Fund managers face tough choices as year ends

After a splendid run through much of 2010 Indian shares are panting for breath in the final lap of the eventful year, and a recovery in world equities could pose a challenge to fund managers on where to put their money in the New Year.

The near 15 per cent rise in the top-30 Sensex this year was largely driven by foreign portfolio inflows of $28.6 billion (Dh104.9 billion) during the period, but with the year winding down there has been net outflows as money managers take some profit off the table.

The widely-tracked Sensex has come off 4.9 per cent since reaching within 100 points of a record high in early November, and foreign institutional investments have dropped from almost $30 billion.

"It's going to be a bumpy ride in the next few weeks," said Biju Dominic who advises retail investors in Mumbai. "Inflation is rearing its head and this increases the risk of higher borrowing costs which will be a big dampener for consumer spending."

India's $1.3 trillion economy has been riding on robust domestic demand thanks to a burgeoning middle class of more than 300 million people that have been buying houses, cars, consumer goods and luxury items as never before.

However, soaring prices of foodstuffs — onion prices have leapt seven-fold from around Rs10-Rs12 (Dh0.80 to Dh0.96) a kilogramme to as high as Rs80 in a span of two to three weeks — have begun to pinch the family budget in a big way.

Embroiled in a series of corruption scandals, Prime Minister Manmohan Singh's coalition in New Delhi was caught napping as the price spiral was caused by hoarding after unseasonal rains damaged some crop. The government woke up too late and the initial comments from Farm Minister Sharad Pawar only helped traders to keep prices high.

With world oil prices rising above $91 a barrel, India, which imports over 70 per cent of its crude requirement, is under pressure to raise heavily subsidized retail prices of diesel and cooking gas.

Fuel prices

A ministerial meeting is scheduled on December 30 to take a call on the fuel prices, and if the government decides to raise prices it could accelerate inflation pressures as all goods in India are transported in trucks or railway wagons that run on diesel. "The macro headwinds are formidable," said equity strategist Roshen Seth. "If the government does not raise fuel prices it would bloat the subsidy burden and state refiners will be saddled with huge revenue losses." Higher fuel prices, however, would light a fire under inflation and the Reserve Bank of India (RBI) would raise interest rates sooner than later.

The food price index jumped an annual 12.13 per cent in the week ended December 11 from 9.46 per cent the week before, while the fuel price index climbed to 10.74 per cent from 10.67 per cent. The RBI's next scheduled policy meeting is on January 25. India's economy is on course to clock a growth of nine per cent or more in 2010-11, but it may find it hard to maintain the pace in the following year unless the government aggressively push reforms such as opening up the retail sector and boost farming in the nation of more than 1.2 billion people.

And, if the belief that US equities can rise about a fifth in 2011 — it was Goldman Sachs's Jim O'Neil who said last week he expected so — gathers momentum there could be a slowdown in money flows to emerging markets such as India.

"It is fair to say that we are somewhat more concerned about flows into the emerging markets," Alok Sama, president and founder of Baer Capital Partners Ltd, told CNBC-TV18.

He said O'Neil's expectations were based on an optimistic return to normalcy in the US, but the jury was still out on this. For India, he was more cautious than a few months ago.

The Sensex rose 1.1 per cent last week to 20,073.66, still way off 21,108.64 hit on November 5. "For this rally to be sustained, you need to see some real evidence of Indian mutual funds, in particular, stepping in and participating in a major way," Sama said.

Indian stock market is still a good place to invest

Losing the share certificates of a stock turned out to be fortuitous for the young Raamdeo Agrawal on his journey to be one of India's most successful equities investors.
It was 1980, when 23-year-old Agrawal first invested in India's stock market. Anticipating its future growth, earnings potential and profitability, he picked up shares of Vysya Bank at almost a throwaway price of Rs25 (Dh2.02). Over the next few years, the stock climbed to Rs2,000, but subsequently fell to Rs300. Thinking it might go down further, he placed a sale order at this price.

To his dismay he found he had lost the share certificates, which were required to complete the transaction. That was the era of pre-electronic trading. So the sale order was cancelled. Eight months elapsed before he got replacement certificates and that too at a cost of Rs50 per share. Rather than selling the shares right then, Agrawal patiently waited.

Finally, he sold the shares at Rs2,000, making good on his initial investment by "simply sitting on the stock and not flipping" as share prices went up and down and up again.

In 1987, Motilal Oswal and Agrawal founded Motilal Oswal Securities Limited (MOSL), today considered one of India's leading diversified financial services firms.

On a short visit to meet clients in Dubai last week, Agrawal, co-founder and managing director of Motilal Oswal Securities Limited, not only shared his investment philosophy but also answered in the positive when asked (as many readers might be wondering) whether there's still an adequate margin of safety to enter the Indian market at the current levels.

He isn't the one to get carried away by the astounding rise of the Indian stock market's Sensitive Index, popularly known as Sensex, in 2009. He reminds that last year's rise of 80 per cent was after a 67 per cent decline the year before. But he feels the annual federal budget presented last month has set the tone for further growth momentum in the economy.

In the last three years, the Sensex's earnings per share (EPS) aggregate has been prevailing at around Rs800-825. He expects this stagnation will end this year.

"In 2010-11, I think it should move up to about Rs1,000 to Rs1,100, depending on what happens to Corus, State Bank of India and, also, what happens to credit growth, etc.

"We are hoping anywhere between 25 and 30 per cent earnings growth. It will take four quarters of earnings growth for that to materialise. So markets will move up as earnings become clearer to the minds of the market men. My sense is we have seen the bottom, pre-budget, unless some black swan event happens.

"Now how much can the market climb up on a 25 per cent earnings growth? My sense is about 15 to 20 per cent."

Uncertainty

He doesn't downplay the continuing uncertainty surrounding global economic recovery and whether the Foreign Institutional Investors (FIIs) will sell or buy.

"They should buy what they bought last year, which was about $14 billion [Dh51.4 billion] to $15 billion. If they do, then we will see the market scaling up," Agrawal adds.

The place of emerging markets amidst the unrelenting globalisation is always a factor to keep in mind, he says.

"India is not moving in isolation to other emerging markets. We are very closely tied to what happens to the entire emerging market, and globally whether emerging markets will be in favour or out of favour."

The second challenge could be more domestic.

"It is important to consider issuance of new papers, whether from the government or the private sector side. When you have too many issues coming together, market tends to soften. So, these are the challenges for the market. My sense is that with a strong earnings growth ahead for the next 12 months, we see markets to be on the positive side from the current levels."

With the Sensex surging from the lows of 7,700 to the current level of 17,000, and its 2009 performance turning out to be one of the best in the world, many investors, still sitting on the sidelines, are not sure whether they have missed the boat. Agrawal strongly believes they have not. He says it all boils down to whether you are in it for investing or speculating.

