Budget 2005

Two links that you can look at

India Budget
Crisil Budget Analysis

A Cure For Cloning

Subash Menon, the 37-year-old President and CEO of Subex Systems is thrilled at the coverage mobile phone cloning has been getting. That's because his company sells Ranger, a fraud prevention software (companies such as Agilent and Ushacomm do too, but Subex is a leader in the business). Indian telcos, claims Menon, lose between 8 per cent and 10 per cent of their revenues to fraud and his software can prevent that. How? By identifying whether multiple calls are emanating from the same phone at the same point in time (the technical term for this is call collision event). And by identifying whether the same phone has made one call from Delhi at 8.12 a.m. and another from Bangalore at 8.16 a.m. (geographically infeasible event). The solution still involves a new phone or a new SIM, or both. Still, that's better than knowing there's someone out there with your phone's twin.

Cellphone Cloning

Recent reports of people cloning both GSM and CDMA phones with the objective of getting legit subscribers to foot airtime bills for illegitimate clones should not surprise anyone. After all, if India is a power to reckon with in the cloning business, isn't it logical that it should have expertise in the cellphone cloning one too? For the benefit of the interested, here's a set of FAQs.

What is the objective of cloning mobile phones?

Getting someone else to pay for your usage or, even more insidious, cloaking activities such as extortion, even terrorism.

Can both GSM and CDMA phones be cloned?

Yes.

How are phones cloned?

With GSM phones that require a SIM (subscriber identity module) card, one can buy a SIM-card cloning device for as little as $100 (Rs 4,400). Pop in the genuine SIM card and a blank and out comes a perfect replica. In case the criminals do not wish to go through the process of acquiring a SIM card, they can literally scan the airwaves for signals. Every time one makes a call from a GSM phone, the phone transmits the phone number assigned to it, the SIM card mobile identification number (min) and its (the phone's) own electronic serial number (ESN); both numbers are also referred to as unique identification number (UIN). Older analogue phones do not encrypt this data and anyone with a $250 (Rs 11,000) scanner can pick it up and transfer the data to a blank SIM card.

With CDMA phones that do not use SIM cards, cloning requires stealing and plugging in the phone to a device that is available fairly freely (starts at $350, Rs 15,400) and copying its ESN and min to another phone, maybe 5,000 miles away. Scanning the airwaves works too.

Oil Prices and Dollars

This Article is a week old

Crude futures jumped back over the US$50 mark today. And as you might guess, stocks and the US dollar went lower. There are rumblings that oil exporters and Russia are converting dollars into euros and that's pressuring the dollar. But should that have an effect on crude?

Actually, yes.

It seems that anytime oil rises, the dollar falls. If you superimpose a US dollar chart over a crude chart, you'll clearly see the relationship. But it's important to understand that the relationship is not casual. Like gold, oil should rise when the dollar drops.

That's because crude oil is denominated in US dollars. Forget supply and demand dynamics for a minute. Forget China's insatiable appetite for crude. Ignore the financial media's fixation on weather reports for the Northeastern United States and what that means for heating oil.

The single biggest force on the price of oil is the US dollar. And that's because the price of oil represents the real buying power of the dollar.
It's not a fixed peg that implies a benefit, such as can be found with the US trade deficit.

Since 2000, the US dollar has lost around half its value. Crude oil consistently traded below US$20 a barrel during the late 1990's. And it wasn't until OPEC adopted the US$22-to-US$28 price band on March 28, 2000, that crude prices got above US$20 a barrel for good.

Stocks are down today because of the appearance of that US$50-a-barrel price on the tape. But if the stock market was going to crash because of high oil prices, it would have done so already. The fact is, US GDP growth is largely immune to higher oil prices, as we've seen.

The US economy grew at a 3.1% rate in the fourth quarter. Crude prices ran between US$45 and US$55 during that same period. Low interest rates and rising income will keep US consumers spending enough to maintain US GDP growth at 3% to 3.5% - regardless of whether crude futures are trading for
US$40 or US$50 a barrel.

Most oil analysts expect flat to lower prices for the remainder of the year. And yet nobody is willing to go on record and predict a rally for the US dollar. But, interestingly, one of the biggest dollar bears in the world over the last few years, George Soros, isn't forecasting more declines for the US dollar. Rather, he's linked its fate to crude prices.

