Friday, July 18, 2008

Bookkeeping: Closing Both Indian Banks

I have been waiting for some sort of financial bounce to close out both the Indian banks - unfortunately we have given a lot of unrealized profits away in this "death to buy and hold" market, but despite these gosh awful charts we have been able to sock away $2500 in gains in ICICI Bank (IBN) and $1100 in HDFC Bank (HDB). Obviously profits were far higher say 60-90 days ago. The former has bounced from $21 to $30 (+42%), and the latter $61 to $76 (+25%) in the past week so it's a better time to sell than in the panic. Why Indian banks are selling off as bad or worse than their US counterparts is beyond me but that's the market logic.

I am not sure what to do with the India situation right now. On the pro side we could argue that India (and China) markets have been beaten to a pulp and are due for a rebound. On the negative side as inflation rises or stays high at least, the Indian central bank most likely will continue to raise rates to fight inflation (for Americans who are used to Uncle Ben who cuts rates during rising inflation that's not normally how it works). And higher rates are not generally a good thing for banks.

So frankly I will admit this could go either way - I could make a case for these stocks continuing a rebound from these levels or I could make a case for a long period of sideways action. I do like the Indian story for the long run, but have some concerns in the near term. So lacking conviction I'd rather have the cash and redeploy it into names I have a better feel for in terms of earnings, and the market is completely crushing. I know I don't have conviction in these 2 because if I was sure this was a great buying opportunity I would be adding here.

ICICI Bank (IBN) was a 0.8% position which we started on day 1 of the fund, and HDFC Bank (HDB) was a 1.0% stake that we started on day 1 of the fund. So these are 2 long time holds for us - and we've raised the equivalent of 1.8% cash with these sales. You can see it's been a wild ride since last August and without trading around these positions we'd have some serious losses. Once more I think these are great investments for the very long run, and this could very well be the bottom but my vision for the next 6-9 months in these names is cloudy with all the cross currents I outlined above. For someone with a 5 year time frame these are great prices. I unfortunately have to outperform the other 10,000 mutual funds to showcase I am worthy of your investment so I don't have the luxury of that time frame. ;)

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