"If you are talking about holding for one year, it's pure speculation," Agrawal says. "If you are talking about three to five years, that's a decent period. I will be surprised if managed funds don't double in five years. And 15 per cent compound return [on such funds] is a decent return I would say. In no bank deposit you can get such a return anywhere in the world."

What about the current valuation of about 16 times price earnings next year as a criterion for entering the Indian markets now? He feels it's reasonable, given the expected corporate earnings growth in the year ahead.

"We are definitely not at A throwaway price but we are also not at euphoric levels of 20 times or 30 times earnings. In other words, I would say, a $10 stock is now available for $10. It is not available for $8 or $9.

"Markets are very evenly poised and the economy is looking very good for 8 or 9 per cent growth. Corporate profits are going to zoom for the next three, four, five years. So the setting is perfect for a doubling in five years or even less than five years," he says.

Agrawal, who prides himself as a ‘100 per cent' equity investor, has one more piece of advice. An equity investor should have the heart to see prices going down and remaining steady in the face of it. After all, equities are considered one of the riskiest assets to be putting your money in.

"One of the things about investing in India or any part in the world, if you can't take 20 or 30 per cent correction from your purchase price, then you don't belong to the game. You can't get it at the lowest, because at the lowest you are scared. The moment some companies slightly move up, the markets also go up. Then you say that you've missed the bus. So, when do you get in?"

He concedes, however, it is not for everybody to play the market directly.

"It is for you to decide whether you are going into the market on your own or you should take professional help," says Agrawal.

"If you yourself understand what companies are worth investing in, you can very well double your money in a few years. ‘Bigger the better' for the guy who is managing himself. But if you are not competent, irrespective of the size of money you have, you must take professional guidance. It is very complex, and you have to be on top of things."

Even a seasoned stock market investor like Agrawal himself goes wrong sometimes.

In 2000 he sold his Infosys (India's leading IT company) shares at Rs8,000 per share and with the profit, bought shares of a small company (the name of which he would not like to disclose) at Rs400, which immediately slumped to Rs20. It has stayed at the same level since then.

Having digested this experience, the master investor draws this lesson: "Quality [of companies] matters a lot," he says.

Fund managers

As for guidance for those who need it, he means taking the mutual fund route. Without taking names, he says, he has high regard for several of what are available, both in terms of fund managers and funds. But he underscores the point that the investor should carry out his or her own due diligence on them.

"If you go for professional help, you have all these fund managers. Look at their track record, what they have been able to achieve over the past five to 10 years. Smart talk everybody can do it. Go for the tested products. After all, there's quite a plethora of them. Portfolio management services (PMS) and foreign houses offer a lot of exciting equity products, and [there are] brilliant managers in India. You must know the person and fund you have to do the homework."

Coming back to investing directly, he lays down the investment criteria of what makes him think that a stock is worth a second look.

Valuation is absolutely important, but with it, he looks at how much money the company can make in the future, he says.

"One is profit [what it makes now] and the other is profitability. Most of the people don't focus on profitability. Is the business going to need Rs1 billion to earn Rs100 million, or incur Rs100 million to earn Rs100 million. That's the real differentiator between two businesses.

How important is tangible asset backup to minimise the downside risk?

"It depends on the businesses," Agrawal points out. "Some of the businesses are tangible asset based businesses, some of the others are completely brand equity-driven kinds of businesses where real assets are intangible."

He then goes on to explain the two with examples.

Like when you buy a cement company stock, you are looking at the tangible assets. The valuation criteria of such a company is based on enterprise value (which is the total takeover value) per ton. The replacement cost (that is, cost to replace an asset at current prices) must be judged in terms of whether one pays the full price but buys a superior machine or one buys an average machine, but at half the price.

On the brand equity side, for example, companies like Nestlé India and Hero Honda Motors do have factories. But their valuation is not based on tangible assets but their earnings power.

"The kind of brand equity such companies enjoy, the kind of scale they enjoy, the kind of low cost of production they enjoy because of that there's always a certain level of profitability, cash flow and dividend payout ability," he says.

"These companies are looking at some staggering growth potential into the future — and competition is limited for them because they have almost killed all competition on the way to becoming number one or number two. So that's the kind of opportunity you look at, but at a reasonable price, which is available at 13 times or 14 times earnings current year and 12 times next year. So that's how I approach."

Agrawal believes in the philosophy of buy and hold. So when does he sell? Well, he doesn't bother too much about the selling if he feels his buying has been at the right price.

"I suggest to others three to five years, but personally, for myself, I look at 10 to 20 to 25 years. So selling is not on my horizon, but I am not averse to it. Of course, you have got to have those kinds of businesses to hold on to. There are not many of that type, even in the US. You come across a few and you are lucky to buy into them."

Investing mantras of Agrawal

Inspired by Benjamin Graham, the guru of value method of investing, and his most famous follower Warren Buffett:

1. Focus on great growth businesses. Growth is all around, but growth combined with superior business is fountain of wealth creation.

2. Terrific management team the horse is important but the jockey is even more important. A combination of good horse and even better jockey wins the race.

3. Look for large opportunities with few players. When the scaling up of economy will happen in next 10 to 15 years, all the values in that business will converge at one or two places.

4. Buy at reasonable valuations. Avoid bubble valuation, even in best companies.

His top stock picks:

HDFC Bank
State Bank of India
Hero Honda Motors
Bajaj Auto
Nestle India
Maruti Suzuki (later, when the price is right)

NTPC STOCK follow-on offer to hit market tomorrow

The country's largest power producer NTPC's follow-on public offer to raise about Rs 8,500 crore opens tomorrow and will be closed on
Friday.

The Empowered Group of Ministers (EGoM), in its meeting on February 1, has decided the floor price of the FPO at Rs 201 per equity share.

The government is divesting five per cent stake in NTPC through this FPO.

After the five per cent stake dilution, the government's holding in the power utility will come down to 84.5 percent from the current 89.5 percent.

The Cabinet Committee on Economic Affairs (CCEA) had in October 2009 approved sale of five percent stake of the government in NTPC.

The government has already appointed ICICI Securities, JP Morgan, Citi and Kotak as investment bankers for the issue. The proceeds from the FPO would go to the Investment Fund that finances social sector schemes.

After NTPC, Rural Electrification Corp is also expected to hit the market before the Budget. Mining giant NMDC's offer will come around March 10 while that of Satluj Jal Vidyut Nigam towards the end of March.

Godrej plans IPO for low cost housing in next three months

Godrej Properties Ltd, controlled by Indian billionaire Adi Godrej, plans an initial share sale in the next three months to fund low-cost housing projects.

Godrej Properties will sell a 10 per cent stake in the IPO, Godrej said in an interview in Mumbai yesterday. The company also plans to sell a 3.5 per cent stake to large investors before the IPO, he said.