Now, a guy like Soros can always be expected to talk his position. If he wants to cover a dollar short, he'll say publicly that the dollar is going down. So in light of his apparent candor, I can only assume that Soros currently has no position in the US dollar. Maybe he's long the euro.

There's one thing that all the hand wringing about the dollar and oil proves - there is an abundance of fear in the market right now. This despite the fact that the economy is on pace for 3% to 3.5% growth, the forward P/E for the S&P 500 is moderate at around 20, fourth-quarter earnings were above expectations, and economic data is coming in mostly as expected.

Cheers,

Briton L. Ryle
Chief Trading Strategist
Money-Flow Matrix

Navneet Publications

Download the Motilal Oswal research report here

Stock Picks for the Budget Day !

Here are some of the valuepicks to mop up in case there is panic selling on the Budget day !

In the order of favourites..

• Avaya Globalconnect
• ONGC
• Geometric Software
• ITC
• ICICI Bank
• State Bank Of India
• Essel Propack
• Exide Industries
  
• Tata Consultancy Services
• Asian Paints/Goodlass Nerolac
• Ashok Leyland
• Hero Honda/Bajaj Auto
• Sundram Fasteners
  

Investment Strategies

1. Buy stocks of companies that have disciplined plans for achieving dramatic long-term growth in both profits and revenues. Such companies must also have inherent qualities that make it difficult for new entrants into that business to share in such growth.
   
   
2. Prefer to focus on such companies when they are out of favor; i.e., market conditions are not favorable or the financial community does not properly perceive the true worth of such companies.
   
   
3. Hold the stocks that you buy until there has been either a fundamental change in the company's nature or it has grown to a point where it will no longer be growing at a faster rate than the economy as a whole. He also says that investors should never sell their most attractive stocks for short-term reasons.
   
   
4. If your primary investment goal is long-term appreciation of capital, then you should de-emphasize the importance of dividends.
   
   
5. Recognize that making mistakes is an inherent cost of investing. The important thing is that the investor must be able to recognize such mistakes as soon as possible, understand their causes, and learn from them so they are not repeated. A willingness to take small losses in some stocks while letting profits grow bigger and bigger in your more promising stocks is a sign of good investment management. Don't just take profits for the satisfaction of taking them.
   
   
6. Realize that there are a relatively small number of truly outstanding companies. Your funds should be concentrated in the most desirable opportunities. "For individuals (in possible contrast to institutions and certain types of funds), any holding of over twenty different stocks is a sign of financial incompetence. Ten or twelve is usually a better number."
   
   
7. An important ingredient of successful investing is to have more knowledge and apply your judgment after thoroughly evaluating specific situations. You should also have the moral courage to act against the crowd when your judgment tells you that you are right.
   
   
8. One of the basic rules of life also applies to successful investing -- success is highly dependent upon a combination of hard work, intelligence, and honesty.

ONGC - StockSelect

ONGC StockSelect - access it here

ITC - StockSelect

ITC StockSelect download here

Mphasis BFL - Stock Select

Download it here

GE Shipping - Research Meet

Background

GE Shipping (GES) is the largest private sector shipping company in India (owns almost 69% of the Indian shipping tonnage). Currently, the company has a fleet of 70 vessels, including 40 ships (tonnage of 2.76 mdwt (million dead weight tonnes)) and 30 offshore vessels. The company is predominantly focused in the crude and product transportation segment with largely 'Aframax' type tanker mix. The company has also diversified into oil drilling rigs, marine construction and air logistics. The shipping and offshore businesses contribute to 81% and 15% respectively to the company’s revenues.

Key impressions from the research meeting

1. Tonnage expansion: Citing IEA projections of a 2.5% growth in oil demand, the management expects demand for global tonnage to grow by 5% in 2005. The company has planned a capital expenditure of US$ 353 m over the next 2.5 years to expand its tonnage from the current levels of 2.7 mdwt. The current new-building order book comprises of 7 tankers (aggregating 0.5 mdwt) and 8 offshore support vessels). While 20%-25% of the committed capex is likely to come through internal accruals (GES has a cash war-chest of Rs 10 bn), the rest would be financed through debt (largely foreign debt). The fact that most of the new vessels are coming at low break-evens as they were contracted when new building prices were low shall also benefit the company going forward.

