19th May 2012 Dear Friends, The BSE managed to close basically Flat on the week(Down 1%).

What was most interesting though was Friday's Market Action. On Thursday evening(17th May 2012) we had Terrible Philly Fed Manufacturing Numbers out of America(-5.8) on Consensus Analysts expectations of +10.3;Following such Terrible Manufacturing Numbers out of America; Risk Assets Globally Sold off with the Biggest Gainers being The Japanese Yen, US Treasuries, The US Dollar and Gold. I was most impressed by the spike in the Price of Gold following those Numbers; Gold in US Dollars spiked up by 2.3% following those Numbers and is basically Flat for the week (In Terms of Indian Rupees Gold's performance was even more dramatic up 3%). Which basically seems to indicate that the Markets are confident that Global Central Banks will continue to Debase their Currencies to Save the Financial System which is once again on the verge of Total collapse (Right now its just about Bank Runs in Spain and Greece; but when it spreads further -Both the ECB and US Federal Reserve will have no choice but to step in and Bailout the Bankrupt system once again just like they did in October-November last year). Working further on this theme; I just happened to view a very nice Video from John Hathaway; Do Watch it. Has Gold Bottomed? http://www.youtube.com/watch?feature=player_embedded&v=W4Edd5-kP3k

IS THE BOTTOM IN FOR THE BSE? Following the extremely Negative Philly News coming out(and subsequent Crash in all Risky Assets on Thursday Evening) ;I was very strong confident that the BSE would also open very Strongly Down on Friday(as FIIs cash out).And this was exactly what happened initially as by 11PM the Market was Down 260 points. But then suddenly the Market picked up Steam (primarily on the Back of Strong Results from India's largest Bank-SBI) to finally close up by 83 points. Speaking about SBI;SBI increased its Annual Dividend Payout by an Incredible 17%!!! Is it any Surprise that SBI has spiked up by 5%+; in the space of a few days??? Still I was wondering who exactly was doing the Buying. So I waited until the Market closed to watch the Rupee-Dollar Numbers and sure enough the Rupee continues to weaken. Which means

it was basically Domestic Mutual Funds, Domestic Insurance Companies and Domestic Investors who were doing the Buying on Friday. Which raises the very valuable question going ahead-Is the Bottom in for the BSE? Are Domestic Investors (who more often than not; know more about the Real Health of Indian Companies than FIIs) finally seeing Real Value in Going Long the BSE??? As I had stated earlier in May Notes Issue; Markets bottom when the Number of Sellers get exhausted. Is that the case today? SEE HERE http://www.scribd.com/doc/93325498/BSE-Notes-May-2012 Of these players; Domestic Mutual Funds don't have much Cash on Hand so they will not be in any position to Influence Markets substantially going ahead. The Domestic Insurance Companies have plenty of Cash on Hand; but from what I hear on the Street; they are selling selectively (especially High-Beta sectors like Autos).Still for sure, these guys have the Financial Fire-power to move the BSE substantially if they so desire. And Finally, Domestic Indian Investors-If you read and tune into any of the Major Desi Business News Channels/Market Forums,etc ;you will Struggle to find anybody who is Bullish on Indian stocks today[This represents the typical Herd Mentality Behavior of the Stock Market]. Purely on the basis of Sentiments the Bottom is in for the BSE Today. Frankly, it can't get much worse than where so many Big Fund Managers are going on TV publicly and saying we don't know how to convince our Clients to stick with us today. But the Market is not driven just by Sentiments. And especially not Indian Stock Markets. Over the next week or so; There are a couple of very interesting announcements especially in the Indian context. There are some rumors swirling in the market that once the Budget Session of Parliament is over (Monday 21st May 2012); the Government immediately plans to Raise Prices of Petrol, Diesel and LPG. We are looking at Major Price Increases on Refined Petroleum Products here. In addition; the plan is to bring about Partial De-regulation of LPG(Cooking Gas).Apparently, anyone making more than Rs 50000/month will no longer get LPG at the current Subsidized Prices of Rs 400/cylinder and will have to pay more than Double(Rs 900/cylinder). I for one am not quite sure; how this would work-The clearly workable solution is to allow only those with BPL Ration cards (White ones);to buy LPG Cylinders at subsidized rates.