Cheap mortgages and accelerating economic growth in the world's second-most populous nation are attracting home buyers in India, which has a shortage of 24.7 million housing units.

Godrej Properties is planning to build homes priced at as little as Rs1 million (Dh75,976), the chairman said.

SENSEX AT 15 MONTHS PEAK

Positive domestic and global cues pushed Sensex to the best closing mark in 2009, which was also its highest point in 15 months.

The index gained 2.09 per cent on Monday at 16,016.32 points, which is its highest closing point, going as far back as June 2, 2008. In fact, Sensex has almost doubled since it hit the year's low in March. For the current year, it is up 66 per cent.

More than the numerical addition to the indices, what has become of even greater value, according to traders, is the long and sustained rise to this high point, with hardly any blip in between. It also signifies a positive long-term investor sentiment, especially as the Oil India IPO today was subscribed with alacrity, within just 30 minutes of opening.

Sensex ended the day with a gain of 327.20 points or 2.09 per cent after touching an intra-day high of 16,035.50 (low was 15793.27 points).

On the National Stock Exchange Nifty ended the day up by 102.5 points, a gain of 2.19 per cent, to close at 4,782.90 points. Its high point was 4,790 points while the low that it registered was 4,679.30 points.

The star performers during the day were mostly from the mid- and small-cap space, with the BSE Midcap index itself up 2.31 per cent and BSE Smallcap index up by 2.83 per cent.

Tata Motors hit the upper circuit after gaining as much as 11 per cent and Reliance Com was up 6.6 per cent Among the other biggies to break into new territory were ICICI Bank and Jaipraksah Asso., up 6 per cent each, while Sterlite and DLF gained in excess of 5 per cent and Bharti Airtel, up 3.8 per cent.

Among the positive global cues that aided the rally in India were the fall in the rate of unemployment in the US. Japan's Nikkei gained in excess of 1 per cent, while European markets were also in the green.

Stock Market Turbulence - A model to follow

We live in extraordinary times. After leveraging till January 2008 and averaging till October, market participants are still gauging what hit them hard. Former Fed chief Alan Greenspan, who authored the bestseller An Age Of Turbulence, is now accused of causing much of theturbulence by keeping interest rates too low for too long and failing to check the explosive growth of risky mortgage lending. He admits he was ‘partially’ wrong in opposing the regulation of derivatives.

After years of unmonitored growth, the world is finally having to pay for the huge pile up in leverage, its casual attitude towards risk management, asset froths due to cross-border carry trade flows and step up in weapons of mass destruction (read derivatives). In a matter of months, the world has gone from a state of profound optimism to that of deep pessimism. The outbreak of US Subprime crisis in August 2007 has had a cascading effect on the world economy. Carry trade, the main liquidity driver, continues to unwind and a global flight of capital is taking place. Risk aversion has reached historic levels and even while central banks are cutting rates, financial institutions are unwilling to lend, resulting in capital turning insufficient and costly.

After nearly five years of unprecedented rise, the Indian stock market hit a roadblock in January 2008 and the Nifty’s then high of 6,350 has vanished from public memory. The tsunami of relentless selling has taken its toll on commerce. The cracks are now appearing in the profit cycle of companies. Volatility has risen sharply and it is fair to say that confidence is at an all time low. We are part of that world and theories like decoupling remain literature to be read at leisure.

History suggests that Indian bear markets last 3-4 years with up to 58% price corrections. In terms of price, we have already fallen below historical levels. Whether we will spend another 2-3 years from now in the bear zone is difficult to gauge at this point. The global economy is facing a recession and the extent of damage is such that healing could take a while. But having said that, unless one believes there is no tomorrow, economies will eventually find a way to resurface and markets will make the painful adjustment and move up again. On the brighter side, economic cycles are getting shorter.

Every dark cloud has a silver lining. There are positives to take away, even in bad times. During a slowdown, companies turn cost conscious and excesses are weeded out of the system. They get time to pause and take stock of their plans. A bear phase could often act as a healthy check and help cut down flab, which helps good companies emerge stronger. Another advantage of a bearish period is that it boosts a long term investor’s return by giving the opportunity to buy future winners at yesteryear prices. Even after the staggering fall since January 2008, Rs10 lakhs invested in Sensex companies in mid 2003 would have grown to approximately Rs30 lakhs today.

This simply re-emphasizes that equities have proved to be the best asset class in the long run.

“Most people get interested in stocks when everyone else is. The time to get interested is when no one else is.” – Warren Buffet

“For those properly prepared in advance, a bear market in stocks is not a calamity but an opportunity” – Sir John Templeton

Investors have in recent times paid the price for not being fearful when others were greedy. The reverse holds true now. The time has come to be greedy as others turn fearful. Investors with a 3-year horizon should see opportunity in these adverse times. That does not mean you rush to create wealth overnight. The best way to create wealth is to build a portfolio of fundamentally strong companies which will bounce back stronger in the years to come. When the dust settles and the world economy stabilizes, India will be among the first to race ahead. The best bargains are now available at the equity shopping mall. But deep discounts need not necessarily mean value for money in the long term.

Keeping in mind a 3-year horizon, we have built a model portfolio of 12 stocks with assigned weights. We believe IMP strikes the right mix as our chosen stocks are:

1) Companies that are adequately funded with low financial leverage and will therefore, not be severely affected by reversal in credit cycle

2) Businesses with reasonable earnings visibility even in this uncertain environment

3) Value buys that will be less damage prone to the high volatility in markets

4) Growth stories with an element of inelasticity in demand

The India story cannot be thought of without giving enough importance to rural themes. Rural India is not much susceptible to a slump in the stock market or property market. Three consecutive years of good monsoon, farm loan waiver and benefits accruing from the ‘Bharat Nirman’ and ‘Rural Employment Guarantee’ programs provide enough proof that demand will sustain even as the broader economy loses steam for some time. Some of these forma part of the IMP.

Attractive bargains often tempt people to spend more than they can afford. We advise you to resist such temptation and gradually add stocks to your portfolio. We are confident the IMP will strengthen your portfolio and outperform the benchmark (Sensex). Take your time to build a strong portfolio. After all, Rome wasn’t built in one day.