2. Continued buoyancy in freight rates: The management expects freight rates to be buoyant in the calender year 2005 as well, though lacking the strength that was witnessed in 2004. It has also clarified that the spike that was seen in freight rates towards the middle of 3QFY05 was due to Hurricane Ivan that knocked off around 500,000 bpd of US production. This, coupled with low US oil inventory and speculative positions being built up with regard to future deliveries, led to surge in exports from long haul Mid-East countries that consequently led to the spike in tanker freight rates. The management has indicated that it has renewed contracts on a few ships, and that have been done at higher freight rates as compared to what they had earned earlier. For instance, on Suezmax tankers, while the current spot rate is around US$ 26,000 per day, GES is expecting to get around US$ 65,000 for around 50% of the vessels’ spot revenue days in 4QFY05.

3. Increased initiatives on the offshore front: In the conference call for 3QFY05, the management had indicated that the government of India has plans to conclude NELP-V in 4 months instead of 6 as was in case of NELP IV and this gives a clear indication about the seriousness of ensuring oil security for the country. Under NELP V, 6 blocks in deepwater, 2 shallow water and 12 on land blocks, involving an investment of US$ 1 bn have been offered and this is positive for the offshore division of GES.

Other key points

1.The revenue visibility for FY06 for the shipping division is Rs 4 bn (25% of expected FY05 shipping revenues). Crude tankers and product carriers are covered to the extent of 35% and 47% of operating days respectively. In case of the dry bulk segment, the fleet is covered to the extent of around 16% of operating days.

2. For the offshore divison, the revenue visibility for FY06 is around Rs 2.8 bn as of now (78% of expected FY05 offshore revenues). The offshore support vessels (OSVs), construction barge and harbour tugs are covered to the extent of 39%, 20% and 68% of their respective operating days.

3. The company’s NAV is around Rs 256 per share (Rs 139 in March 2004 and Rs 84 in March 2003). The increase in NAV could be attributed to the younger fleet mix of GE Shipping, firmness in demand for tonnage in the global waters leading to an increase in market value of assets and a favorable shipping cycle. Like commodity prices, the NAV of the company also fluctuates.

Conclusion

Based on our inferences from the research meeting, we have revised upwards our revenue and earnings projections for the company. For FY06, our topline and bottomline projections stand revised upwards by 26% and 42% respectively. While FY05-till date has been a strong year for the company, we expect growth in FY06 and FY07 to be relatively slow on account of a huge influx of tonnage. As per the management, the current order book size of global shipping tonnage is around 28% of the current capacity of 334 mdwt. As such, around 90 mdwt is likely to be added over the next 2.5 years of which around 31 mdwt will come in 2005.

While we are positive about the overall growth prospects of GES in light of the fact that the company is building up capacity to cater to the strong and growing demand for crude oil and commodities, we expect freight rates to be volatile going forward. Also, as indicated by the management, any ‘shock’ in form of the US economy slowdown might have a negative impact on the shipping industry’s and GES’ performance in the future. Having said that, there is likely to be stability on the offshore side of the business, which would act as a cushion in case the shipping cycle weakens significantly in the future.

Tax-saving funds: Low on assets, high on performance

THE idea of locking into an investment for three years in a volatile equity market is surely not too appealing to the average investor. Equally, the tax benefits from the investment may not be attractive enough for the really big-ticket investors. Whatever the reason, `tax-saving' funds, or `equity-linked savings schemes', , have never really found many takers, as their average fund size indicates. At a time when some diversified equity funds are coping with corpuses exceeding Rs 1,000 crore, the tax-saving funds still have a small asset base — usually Rs 50-100 crore.

Tax-saving funds have, however, fared well in recent years, easing concerns over investing in them. These funds gained prominence over the past year, topping the mutual fund performance charts almost every quarter. During this period, they recorded average returns of 35-40 per cent.

As an investment up to Rs 10,000 in a tax-saving fund entitles one to a rebate under Section 88 of the IT Act, it is attractive for the small investor. And investor interest does appear to be picking up. Between June and December 2004, the asset base of HDFC Long Term Advantage (formerly HDFC Tax Plan 2000) more than doubled to Rs 71 crore, while the net asset value edged up just 55 per cent, indicating the inflows the fund attracted during the period.