Also, the Finance Ministry plans to announce some (so far Token) Austerity measures which include Cuts in Spending of 10% on all Government Functions. The Big worry for most FIIs were/are the Sinking Rupee, GAAR,New Taxes,Policy Inaction, Budget and Current Account Deficits which are totally out of control. Hopefully, these moves (if they do happen over the course of the next week or so; will be sufficient to turn near-term FII Sentiment Positive towards Indian Stocks. This is primarily why, if these moves do happen(& The Govt is strong enough to withstand the inevitable Blackmail/Protests from Allies/Opposition like TMC,NCP,SP and BJP); I am Short-term Positive on the BSE going ahead from here. As long as there are no more spoilers on the external front(Eurozone,US,Facebook IPO Crash,Japan,China,Gulf Instability???);Indian Stocks should see a Nice Rally from here over the course of the next week. However, As Long as the BSE does not close above 16850;I am not Long-term Bullish on the BSE today. I don't need to remind you about the Near-term Hyper-Inflationary consequences these moves will cause in India. You can read all about the Double Digit Inflation issue in Greater details HERE http://www.scribd.com/doc/87695628/Double -Digit-Inflation-is-Back-APRIL-2012 The latest being that from 1st June onwards, Mumbaiikars are going to see a 27% Average Rise in their Electricity Bills (On Average). I was doing some basic calculations on how much money does a Family of Four need to Manage Comfortably in Urban India today(Primarily Delhi, Mumbai and Bangalore). And that scared the hell out of me!!!!Inflation on most Necessities for Urban Indians has averaged 30-60% over the last Three Years alone. If you are a Middle Class Family with your own Flat, Your own Car, Send your own kids to Decent Schools/Colleges, Use the latest Electronic Gadgets, Eat out once/month and Take your family to the theaters once/month and Save a little bit on the side for Retirement you need a minimum Monthly Income (after Taxes) of Rs 80000/month!!! [The food Expenses I have taken into account are primarily Vegetables; if you consume Majority Non-Vegetarian Food then your Monthly Food expenses would be even higher]. And these numbers are before anybody in the family (God Forbid) falls sick to any Short-term /Long-term Medical Problems.

A lot of people outside India will look at these numbers and say so what; its less than $1500 /month. Its still cheap compared to Western Standards. But the question is how many people in middle-Class India makes that kind of money [Even with both Spouses working???] Hardly anybody. This is why I am Strongly Bearish on the Urban Indian Consumer Going Ahead. I Look at stocks like Jubilant Foodworks ,Pantaloon Retail, Future Capital ,Maruti ,INOX,PVR,etc (within India) and Nokia,Yum Brands, Apple and RIM(outside India) and wonder; how many Urban Indian Consumers are going to be able to keep frequenting these companies. Take a Couple of Examples here Maruti-How many Indians are aware that Maruti is offering all kinds of freebies (including Free Insurance, Full Warranty,Spares,plus Fuel Coupons for upto 3 years in case of some Models) on their Petrol Cars??? The reason is because of silly Govt policy moves; Demand for Petrol Cars has cratered (They are economically unviable for most Urban Indians today).By the way, This Price Discounts policy on Cars is not restricted to just Maruti(within India) .Outside India ,I have seen similar Discounts currently being offered in China ,Brazil,Australia and Europe too(Auto Demand has cratered there as well). Jubilant Foodworks-Jubilant over the course of the last Fiscal Year raised Prices of most of their Products Three times (Total Percentage Increase was well in Double Digits). Consequently, Same Store Sales are already down (By 22% YoY); their response? To offer Cut-price Pizzas for Rs 30-40/P izza. I am sure most readers are aware of the ZERO Nutritional Value of their products all one needs now is for one Major Fast food scare to force Indian Consumers to question the Nutritional rationale behind consuming Fast-food regularly. Like This one http://www.bbc.co.uk/news/world-asia-17867168 Or take internationally, the cases of RIM and Nokia; I was listening into the Latest Conference Calls of both RIM and Nokia and both specifically mentioned that Asia and Africa were their Growth /Bright spots.(They are basically dying in America and Europe).When you are as it is Struggling for Growth; do you not try as Hard as possible to retain existing consumers(& Market-share) by keeping prices Constant/Down? Not in the case of these guys. To account for the Fall in the Rupee over the last 2 months or so; they are going to raise Prices in India by between 3%-5% from 1st June 2012 onwards.