You won't get there by reading 'Now is the time to buy.’ – Peter Lynch

“Uncertainty actually is the friend of the buyer of long-term values” – Warren Buffet

A Model Portfolio of 12 stocks with assigned weights :-

1.Bharti Telecom 10.0 Market leader with high visibility; impressive return ratios

2. BHEL Capital Goods 5.0 4.2x Order backlog/Sales; well funded for executing capex plans

3. CESC Power 6.0 Capex on track; trading at 60% discount to peers

4. Cipla Pharma 4.0 Continues to outperform guidance; benefits from INR depreciation

5. Gail Oil and Gas 5.0 Increased gas supplies to drive core business of transmission

6. Hero Honda Auto 5.0 Gaining market share; riding on rural growth

7. Jindal Saw Pipes 5.0 High order book and margin improvement to drive earnings

8. M&M Auto 5.0 Rural play: Tractor and Bolero growth to remain strong; trading below BV

9. Marico FMCG 5.0 Highest growth among peers - trades at a discount; 25% sales from rural

10. Reliance Ind Oil and Gas 17.0 Commencement of KG-D6 and RPL growth drivers

11. Sun Pharma Pharma 4.0 Low risk business model in the industry; robust balance sheet

12. Tech Mahindra IT 7.0 High revenue visibility vis-a-vis peers; best play in IT

Sensex tumbles below 12000 - Rupee closes at 47.80 per dollar

The rupee slid to its lowest in more than 5-½ years on Monday as local shares dived nearly 6 percent, closing at 11801.70, triggering fears of an accelerated outflow of foreign funds, while dollar demand from importers and oil firms weighed. The partially convertible rupee ended at 47.80/81 per dollar, 1.5 percent weaker than its 47.0750/0850 at close on Friday. It slumped to 47.85 during the session, its lowest since Feb. 14, 2003.

The rupee has lost 17.6 percent so far this year. "The rupee was very volatile today, the Sensex was down. The dollar is stronger overseas. Importers and oil firms were buying dollars and there are no dollar inflows," said K.N.Reghunathan, a currency trader at state-run Union Bank of India.

"If this trend continues then we may see the rupee touch 49 against the dollar in the near-term," he added. India's main share index or Sensex ended down 5.8 percent as concerns grew of an acceleration in foreign fund withdrawals amid fears the credit crisis could lead to a global recession.

Sensex poised for volatile trading

Rising anxiety about the health of the global economy will cast a long shadow on Indian shares this week, while falling oil prices are unlikely to provide much comfort to nervous investors who have been grappling with volatile markets.

Although inflation has eased for two weeks in a row, it remains near 16-year highs and the new Reserve Bank of India governor, D. Subbarao, who took over on Friday has said his priority was calming price pressures.

"There are too many dark clouds hanging over the market," said stocks trader Rasesh Shah. "It will be tough going with the headwinds picking up."

Worsening prospects for the US and European economies, combined with a slowdown in China, India and Brazil, are expected to lead to a global contraction and put immense pressure on corporate earnings across the board, he said.


Information technology companies like Tata Consultancy, Infosys, Wipro and Satyam which rely on the US for most of their business could be hurt if the world's largest economy slips into a full blown recession.

Shah said the gloomy business outlook had pushed the stocks of these companies sharply lower last week, even though a weakening rupee was a big positive for the export-dependent companies.

Commodity firms will also face the heat as shrinking growth in China douse demand and pile downward pressure on prices.

Goldman Sachs last week downgraded US steel stocks to 'neutral' from 'attractive' and lowered its price forecast for the metal in the next 16 months because of slowing economic growth in China and a strengthening dollar.

Steel prices are likely to average $923 a tonne this year and $951 next year, Goldman said, 3.2 per cent and 6.1 per cent less than it previously forecast.

This will have an impact on Tata Steel, the world's sixth-largest steel producer, which now gets the bulk of its earnings from its Corus unit in Europe. Its domestic operation along with rivals Steel Authority of India and JSW Steel have been facing pressure from a government-engineered price freeze since May.

The benchmark Sensex index, which slipped 0.6 per cent last week to 14,483.83 last week, could see a slide in the near term as investors turn risk averse.

Grim forecast

Lehman Brothers said in a report released on Friday the Sensex could drop 10-15 per cent in the short term to 12,500-13,000 and forecast borrowing costs to remain high in the next three to six months.

However, the US research house said the fall should be used as an opportunity in the coming year to accumulate shares. Corporate earnings have been affected by higher interest rates, rising raw material costs and high yields, but margins are likely to stabilise in coming quarters in a deflationary commodity environment, it said.

Investor should consider buying shares in banks and in auto, media, consumer, telecom, real estate and pharma companies, but avoid capital goods, non-ferrous metals and cement companies, Lehman said.

Equity strategist V. Venugopal said it was too early to suggest inflation had lost momentum and the Reserve Bank of India (RBI) was more likely to raise interest rates again in October, when the central bank is scheduled to review policy.


Annual inflation in the week ended August 23 was at 12.34 per cent, edging down from 12.63 per cent two weeks earlier, but well above the RBI's target of seven per cent.

Venugopal said a sliding rupee and an Organisation of Petroleum Exporting Countries (Opec) meeting this week would be closely watched.

The rupee, which has tumbled nearly 12 per cent this year to a 21-month-low of 44.7 per dollar, could weaken beyond 45 this week, he said, as refiners step up dollar purchases to buy oil.

The currency has been under pressure after India's trade deficit jumped to a monthly record of $10.8 billion in July, with oil imports soaring 69.3 per cent to $9.48 billion. The gap stood at $41.23 billion in April-July, sharply up from $27.35 billion in the year-earlier period.

The Opec meeting in Vienna this week could announce a cut in crude output to halt tumbling prices of oil - down eight per cent last week to below $107 a barrel from a recover over $147 in mid-July.

Storm clouds over Indian market grow darker

The going will get harder for Indian shares this week as soaring inflation raises the prospect of higher interest rates, which could burn a hole in the pockets of consumers, slow down demand and hurt corporate earnings.

Throw in volatile commodity prices and the outlook gets more worrisome. With fears the global credit crisis could worsen there is little comfort for investors, who have already suffered big losses this year.

The risk of a downside is making investors nervous and many funds are sitting on cash. Large investors have moved to the sidelines on mounting expectation that shares will decline in the near term and throw up opportunities for bargain hunting.


Annual wholesale price-based inflation (WPI) in early August shot up to 12.6 per cent, the most in 16 years, strengthening fears the Reserve Bank of India (RBI) will hike interest rates and tighten money supply again.

Sonal Varma, economist at Leh-man Brothers in Mumbai said that the final WPI inflation to peak in October-November at around 13.5-14.0 per cent, but to stay above 10 per cent until February 2009.
A steep increase in salaries for some five million civil servants announced this month, ahead of national elections due by May, is expected to fuel inflation.

"The whole objective of monetary policy at this point in time, which is to contain and manage demand, is going to face hurdles," said Shubhada Rao, an economist with Yes Bank. "The pay revision is going to add to demand pressures on inflation."

Last week, New Delhi-based National Council for Applied Economic Research (NCAER) cut its outlook for economic growth to 7.8 per cent in 2008-09, saying high inflation and a global slowdown were major threats. In its forecast in May, the economic think-tank had forecast growth of 8.5-8.8 per cent.