Outperforming the diversified funds

But that most of these funds even outperformed their diversified equity-fund counterparts is what may make even investors not seeking tax benefits sit up and take notice. For instance, over one-year and three-year periods, HDFC TaxSaver and HDFC Long Term Advantage bettered the performance of HDFC Equity.

Funds such as PruICICI Tax Plan, SBI Magnum Tax Gain, Sundaram Tax Saver and Birla Equity have outperformed the regular diversified equity funds of their respective fund houses over the past year. These funds are also beginning to have a better three-year track record than the regular diversified equity fund. For instance, on an annualised basis, PruICICI Tax Plan generated returns of over 50 per cent over a three-year period, while PruICICI Growth recorded 30 per cent.

Aided by stable asset base

So what makes these funds race ahead? If it is the lock-in period that puts you off, think again. In fact, the lock-in period is the advantage that tax-saving funds have over their peers. Because of the lock-in, fund managers of tax-saving schemes are guaranteed a relatively stable asset base compared to those of regular, open-end diversified equity funds.

Fund inflows or outflows have a bearing on the performance of a typical diversified equity fund. For instance, if there is a sudden pullout by investors, managers may be forced to book profits prematurely on some of the fund's holdings, in order to meet redemption pressures.

As the asset base is more volatile, they may be forced to churn their portfolios more often thana manager of a tax-saving fund has to, as the half-yearly portfolio statements of funds such as PruICICI Mutual Fund reveal. According to the statement, the portfolio turnover ratio (a measure of the fund's buying and selling activity) of PruICICI Growth is about 67 per cent, against about 15 per cent in PruICICI Tax Plan.

To avoid such frequent churning (which also involves higher expenses), some managers may be inclined to hold a small portion of their portfolios in cash to cope with outflows during volatile periods. Again, not being fully invested may act as a drag on performance during a market rally.

Flexible fund management

Large corporate and institutional investors often bypass tax-saving funds as they are not eligible for tax benefits. As such funds cater broadly to the retail investor, they are not vulnerable to volatile fund inflows or outflows, or lock-in periods.

In addition, the fund size remains small and is, therefore, easier to manage. Most tax-saving funds have a small portfolio of stocks, which reduces the number of right calls the manager has to make.

The small asset base also has a bearing on the kind of stocks in the portfolio. These funds typically have a mid-cap bias, unlike their diversified fund counterparts.

For instance, HDFC Long Term Advantage has a distinctly mid-cap and small-cap tilt. HDFC Equity, on the other hand, with its asset base of more than Rs 1,000 crore, has few options in the mid-cap space to invest in without significantly affecting the stock price, given the liquidity constraints associated with mid-cap stocks.

Stocks such as Orient Abrasives, Vesuvius India and Balkrishna Industries make a rare appearance in the portfolios of Long Term Advantage and HDFC TaxSaver.

With mid-cap stocks hogging the limelight in the past year or two, it is not surprising that tax-saving funds, with their mid-cap heavy portfolios, have raced ahead of larger, diversified equity funds.

Long-term orientation

With fund performance closely tracked these days, managers of regular diversified funds often tend to ride sector themes, rather than pick offbeat sectors, lest a lag in performance makes investors jump to another fund.

A tax-saving fund, on the other hand, caters to those who are invested for the long term. With the three-year lock-in period, fund managers are, therefore, better placed to pick stocks that would deliver value over the long term. That these funds tend to have a long-term orientation is also reflected partly by their lower portfolio turnover. They are thus, more likely to pick contrarian themes that would pay off over time.

HDFC Long Term Advantage, among the top-performing tax-saving funds, did begin with a rather unconventional approach, picking up mid-cap stocks in the chemicals and industrial machinery sectors earlier than its peers. Even now, while HDFC Equity has holdings in conventional sectors such as banking, IT and engineering, HDFC TaxSaver and HDFC Tax Plan have among their top sector holdings sectors such as paper products and paints.

Typically, tax-saving funds, having been early-movers into unconventional sectors, are seen as sporting more distinctive portfolios than regular diversified equity funds. But with the latter now packing their portfolios with mid-caps, previously "offbeat" sectors such as chemicals and fertilisers — which have seen much mid-cap action — are now figuring in their portfolios as well, blurring the distinctions between tax-saving and diversified funds somewhat.

