals that derivative risk has traveled outside USA with massive force and wreck the whole banking system.”

Also in same post
“The situation is extremely scary, and any rally now will be a good opportunity to raise the cash. Stay invested only up to 25% of your Cash in Indian equities. Do that before 26/1/08 as advised earlier.

Forget Shah consult, forget Kalidas, forget Udyan or CNBC, and host of tipsters; and forget what FM,PM, RBI will say about IFCI and India’s prospects - we are heading towards massive equity crash. I am, for one, reducing my position from high flyers and will more aggressively before 10 Jan 08 ”

This has what happened today. Tsunami struck today with massive force with no buyers on hundreds of counters.

With regard to your mention that your gains of 45% has been reduced to 25% (that may turn into 10% possibly today when BSE opens today after yesterday’s holiday), I can only say that in very uncertain market you should go on booking profit for 70% of your holding, even if intention is to hold for 3 to 5 years. You can always buy back with same money large quantity than before. that opportunity is lost. I doubt very much these stocks will come down more because oil is falling that is big plus for these stocks.

This is the last time, I write long reply over here. It seems that you did read my earlier posts while buying SOE companies as above.

Kalidas, Hong Kong
10-Oct-2008

8)

On TISCO reaching kalidas predicted target of 250

for chchch

Yes, Also predicted Reliance at 1200 and LT at 600 (after split the target is 300). Some Kalpesh from Mumbai was poking fun at me that Reliance will never come to that level - and lo - it is at within 10% of striking distance.

There is nothing like in stock market 'this can never happen' James Bond figuratively said - 'NEVER SAY, NEVER AGAIN'

Kalidas, Hong Kong
17/10/2008

Paulson's Poison & Antidote

All the time, you are hearing - How we got here? Maria of CNBC ask this question to every expert and no one answers. Read the following which also appears on my blog (http: //anilselarka.wordpress. com (remove blank space):

The Article spreads over 7300 characters against only 3000 permitted here. Here it is a few paragraphs:

Paulson’s Poison and Antidote
Slaying Tax Payers, Saving Goldman

God saved America once in the Congress, convincingly defeating the motion of $700 Billion Bail out engineered by Paulson, aided by Bernanke and promoted by President Bush. However, the defeat means death of Goldman. So the Paulson is at it again, forcing the naïve President to follow his infamous Bush, Bush, Push Push policy to get the bill passed at any cost, this time through Senate. It is easy to manage 100 Senators in the House of Senate than 435 Congressmen in the House of Representatives.

He and Bernanke are showing the Senators the Rocky Mountain of impending economic collapse, with hundreds of carcasses around, each bearing one or the other bank’s name or brokers. These are the banks and brokers who floated the overseas subsidiaries in Bermuda, Cayman Islands, BVI, and host of such “off shore centers” to sell the exotic derivatives leveraged 6 to 7 times, even more- in some cases up to 50 times, into the balance sheets of off shore entities but off the balance sheets of their parents on shore, that is, on American soil. These derivatives were guaranteed later by their parents on shore for a fee – normally 1% to 2% of such transactions.
How we got here?
While the incomes were shown by their parents on their balance sheets, resulting into 4 to 5 times the normal profits associated with their normal range of business, boosting stock prices into upper stratosphere. When the troubles arose, and those derivatives started becoming “cancerous”, they transferred the respective assets and liabilities en masse from 2006 onwards, accelerating in 2007 and speeding up to extreme in 2008. These exotic derivatives turned into Toxic Waste with the result that the crisis started unfolding with the speed of hurricane Category 4, upgraded in September to Category 6 when massive force simply uprooted the banks, investment banks and brokers.
Nothing wrong with the regulatory mechanism…
Lot of blames has been heaped on the regulators for not monitoring or ignoring the worrying signs or warning signals. These derivatives did not exist in the books of the parents at all. They were existing in the books of their off shore subsidiaries which would not have been known to the regulators – they are not God after all. The parents did not disclose their onerous liability nor did they mention the extent of their guarantees to overseas subsidiaries to avoid taxes on the American soil.