Forecast revision

A week earlier, the prime minister's economic advisory panel had lowered its growth forecast to 7.7 per cent, slower than 9 per cent expansion in 2007-08. Last month, the RBI pegged down its growth projection to 8 per cent from 8-8.5 per cent forecast earlier.

"The brakes on growth have been brought about by the slowdown in global growth and high inflation," NCAER said in a report.

It said industrial output growth was expected to moderate to 8.4 per cent in 2008-09 from 8.6 per cent of last year, while farm output growth would slow to 2.5 per cent from 4.5 per cent. Services sector was seen up 9.1 per cent, slower than 10.8 per cent of last year.

Foreign funds, which usually set the trend for the stock market, have been voting with their feet as the economic situation worsens. Overseas portfolio investors dumped shares worth $775 million over the past six days, data from the Securities and Exchange Board of India showed.

D'Souza said the withdrawals were likely to pick up momentum and push the market down this week, with the expiry of monthly derivatives contracts on Thursday making prices more volatile.

The Sensex fell 2.2 per cent last week to 14,401.49, its second weekly drop in a row. The marker has dropped 29 per cent this year, with foreign funds pulling out $7.2 billion during the period.

Crude oil's 5.4 per cent slide on Friday, the biggest single-day tumble in four years, to about $114.6 a barrel should bolster sentiment when trading starts tomorrow, but the sharp swings will keep investors cautious, D'Souza said.

Although oil prices have dropped more than a fifth since hitting a record high above $147 in mid-July, the outlook is marred by geopolitical tensions between the US and Russia and concerns Opec may decide to cut output when it meets in Vienna in September.

Energy-starved India imports more than 70 per cent of its oil, the price of which has a heavy bearing on domestic inflation.

In July, Merrill Lynch strategist Mark Matthews said that if oil prices fell below $120, inflation eased and the US banking crisis ends, Chinese and Indian stock markets could rebound. For that to happen, it will take a few more months, D'Souza said.

Sensex seen heading to 12k level

Having lost over one-third of its value in less than six months, stock market seems to have more pain in store for investors with experts seeing the benchmark Sensex heading back towards 12,000 level in the next few months.

The continuing crude oil rally and unabated selling by FIIs are unlikely to let the market see a near-future uptrend, while domestic factors like inflationary pressures and rising interest rates are also playing spoilsport, analysts believe.

International brokerage and equity research major CLSA analyst and renowned portfolio manager Christopher Wood has told his clients in the latest June edition of his famed "Greed and Fear" report that the Senses dropping back to a 12,000 level could not be ruled out in the wake of surging oil prices and continuing selling activities by foreign investors.

"Certainly, a re-test of the 12,000 level on the Sensex cannot be ruled out in these circumstances. And that will be accompanied by a further weakening in the rupee," Wood said.

Striking a similar note, research and analytics firm Evalueserve's Chairman Alok Aggarwal wrote in a whitepaper that Sensex could drop to 12,000 level in the near term if the present financial crisis does not subside, crude oil continue to trade upward and FII outflow continue unabated.

"We now believe that the Sensex could drop to 12,000 in the near term, the Rupee could depreciate by another 5-6 per cent against the US dollar, and the GDP growth could slow down to approximately six per cent by the fourth quarter of this fiscal year," Aggarwal said.

Agreeing to the probability of Sensex falling to 12,000 level, domestic brokerage firm Asika Stock Brokers' Research Head Paras Bodhra said corporate earnings could also be a major driving factor in the coming months.

The Sensex can fall to 12,000 level during the next 3-6 months, but it depends on the corporate results season, Bodhra said, adding if the earnings turn out too bad then the index may drop to this level.

"It is quite a possibility, as macro problems may trickle down to micro levels, leading to a deterioration of fundamentals, he noted.

These projections are in sharp contrast to the Sensex seen heading towards 25,000-point mark till a few months ago when bulls were in the driving seat. If the bears keep extending their reign on the bourses and pull back the barometer to 12,000-level, it would wipe off all the gains recorded in about past two years ago.

The benchmark index Sensex had touched the 12,000 level for the first time in September 2006. However, amid a continuing bearish phase continuing for about six months now, the Sensex has fallen over 7,000 points from its all-time peak of 21,206.77 points, scaled on January 10.

It settled at 13,802.22 points on Friday after a 620-point fall amid concerns over surging crude oil prices and inflation.

CLSA's Wood noted in his 'Greed and Fear' report that a further rise in the oil price would continue to be particularly bad news for India, despite RBI's increasingly pre-emptive monetary tightening stance.

The RBI last week announced hike in the repo rate and the cash reserve ratio (CRR) by 50 basis points each to 8.5 per cent and 8.75 per cent, respectively. These steps are expected to suck out an estimated Rs 15,000-20,000 crore liquidity from the banking system and have been seen as a contributor to the recent fall in overall turnover in the equity market.

Some analysts, however, expect a drop in the Sensex to the psychological 12,000-level to trigger a strong buying opportunity for foreign investors.

"Any such decline to that level is viewed as a massive long-term buying opportunity in India and the rest of Asia," Wood said.

However, due to selling by foreign investors, a clear risk of a further move down to the 12,000 level on the Sensex still remains, given the parabolic oil risk, he added.

CLSA noted that a further rise in oil can only be bearish for the Asia-Pacific region, since there would be growing focus on the deteriorating terms of trade for Asian economies and the resulting need for higher interest rates to fend off potentially destabilising currency depreciation.

FIIs have, so far, sold a net $ 6.2 billion worth of Indian stocks this year, against a net purchase of $ 51 billion between the beginning of 2003 and the end of 2007.

"There is then clearly every risk that foreigners sell more," CLSA said.

It, however, ruled out that the Indian stock market would underperform dramatically from the current levels as RBI has become more proactive than some other Asian central banks which may have to play catch up.

Sensex tumbles on high oil prices and inflation peaks

There was no respite for equities in India as trading began on Friday in the background of a US market plunge Thursday as oil hit a record and stock in Asia tumbled early in the day.

Also weighing on investor sentiment was the 50 basis points hike in the PLR rates by State Bank of India and Union Bank earlier day and inflation, which was expected to have risen to a fresh 13-year high of 11.18 per cent.

Political stability was also under question with Congress President Sonia Gandhi reportedly giving the go-ahead to Prime Minister Manmohan Singh on the nuclear deal at the cost of losing the government at the centre.

But the biggest factor was crude touching a new high of $140.39 per barrel in the international market after OPEC chief Chakib Khelil warned oil may go up to $170.

“Our market woke to more than a couple of negative news flows. In addition to surging oil price, factors like expectation of higher inflation figures, weak global market and reports of UPA allies parting ways kept the market nervous,” said Anita Gandhi, institutional head at Arihant Capital Market.