Good investment option

The tax-saving fund is a good option for the small investor with an appetite for the equity market. The lock-in period of three years is lower than that required by other tax-saving options.

Investors who are not seeking tax-benefits need not view such funds as strictly tax-saving options.

Given their superior performance and the unique advantages they enjoy over the average diversified fund, investors can consider including such funds in their portfolio. Here are a few points to consider before adding a tax-saving fund to your portfolio.

# As always, pick a fund with a good long-term track record. HDFC TaxSaver, HDFC Long Term Advantage, Birla Equity Plan, Sundaram TaxSaver, Franklin India Taxshield, PruICICI Tax Plan and Alliance Capital Tax Relief boast of good track records in this category.

Preferred picks from this shortlist would be HDFC Long Term Advantage and HDFC TaxSaver. Birla Equity Plan and Alliance Capital Tax Relief may also be considered, although the last mentioned has turned in a rather indifferent performance over the past year.

# Invest in small lots through a systematic investment plan (SIP).

Most tax-saving plans ask for a minimum investment amount of Rs 500, which is lower than the Rs 5,000 usually stipulated by most diversified equity funds. By investing small sums every month, you can avoid exposing a large investment to the downside risks that could arise from a badly-timed investment.

Sourced from Business Line

Why Steel is suddenly sexy ?

» Government estimates indicate consumption of steel will nearly double to 60 million tonnes, from 35 million currently, by 2010, and to 100 million tonnes by 2018

» Capacities of basic steel in developed countries are being trimmed as high costs (of labour, freight and raw material) are making them unviable, and no additional capacities are expected to come up. Countries like India, China, Brazil and Russia are best placed to fill up those gaps in production

» With 8 per cent GDP growth projected for the coming years, industry analysts see potential for exponential growth, particularly considering that India's per capita consumption is just 30 kg, as against Singapore's 500-700 kg

» Demand from China, which accounts for 25 per cent of global consumption, is expected to continue well beyond the Beijing Olympics (in 2008)

» Most Indian steel producers are raking in healthy cash flows, which coupled with many more attractive financing opportunities, makes expansions an easier task

Jet IPO - Analysis

Way2Wealth JET IPO analysis can be downloaded here

Things a retail investor should budget for

Given that Union Finance Minister P Chidambaram has much rising on the booming equity markets, it would be a fair assumption to expect a bagful of goodies, especially targeted at fanning the feel-good factor among retail investors.

Any measure that increases the earnings capacity of industries or helps it become more efficient has a bearing on valuations and should cheer the retail investors.

Similarly, any relaxations in the government policy on foreign direct investment and portfolio investment in sectors should have a bearing on valuations.

So look out for policy statements in the drab Part A of the Budget speech on the banking sector, on infrastructure and textiles, to name a few.

Constrained as he may be by the recommendations of various committees advocating the removal of tax exemptions, Chidambaram is also an astute politician.

So retail investors can expect a skillful trapeze act. Here is what retail investors can look forward to, particularly having a bearing on their portfolios, and the different scenarios:

# The securities transaction tax (STT) will in all probability be hiked. Chidambaram had bet big on the STT to get him at least Rs 5,000 crore.

According to data from the two major exchanges, the Bombay Stock Exchange and the National Stock Exchange, the government is getting no more than Rs 5 crore per day, or Rs 100 crore per month.

# The system of collection of tax has been streamlined, and the government has been able to convince market entities of the fairness of the tax. The next stop for Chidambaram, the markets suspect, will be to hike the tax slabs. The most likely scenarios include raising the STT on non-delivery transactions from the current 0.15 per cent (15 paisa per Rs 100) to 0.25 per cent, and for delivery based transactions from 0.075 per cent to 0.15 per cent.
# Issues related to long-term and short-term capital gains have been sorted out for equity investments, there is one small issue of capital gains on debt mutual funds which remains to be sorted out.

Last year, while cleaning up the capital gains structure, Chidambaram had brought equity mutual funds on par with equity instruments. Long-term capital gains were scrapped and only the STT was leviable at the time of redemption.

Short term capital gains were reduced to 10 per cent for equity instruments. But investors in debt mutual funds were kept out of this benefit.