There are so many other ways these guys can reduce pressure on their Margins (Primarily looking at their Suppliers/Outsourcing more work within India) rather than raising Prices again. What makes you think that Indian Consumers are going to continue buying Disposable products (with short-shelf lives) like Electronics in larger and larger quantities if Prices keep rising like this??? (They just opened the Door far and wide to Homegrown Chinese and Indian competitors). I don't need to remind you that Most Urban Indians have not seen any Wage rises this year. EXTERNAL SCENARIOS I have covered the case of Most Global Central Banks and the difficulties they will face in another co-ordinated Financial Market rescue like the one we saw in October-November 2011 previously HERE http://www.scribd.com/doc/93325498/BSE-Notes-May-2012 Still, WTI Crude (today at $91/Barrel) and Brent Crude (today at $107/Barrel) are closing in on the Lows we saw in 2011, which prompted Central Bank intervention last year [$75/Barrel and $100/Barrel respectively]; and we have time till the End of June for them to mount Fresh Easing Actions. If the Crude Oil Market does correct further from here and reach close to those levels I wouldn't put it past the Central Banks to Start Easing Again this Year. Atleast that's the message Gold is sending us. If Global Central Banks do start easing again I see a very strong possibility we will Hit 19000 Levels on the Sensex (within a month or so of the Official Announcement before correcting back based purely on Fundamentals ).The only problem is it will not solve any of the Problems which the Global Economy faces today and will just lead to further kicking the can down the road and eventually lead to more Food Inflation (& less Growth as RBI won't be able to cut Interest Rates by as much as they would like)in India. So Let's See-NO GLOBAL CENTRAL BANK EASING THIS YEAR-Interest rates will be cut very sharply by the RBI(up to 2.5% over the course of this Fiscal Year; between 1st April 2012-30th March 2013) and if there is CENTRAL BANK EASING this year-Then you shouldn't expect more than a 1.0% Interest rate cut this Fiscal Year. In either scenario, Fixed Deposit Interest Rates will fall; its just a question of how much and how fast they will fall. The Case for Gold and the Dividend High-Yielders just strengthens and strengthens. Let me give you a simpler example to illustrate my Case for the Dividend High-Yielders (over Bank FDs) going ahead. First and foremost-How much can you get on a 1 Year Bank FD today? At best 8 %( After Taxes).

Now how much is the Real Rate of Inflation today? The Govt says Consumer Inflation is at 10%.But according to my calculations, Urban Indian Inflation is running much higher-Its about 14.5% Per Annum. So, by putting Money in a Bank FD you are today losing atleast 7% per Year. So how much, does your Dividend High Yielder portfolio have to return to beat that? Excluding Dividends you need to Return Just 10% per Annum.Maybe, instead of one year, it takes you Two years to Generate a 30% Return on your Dividend High Yielder PortfolioSo What? You will still beat the Real Rate of Inflation. Think about it rationally, if you see How much appreciation on your Dividend High Yielder portfolio over the Next One year, you will be Satisfied (Excluding Dividends)? I will be very Happy if I can get an appreciation of between 15%-25% on it (The Higher, the better-Obviously). Can you do that today by investing in the Dividend High Yielder stocks? Most definitely yes-For a clearer explanation see my Earlier PDF on this issue and especially on the Topic of Taking Care of Shareholders versus throwing them Under a Bus HERE http://www.scribd.com/doc/93813360/Dividends -High-Yielder-Out-PerformanceContinues-14TH-MAY-2012 My BSE Dividend High-Yielders List is loaded with Hundreds of such Stocks today ,a clear majority of whom are not just Keeping Dividends constant but actually raising them by phenomenal amounts Year on Year(easy to beat Inflation this way). You can find the most Recent Updated one HERE http://www.scribd.com/doc/93812612/Bse-Dividend-High-yielders-List-as-on-14th-May2012 Regards Ashish.Mehta