Benchmarks fell around 3.5 per cent soon after trade began. Even as the market tried to brave high inflation, which came in at 11.42 per cent for the week ended June 14 against 11.05 per cent in the previous week, surge in oil prices painted the global markets in red.

Brent North Sea crude touched an all-time high of $141.98 per barrel.

Bombay Stock Exchange’s Sensex closed at 13,802.22, down 619.60 points or 4.30 per cent. The 30-share index touched a low of 13,760.24 falling short of 29 points from its 52-week low.

Reliance Power to give 3 bonus shares for every 5 held

Reliance Power on Sunday said it will give three bonus shares for every five shares held by its shareholders.

The board of directors approved a bonus issue excluding promoters, as per which three shares would be allotted for every five held.

This issue would benefit over four million investors in the company and the cost would be borne by the promoter group by way of diluting its stake.

Post bonus issue, the cost of acquisition of Reliance Power shares would come down to Rs 269 for retail shareholders and Rs 281 for institutional investors.
The approval of bonus issue is an unprecedented step in the history of capital market in India and abroad.
Shares of Reliance Power closed down by 1.21 per cent on Friday at Rs 416.85 on the Bombay Stock Exchange.

V-GUARD INDUSTRIES IPO:- Issue Opens on : 18 Feb 2008

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V-GUARDS FINANCIALS

Total turnover in 2006-07 is Rs 22227 lakhs
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ISSUE CLOSES - 21 FEBRUARY

PRICE BAND 80 - 85


ACT TODAY FOR AN ELECTRIFYING FUTURE

Indian Stocks - Bears on a Roll

Monday began with the Sensex tumbling by 7.4%, the most in almost four years. All 30 Sensex stocks declined exacerbated by a sell-off from local investors as fears of the US entering a recession affected markets across the globe. European, Latin American and Asian markets across the globe tumbled. Commodities were hit and sugar and cement fell sharply. The BSE Metal index was down 13.3%. BSE Realty index (down 12.8%), BSE Oil & Gas index (down 11.9%) and BSE Power index (down 10.9%) also fell. Mid-caps were not spared and the BSE Mid-Cap index was down 11.3%. About 138 stocks advanced on the BSE, while 2,658 stocks declined and 13 stocks remained unchanged.
Tuesday was no better with the Sensex falling by 5%. Commodity prices too tumbled and Asian markets fell. The BSE and NSE halted trading for an hour.The US market was shut on Monday because of Martin Luther King Jr. Day (a holiday). On Tuesday, the US markets tumbled soon after opening and the Federal Reserve implemented a rate cut.This helped the Indian market pick up the next day.On Wednesday, the Indian market snapped a 7-day slide. All 13 industry indices posted gains. The market initially rallied only to turn choppy but closed positively.Despite the rally on Wednesday and starting off Thursday well, the bulls fell as the market wiped off all early gains. The market was extremely volatile gyrating almost 1,000 points between its days high and low. Weak cues from the Asian markets did not help. French bank Societe Generale SA made a statement that they were seeking fresh capital because of a record trading loss, added to bad global sentiment and the $120 billion of write-downs and losses reported by financial firms across the globe.On Friday, the bulls were back with a vengeance. Friday started with a bang with a lot of activity. Banking, power and realty stocks were the star performers. All Sensex and Nifty stocks closed in the green. BSE Bankex, BSE Capital Goods, BSE Auto, BSE Metal, BSE FMCG, BSE Oil & Gas and BSE IT all closed higher. Small caps too rose but mid-caps rose higher. BSE Midcap and BSE Small Cap closed higher.

Reliance Power oversubscribed 24 times on Day 3

The public offering of Reliance Power was oversubscribed 24 times on the third day of issue despite bearish secondary market trends. The Rs 11,700-crore IPO, the country’s biggest ever so far, has already set a few records as far as bids, number of application and value of shares are concerned. Reliance Power IPO has received bids for Rs 2,48,000 crore (as on 9.15 pm on Thursday); the previous best Mundra Port issue managed bids worth Rs 2,03,708 crore. Pipping Reliance Petroleum issue to second place, Reliance Power has logged 30 lakh applications so far. The retail portion has been 8.2 times oversubscribed. If one ranks top IPOs (by number of applications received) in recent times, Reliance Power (as on 1900 hrs on Thursday) would lead the tally with about 27 lakh applications. Reliance Petroleum (19.5 lakh applications), NTPC (14.4 lakh applications) and Power Grid Corporation (12.7 lakh applications) fall in second, third and fourth spot, respectively. The issue, till third day, has deposited about Rs 2,45,000 crore by way of application money. A Reliance ADAG official expressed happiness over the response from qualified institutional buyers and retail investors despite the sharp losses in the Sensex over the past few days.

Reliance Power - Mega IPO back on track

Reliance Power obtained on Wednesday a stay from the Supreme Court against a writ petition filed by an investor association, which had moved the Gujarat High Court to stall the mega IPO. The apex court stayed the interim proceedings in the high court, but the Rajkot Jilla Grahak Suraksha Mandal (RJGSM) along with Jagrut Grahak Suraksha Mahila Mandal, which filed the writ petition expressed a resolve to take the matter to the apex court. RJGSM is one of the 22 Sebi-recognised investors’ association in the country. Gujarat has four such associations. Other associations have, however, not joined hands with RJGSM. The high drama around the upcoming public issue, so far country’s biggest, involves high-profile players. They include former Gujarat chief minister Chhabildas Mehta, former Congress MP Ramjibhai Mavani, retired Justice SK Dubey and Justice TS Doabia among others. The writ petition filed on Wednesday was the fourth such attempt by the group to stall the IPO. The group first approached local authorities raising concerns over the interests of Reliance Energy shareholders, pricing of the issue, timely completion of the power projects, returns to investors . The group later communicated not only to Sebi but also to the London Stock Exchange, where Reliance Energy’s GDR is listed. They also wrote letters to institutional investor LIC, which was a 11.75% holding in Reliance Energy as on September 31, 2007. Copies of some of the communications are available with ET. On Wednesday, the Mavani-led RJGSM pleaded to the high court to prevent Anil Ambani from launching the public issue. However, the company got a Supreme Court stay against any proceedings over its IPO in the high court. Speaking to ET Mr Mavani said, “We are not against the Reliance Power IPO. However, we certainly disagree with some of the provisions and clauses, which are neither in the interests of the shareholders of Reliance Energy, nor the subscribers of Reliance Power. We will not stay quiet. RJGSM would soon knock the doors of the Supreme Court after consulting the legal experts.” He added that the power projects bagged by Reliance Energy should not be transferred to Reliance Power without any consideration. He has sought the reassessment of the price at which ADAG is offering Reliance Power shares to the retail investors. Earlier, Mr Mavani and individuals like Pradeep Nambiar, Bhupendra Singh and Ramachandran Nair had also approached the Bombay High Court. On November 1 2007, the Bombay High Court directed Sebi to hear the complainants. Following this, SEBI’s wholetime members TC Nair and VK Chopra heard the complainants on December 4, 2007. RJGSM and other complainants had sought one more hearing before the Sebi gave its final nod to the public issue. However, SEBI gave final clearance to the company in the last week of December.