When those derivatives turned sour or bad or toxic as they now call it, they transferred wholesale all assets and liabilities to the on shore parents as though they were their original creators. They therefore thrust upon the American citizens on shore, the off shore liabilities to which they were least concerned. How could local and domestic Americans be responsible for the business conducted by some one overseas in off shore centers? A bank like HSBC transferred the Assets and Liabilities of their overseas subsidiaries to the parents’ books by $45 Billions in a flash.

The question arises, if parents were neither involved nor part of original creation of off shore derivatives, and those off shore entities, popularly known as SIV (Structured Investment Vehicles), later busted with billions of dollars of losses, why should their American Parents be asked to shoulder their liabilities, when those subsidiaries were limited liability corporate entities and could have been allowed to die natural death? These American parents, in order to salvage their own reputations, allowed the transfer of Assets and Liabilities of their off shore subsidiaries.

Kalidas, Hong Kong
2-10-2008

2)

	for Atheist, If I remember well, you are from Bangalore. You did describe in narrative details, how it has deterioated. I am glad to know that my reply did help you. Get me a coffee when visit Banagalore. Any business thrives on good product, good service, attention to the customer and above all solving the customer`s problems (called after sales service). A good appearance, friendly behaviour and smiling face (not laughing) welcomes the customer. Further, if you have a small business, the door has to be see through or open shop so that even working class people can walk through. If they find the shop behind the door, they feel the goods must be expensive. Neatness and basic cleanliness is the most important part of the retail business. Never eat or allow employee to eat in the shop for taking lunch or dinner. Nor should one allow eating of tobacco or paan. Biggies may not do well, because they tried to build the business just because they had the access to large amount of public funds. They do not train the staff as well as the Western corporations. There is no uniform, and if there is one, it is shabby, The employees are also having badly cut moustache or beards. The people should be clean shaven as far as possible. If there is female employee, often I find, they come in traditional style using liberal dose of coconut oil (which smells bad to many visitors). This is especially true in Hong Kong. In Hong Kong, the retail owners pay for hair styles, clothes, make up and also force their employees to wear identification tag all the time. Of course, one has to modify the approach having regard to local culture, but basic things should not be compromised. Some small expenses on such basics bring in more and wealthy customers. Kalidas, Hong Kong 7-10-2008

3)

Financial upheavel is taking place across the globe. India can not be excepted, but the overall effect is relatively muted. Due to heavy falls for 7 days abroads, people will find it difficult to meet the margin calls due to absence of money caused by credit crisis where even one bank does not lend to other. Under these highly unstable circumstances, it is difficult to anticipate end to crisis. Please remember, trillions of dollars have disappeared. the recovery phase for entire world is years away. Kalidas, Hng Kong 10-10-2008

4)

No one has gold any more. They have already shorted in the past between the price of $260 to 320 and they are regretting it. No more gold will be sold, in fact, the world financial system will in future be based on gold standard after current fiazco, Kalidas, Hong Kong` 10-10-2008 NOTE: I have posted on my blogsite a latest artiole 'Defrosting the Liquidity Freeze' that deals with latest problem. Visit my blogsite http: // anilselarka.wordpress. com (remove extra space)

5)
In testing times, the investment field is reserved only for bravo.
- Never be afraid of uncertain times. Deal with it when it comes
- You are in IT business, where your capital is your own brain which is indestructible. So why worry?
- If you are afraid of losing job or face pay cut, start applying in other stronger companies. Just by applying you are not losing or changing job. You will get real feel of the job market.
- your inveetment approach is correct, 50:40:10 in stock:cash: gold
- Howeever, when you find good stocks have come down a lot and really worthy, forget the ratios and go for the guns. Pick up that stock.
- then you have to have patience, you did whatever you can. Leave it to your fate. Fates does not disappoint you when you have done your part.

Kalidas, Hong Kong
10-10-2008