P.S NOTE: 1) A lot of investors will look at my calculations and say that atleast my Bank FD is guaranteedTo Which the only thing I can say is -Yes, Its Guaranteed to Lose atleast 7% over the Next One year!!! Maybe, your Inflation Calculations are More/Less than mine. For that you need to sit down and look how much you are spending today versus How much you were spending Last year(on all Necessities).That will give you a reasonably Good Idea about how severe the Hit to your Savings is from Inflation. If its more (which means you are losing even more of your savings Keeping Money in the Bank); You should seriously consider Investing in the Dividend High Yielders Stocks. Invest slowly and Start small and Build your portfolio gradually. As you gain more confidence your style should stay conservative (and not get super aggressive and pour all your Savings into Stocks at once). Lets say you calculate your Personal Inflation rate at 20% per annumRs 100 invested in 1 Year Bank FD today (2012)-Gives Rs 108 in 2013. Sounds Good right? Your Capital Appreciates in a Guaranteed Fashion in the Bank. However, taking into account 20% Depreciation/Inflation-You get back only Rs 86(in 2012 Rupees). So by Investing your Money in a 1 year Bank FD today, you are Guaranteed to Lose 14% of your Savings/Capital over the Next One year. Similarly, Rs 100 invested in a Dividend High Yielder today (2012) which returns just 10 % over the course of one year( excluding Dividends); would return Rs 110 in 2013 Rupees. Which taking into account 20% Depreciation it works out to Rs 88 in 2012 Rupees. Its a No-brainer Trade really. Which means a One Year Bank FD is losing 14% of its Value over the next one year. So even if your Dividend High Yielder Portfolio returns just 10% over the Next one Year; you will out-perform your Bank FDs[I am not taking into account the Dividend Payout here; but that will obviously improve your returns]. There is something else, which nobody seems to mention. And that is that investing in the Dividend High-Yielders is the Legal way to beat Inflation. Dont get me wrong I love Gold too; Gold is and always will be a Hedge against Govt over-spending and Silly Fiscal+Monetary

policies. But if History is any Guide (Both in India and overseas); then Sooner or Later the Govt moves to regulate/suppress the Price and Power of Gold (as an Alternative Savings Medium). In contrast, guess who has the Biggest Stake in keeping the Indian Stock Market elevated? The Indian Government-Primarily because their Disinvestment Program would crash in the absence of a Robust Stock market. They also raise massive revenues every year through Capital Gains Taxes, Dividend Taxes and Dividend Revenue from Listed PSU Companies. All this would be at stake if the Stock Market crashed.

2)Fuel Cost Difference in Running a New Petrol Bike, Diesel Car and a Petrol Car in India today

Fuel Costs for a New Petrol Bike average between Rs 1/km -Rs 3/Km. Fuel Costs for a New Diesel Car average between Rs 3/km -Rs 5/Km. Fuel Costs for a New Petrol Car average between Rs 5/km -Rs 10/Km. Is it any wonder why Petrol Car sales in India are Sinking and Why India's Fuel Subsidy Bill (which is causing our Rupee to crash) is ballooning out of Control??? The Best Move here is to move to Total Diesel De-regulation over the course of the next One Year (coupled with Cash Vouchers to Poor Farmers to buy Diesel at Market prices). Will it happen with this Lame-Duck Government? Most unlikely.

DISCLAIMER: I do not work for any of the following organizations A Mutual Fund, Investment Bank, Bank, Analyst Firm, Brokerage House, Any Government or any other related firm with links to the Financial Services Industry. I am a retail investor and I write because I Love writing about Finance and Economics. Please do your own due-diligence before investing anywhere. ORIGINAL DOCUMENT CAN BE FOUND HERE
http://www.scribd.com/doc/94125123/BSE-Notes-19th-May-2012-Update