Reliance Power IPO: You can pay in phases

Reliance Energy is going all out to woo retail investors for the upcoming initial public offer (IPO) of its subsidiary, Reliance Power. After deciding to offer shares to retail investors at a 5% discount to the price band of Rs 405-450, the Anil Ambani Group entity intends to provide this investor segment with a “staggered payment” option in this IPO. Accordingly, retail investors need to pay only 25% of the total investment amount at the time of submitting the application and the rest at the time of allotment on first call, a source familiar with the development said.

By availing this option, the investor does not have to lock in the entire amount for which he has applied in the IPO. This means, if a retail investor intends to apply for 100 shares at Rs 450 per share (Rs 427.50 after discount), he would need to pay only Rs 10,687.5 (25% of Rs 42,750 while applying and the rest during allotment, as against the lumpsum of Rs 42,750. This option brings a level playing field for retail investors vis-à-vis qualified institutional buyers(QIBs), who are allowed to bid in an IPO with just 10% margin while submitting the bids in a public issue. Prominent public issues, which enabled the staggered payment options in recent times include ICICI Bank and Reliance Petroleum.

Retail investors get discount in Reliance Power IPO

Reliance Power is eyeing a mop up of Rs 10,530-11,700 crore at the lower and upper price band of the mega initial public offering.
The 26-crore equity IPO opens between Jan 15-18 in the price band Rs 405-450 per share of face value Rs 10 each. Retail investors will get a discount of Rs 20 per share on the issue price which will be decided through book building process. However, the public offer is only for 30 per cent of the issue.
The company will not be making a pre-IPO placement, said Anil Ambani, chairman of Reliance Power at a press meet here. The company expects to list by the first week of February, he said. Net issue would constitute 10.1 per cent of the post-issue paid up capital. Outstanding shares post issue will be 226 crore equity shares.

Sensex to give 15-20% returns in long-term

Ajit Dayal of Quantum Advisors says Sensex has given compounded returns of 35% peranum in the last 7 years and one must not expect similar returns but returns of 15-20% over the long-term is possible.

He further told CNBC-TV18 that valuations in India are not cheap but they are not near bubble phase either and so they are not uncomfortable with current valuations. At present at Quantum Advisors they have fairly low cash levels said Dayal.

Excerpts from CNBC-TV18's exclusive interview with Ajit Dayal:

Q: The expectation is that come January there is going to be big dollops of cash and that’s probably going to take the market a bit higher than where it is. Would you go with that theory?

A: We have to go back a bit and look at- if you had put Rs 100 in the BSE 30 Index in January 2001, today that Rs 100 standing in December 2007, seven years later effectively would have been Rs 874. So that’s a profit of Rs 774 over the last 7 years i.e a compounded rate of return of about 35% per annum or about 2.5% per month. I don’t think that people should expect January-February-March-April 2008 to sort of give you that sort of return.

Having said that we are very optimistic on India. We believe that Indian economy is totally in many ways dealing from what's happening in the US. It never has really been coupled to the global economy. India is very much a domestic driven economy. Unfortunately, some mishaps in policy where we have got P-notes that has made us part of global capital flows in a far more accelerated fashion then probably what we can handle and so if something happens in the US- subprime crisis, if the big groups out there begin to withdraw capital from all their sort of territorial expansion plans and territorial investment plans which includes India and they take capital back home then yes, because of the P-note exposure and linkage that the Indian capital market has you could see a sell off.

So will January 2008 see a sell off because of what's happening in the US or will January 2008 see an increase-We don’t know but one should expect about a 15-20% rate of return in our view from Indian stocks in the long run not the 35% per annum that we have seen since 2001 in last seven years but certainly a 15-20% long-term sustainable number still looks very good us.

Q: How comfortable are you feeling about valuations at this point- the 20,000 plus? Are you feeling okay about the way we are stepping into earnings?

A:We are a value investor and we tend to be in cash when we don’t like the valuations. We actually are in fairly low cash right now. We had taken a bit of profits if you will in the month of October and we looked quite smart because the market fell off when the P-notes thing was announced. We looked very stupid when the market rebounded and we are still sitting in some cash but we have been in fairly low cash levels right now and that’s should indicate to you and to our viewers that we are very comfortable with valuations, we are not saying it is cheap but we don’t think it is anywhere close to bubble environments.

There is always stock selection that’s going on in our processes and within a basket of 20-25 stocks we have a portfolio now, which is in our view still a value portfolio. So yes, there is value; we are not uncomfortable with the valuation at this index level.

Q: How are you feeling about that midcap and smallcaps? Do you think its still a valuation catch up that’s playing out or is it just the money flows, which are being diverted to that part of the market?

A: It is more like money flows. There is always sector rotation in stock market. Many fund managers have got sort of favorite sectors. We are sort of cap insensitive and sector insensitive in many ways when we pick and choose our stocks. But if one looked at what happened in the indices from 2006 May, which sort of bottom in May-June 2006, it’s been really the largecaps, the BSE 30 led stocks and within the BSE 30, 5-6 stocks have accounted for a much of the rise in the Index till about the third quarter this year.

So there is some sort of a leadership change, as you all would talk about it. With regards to DSP Merrill Lynch forecast of estimated 10% GDP growth rate, our numbers and our valuation numbers are based upon a 6.5-7% the rate of growth of GDP, and if the GDP numbers do indeed end up at been 8-9 or 10% that would make the market in our view very cheap. So at 6.5% we are seeing the market to be not expensive, not cheap but if a 10% number did pan out which we don’t believe it will but if it did pan out and in the next few years if we get the infrastructure right then we believe it can, then the market is trading still in our view extremely cheap.

So we will be rushing into buy, if we got new cash and the 10% GDP numbers did sort of pan out.

Q: From the earnings lot though would you include IT in your list this time around or you will still stay away?

A: No we have been buyers of IT. We have been buying IT; we had some IT exposure at the start of the year. We have actually been adding to it over the last few quarters. We don’t believe that currencies, a weak currency is the only reason to buy IT stocks. We believe there are some fabulous companies out there and we hope that we own them in the portfolio and have made the right selection.

We have been buyers of IT. So it has been a nice last one or two weeks for us though not nice one-two quarters for us because we have been sort of buying up the IT as they have been coming down.

Q: Have you had reason to add any agro commodities to your list such as sugar?

