Pharma and IT too look shaky in the current environment

A fund manager speaking a function recently, was quoted to have said, “there is a wealth of opportunities. Indian investors have savvy this time and unlike the previous bouts have not withdrawn but put in more money.” That might be good for the MF, but not so for the investor. Every nation from Vietnam to China, to South America, Europe and Asia have seen competitive currency devaluations of as large as 30 per cent. The worst nations have been the commodity producing nations like Brazil, Russia and South Africa who have seen the price of their products and currencies fall bringing export revenues to virtually zero. 

In India it is perceived that all Exporters are billing in USD/EUR/Yen and nothing else. But there is a different dimension. Starting from groups like Tatas, Vedanta,  Aditya Birla, Thapars, Modi’s and so on,  most have direct operations or joint ventures in nations apart from India. These people will be severely hit on 3 counts-inventory in the retail trade billed in local currency and which will be cross converted into USD and Rupees when quarterly results are produced, debt denominated either in local currency or USD which will now be re-set to new INR/USD rates and finally, simple exporters who were billing in USD and are losing markets because the locals cannot Buy them.

Take an example, post the US and European sanctions a USD 100,000 Jaguar was effectively selling at USD 25,000, when Rouble lost 70 per cent to the USD.  It was some time before the Tata’s realised what had hit them and they first stopped sale of Jaguar in Russia and then tried to fix the local price to the USD conversion. This whole process of refixing currencies to local value/USD will continue for a long time. 

While Exporters and Fund Managers can keep singing, utimately one or the other company will come forth and say how much they are losing or lost in Europe and how much they are losing in the ROW. The Indian investor is not savvy, he is stupid. They are Buying stocks without realising how much each basic commodity, pharma or IT company is losing in other nations. But the people who realise have largely exited all commodity play, Steel, Aluminium and Energy. Look at Tata Motors, Tata Steel, Vedanta and Hindalco. Most paper of these companies will become NPA.

Before this market makes a recovery, prices of stocks will need to reflect the Earnings opaqueness and lies that Indian Auditors permit to be carried forward. Instead of Buying more Equities, investors should be aware of the losses  all these exporters will make.