# That anomaly could be sorted out this year, according to mutual fund industry sources. Equity-linked savings schemes could be back in focus. The eligibility limit for such schemes has stagnated at Rs 10,000 per annum for the last few years, despite the industry’s demand to raise it to Rs 30,000 per annum.

# Since Chidambaram wants retail money to flow into the stock markets, it is fair to expect that this expectation may finally come true. As regards Chidambaram’s other pet theme of finding money for infrastructure, the markets expect the Budget to provide additional tax sops for equity investments in eligible infrastructure projects, over and above tax concessions on investments in infrastructure bonds.

# But this seems very unlikely as it opens a vast world of discrimination between infrastructure and non-infrastructure equity offers. Finally, the retail investors’ need to watch out for the Budget’s take on sectors and industries, apart from changes in the direct tax structure.

The government will in all probability announce its view on the Employees Provident Fund Organisation investing a small percentage of its incremental corpus in the equity markets and equity-linked mutual funds.

The excluded category of provident funds have recently been allowed to invest a maximum of 5 per cent of the annual accruals directly in the equity markets and another 10 per cent in equity mutual funds.

Five Reasons The Sensex Will Still Touch 7500

From the Business Today

Picture this scenario: unholy cow is a thriving restaurant in uptown Mumbai, doing a brisk turnover of, say, Rs 25 crore annually. One fine day, the owner walks up to you and offers to sell it to you for Rs 40 crore. You tell him you will think it over. A few days later the owner is back again, this time with an offer of Rs 60 crore. His reason for upping the price is that restaurants serving beef steaks have become the rage with the city's glitterati. You aren't convinced and send him on his way. A few days later the proprietor is once again back at your doorstep, this time with terror and alarm written all over his face. Apparently, a fundamentalist group from a village in northern India has descended on his restaurant, broken a few panes and plates, and threatened to put him out of business for serving beef. Distressed owner feels the end is near for his successful business, and puts a price tag of Rs 15 crore on it. You sniff a bargain here, and tell him it's a deal. The way you look at it is that the fundamentalist louts aren't going to hang around for ever, and once this short-term blip passes, people will once again queue up for beef steak, ensuring the long-term profitability of the restaurant.

No, this story isn't an attempt to convince you about the feasibility of the restaurant business (or the virtues of eating beef). Rather, it's a stab at explaining the way stock markets behave-to be more precise, how the Indian markets are behaving currently, why the indices have been slipping over the past fortnight, why it is no reason to panic, why, in fact, such a fall is healthy, and how you could take advantage of the current dip in stock prices. Since the benchmark index, the Sensex, has crashed by roughly 600 points since its peak of 6,696, the question on thousands of investors' lips is: Is the bull run over? It's not. Sure, there are a few humps to be crossed in the short term, but that doesn't mean that-like the restaurant owner-you should consider cashing your chips. That may mean you are kissing goodbye the prospect of further profits. For, the markets are just correcting themselves, and if you stumble upon many more like our distressed restaurateur in the market offering to sell their stock (at a lower price), just go ahead and pick up the bargains. For, as Motilal Oswal, Chairman and MD, Motilal Oswal Securities, puts it: "Corrections are good for the long-term health of the market. It has to consolidate now before the next bullish phase."

Having said all that, don't expect the indices to start shooting to the skies once you finish reading this piece. A bout of volatility in the short term is on the cards, but the shortest point is that the long-term fundamentals of the India story are still intact, and the Sensex is poised for even higher levels (higher than 6,600) in the not-so-distant future. "The Sensex should move towards the 7,000 levels by November 2005," says Andrew Holland, Chief Administrative Officer and Executive Vice President (Research), DSP Merrill Lynch. "It should reach 7,200 by the year-end," adds Deven Choksey, Managing Director, K.R. Choksey Securities. Here are five reasons why these gentlemen are so bullish, and why it wouldn't hurt you to put on your investing cap (and bull horns).

#1

Valuations are still favourable

The difference between the current Sensex highs and the peaks hit by the benchmark index of the Bombay Stock Exchange (BSE) in 1992 or 2000 is that valuations in those years had soared to astronomical levels. Not so today. Current valuations, of around 13 times projected earnings for the year ended March 2005, are almost comparable with what stocks were valued at in 2002, when the Sensex was hovering in the 3,000 range. To reinforce this point, in 2004 the Sensex moved by only 10 per cent, even as corporate earnings surged by a remarkable 21 per cent.