A: No, we actually looked at sugar a couple of months ago and we know the share prices have rebounded a bit since then. But we haven’t really had the strength to go in and buy into sugar because that is sort of driven a lot by political influence and by near-term political events. Our job as analyst, as fund managers we believe in the long-haul is to try to sort of analyze things that we can understand and we have little understanding of what makes sugarcane and sugar prices move around given all the political stuff going on around it. So we are not able to guess that and we don’t have it.

We have been certainly watching it, studying it but don’t have the conviction or the strength to put money behind it as yet. One day we will probably but haven’t done so far.

Q: What is the top pick for 2008?

A: We do not disclose names but I recently spoke about IT and we like IT. We haven’t bought IT with a view of three-six months; we do not buy stocks with three-six months views. We invest in them after studying and trying analyze where things could end up on the three-five year view at the very minimum. So our view is that IT as a sector could recover.

We are not believers in a strong rupee. I think we kind of fool ourselves a bit by saying that when we strengthen against US dollar that we are a strong currency. There have been some issues in America and America has had an inherently weak currency. So a basic currency trade is a two way game; if one has a weak dollar it got to be something strong on the opposite side. So we have happened by accident to have a strong rupee against the US dollar.

And our view is that the Indian rupee given the fact that if one looks at the current account deficits or trade flows, you stripe out of the portfolio money that’s coming into India every year and we have had about USD 50 billion of portfolio money in India over the last four years and so if you strip at money out, India is actually running a current account deficit and is been funded by portfolio flows and no one has any control or any understanding of how sustainable these portfolios flows are on a month to month basis, on a quarterly basis or even on annual basis specially given the fact that P-Notes account for half of those flows.

We are not convinced that a weak dollar in that sense a strong Indian rupee is a given and the IT companies that we own in the portfolios we believe can manage the environment around them

Courtesy: Moneycontrol

Nifty at 6950, Sensex 22,880 by July 2008

By Vasant Joshi
Technical analyst
Religare Securities

The Indian benchmark indices, barring minor hiccups, have remained strongly bullish last 18 months since June 2006. The origin of this bull phase goes way back to September 2001 when the BSE Sensex was at 2595 and NSE Nifty at a low of 850, says Vasant Joshi, technical analyst at Religare Securities. The Sensex has seen an eight-fold and Nifty over seven-fold rise since then, he adds. The volatility, of late, has crossed all the normal established barriers seen so far. The sheer pace of appreciation in the market valuation of small cap and mid cap segments has attracted a new breed of investors. There is, however, nothing unusual in it. The hyper volatile markets of 1992 and 2000 have also seen this phenomenon. We have seen a massive crackdown in indices in the post 1992 and 2000 scenarios, Joshi said. There is a clear-cut demarcation in the earlier bull phases of 1992 and 2000 and the current bull phase. The earlier bull phases were more or less driven by a handful of market operators who eventually got crushed under their huge outstanding positions. Professional players like mutual fund managers, domestic institutional investors, foreign institutional investors and hedge funds now contribute a major chunk to the market turnover. Also, an investor is now well equipped to hedge his investments without offloading them with the help of a variety of instruments available in the derivatives segment, says he. The continued rise in money supply has also resulted in rapid price appreciation in small cap and mid cap stocks. The valuation of quite a few stocks is, no doubt, mind boggling and difficult to digest on the basis popular concepts of stock valuation. The age-old concepts of stock valuation have become more or less redundant in view of the structural changes in the market mechanism. As long as the flow of funds remains intact and the settlement in derivative segment continues to be “cash settled”, there is no threat whatsoever to the ongoing bull phase. The bull phase can, therefore, be expected to continue through 2008 with occasional routine reactions needed for the realignment of market forces, Joshi says. A strong performance by the corporate sector is just supplementary to the changes in trading mechanism over the last 3-4 years. An average growth of even 10 per cent a year would be sufficient to keep the stock prices rocking and help them climb new peaks, says Joshi. “The projections for 2008 are in relation to the base of June 2006. The recommendations are based on the assumption that there will not be any major changes to the present trading mechanism. It should be noted here that a fall of more than 3 per cent below the suggested stop-loss levels would negate the upper projections for that sector. In view of the historical data, I have made use of BSE sectoral indices for the purpose.”

Bulls set for another run; Eye 21,250 on Sensex

Year 2007 has been a phenomenal year for Indian equities, and analysts expect indices to end it at all time highs as the bulls gear up for another run. “Market sentiment is bullish after the latest Fed rate cut. We expect a further rise toward 21,250 in Sensex and 6,500 in Nifty by the end of the year,” said technical analyst Sandeep Wagle of Angel Stock Broking. The US Federal Reserve disappointed world markets by a modest 25 basis-point cut instead of 50 bps on December 11, but Indian equities chalked up gains while Asian peers stumbled in reaction. On Dec 12, Bombay Stock Exchange's Sensex closed up 85 points or 0.42 per cent at 20,375.87. The index scaled an all-time high of 20,419.11 intraday, recovering from an early low of 20,045.42. National Stock Exchange’s Nifty ended higher by 62 points or 1.02 per cent at 6159.30, bouncing from a low of 6005.45. The index rose to a high of 6175.65 during the day. A rebound in industrial production has also lifted market sentiment. Index of industrial production for October grew 11.8 per cent, the fastest annual rise in seven months, from an upwardly revised 6.8 percent in September. “We will not be surprised to see the Sensex closing at 20,500 by the year-end since I see absolutely no triggers for a correction,” a more conservative Shahina Mukadam, head of research at IDBI Capital, said, adding that large-caps still look strong. So far in December, the Sensex and Nifty have seen more positive closes than negative ones and risen by a whopping 5.13 per cent and 6.71 per cent respectively. Even weak global cues have not deterred the momentum. Analysts attribute this resilience to strong participation from domestic players, high net worth, retail and institutional investors. In the first week of this month, domestic funds net invested Rs 295 crore in equity, while foreign institutional investors net bought Rs 3523.2 crore, according to SEBI. “I am extremely bullish and have set targets of 6,158 followed by 6,236 in Nifty by the year-end. Local sentiment is upbeat and I also expect more foreign money to flow into the market as a result of the Fed's move. 25 basis points has not gone down well with most global markets, but it is a fairly positive sign for us,” said Suresh Kumar Iyer, technical analyst at Asit C Mehta Investment Interrmediates. What is encouraging is also the participation from the broader market consisting of mid-and small-caps. Second line scrips outperformed the benchmark indices in November and analysts believe there's a lot more steam left in them. “Domestic participants have proved their strength in the market going by the way the mid-caps have moved up. I remain positive on these stocks and expect the rally to continue till the first week of January. Valuation-wise, they offer better opportunity to investors,” said Viral Doshi, independent technical and derivatives strategist.