That valuations are in the healthy zone isn't backed just by historical data. Sure, when you compare India to other emerging Asian markets like Korea, Thailand and the Philippines, you may get the feeling that stock prices are a bit stretched. But then, as Holland of DSP Merrill Lynch says: "You should also note that economic and earnings growth is much quicker in India than in most other emerging markets." The bottom line: If valuations of Indian shares have gone up a few notches, that run-up is pretty much justified. After all, India is the second-fastest growing economy in the world, right?

#2

The breadth of the Indian markets is increasing rapidly

Thanks to the recent IPO boom, we have some extra-large-cap stocks, in the $5-billion (Rs 22,000-crore) range, listed on the stock exchanges. For instance, the number of such companies with a $5 billion-plus market cap has gone up from just four in 2001 to 14 today. Similarly, in the $1-5 billion market cap bracket, the number has more than doubled from 25 to 67 over the same period. Indeed, the listing of large-cap companies like ONGC, TCS and NTPC, to name just three, is increasing the breadth of the market, thereby making the market more attractive for large and long-term investors. What's more, these large listings are yet to get reflected in the global indices (like Morgan Stanley Capital Index) and hence India's current weightage doesn't do justice to its market cap or free float. That is one reason why most FIIs are overweight (compared to these benchmarks) on India now. With more and more mega-size listings expected (Jet, BSNL, possibly Reliance Infocomm, Hutch, Sony Entertainment and Sun TV in the private sector, and possibly Power Grid Corporation and Power Finance Corporation in the public sector), Indian markets can only get broader, providing foreign investors with many more opportunities to park their money. "India is no more a tiny place that global investors can ignore," says Manish Chokhani, Director, Enam Securities.

#3

Indians are consuming more, even as businesses look outward for growth

If the Indian economy is, er, shining, it's thanks in a large part to the contribution from industry, much of which is riding on the domestic growth story. "Consumption in India will increase manifold in the years to come due to the demographic changes (the percentage of the youth in the population is increasing)," points out Amitabh Chakraborty, Vice President and Head of Research (Private Client Group), Kotak Securities. What's more, it's not just the metros and mini-metros that are the playing fields for a retail-led boom; the action is trickling into semi-urban centres and smaller towns. What's also encouraging is that even as Indians consume more, domestic companies in sectors like automobiles, textiles, pharmaceuticals and information technology are looking overseas for growth-not just in terms of direct exports, but also by setting up or acquiring capacities in foreign markets. Result? Unlike many emerging markets, the Indian growth story appears to be benefiting from a healthy balance of domestic consumption and export-driven growth, thereby making it less dependent than most on the US. As a result, India is a great opportunity for investors wanting to diversify away from the US economic cycles.

#4

The investment cycle has only just begun

After years of waiting, watching and belt-tightening, Indian companies in various sectors ranging from cement to hotels to commercial vehicles to steel are blueprinting expansion plans, thereby signalling the beginning of a long-term cycle of capital expenditure, which could go on for at least five-seven years. At the same time, infrastructure investments in ports, highways, telecom, oil and gas, and power are picking up steam, propelled in no small measure by a reforms-committed government.

"With the capex cycle, industrial activity will pick up and consumption (both industrial as well as retail) will go up and it is very good for the economy," says Oswal of Motilal Oswal Securities. DSP Merrill Lynch estimates that total investment spend in the country will increase from $120 billion (Rs 5,28,000 crore) in 2004 to $208 billion (Rs 9,15,200 crore) by fiscal 2007. And don't forget that as a consumer benefiting from the housing sector boom-triggered a few years ago by low interest rates and greater affordability-you too will be doing your bit in fuelling economic growth. For, when you buy a house you buy the economy-be it steel, cement, electrical appliances, white goods, furnishings, the works.

#5

Indians are still grossly under-invested in equities

Dalal Street may appear more bustling these days, but that means little if you consider that the overall equity exposure of Indian retail investors is less than 1 per cent of their total investments. Stock market excesses, scams and scandals of the past, coupled with years of stagnation haven't exactly helped in attracting Indians to equity. What also doesn't help matters is that Indian investors typically enter only when they're very sure, which means that the market would have already gained 50 per cent by then, and they begin to dump their portfolio at the slightest provocation, chastened of course by past crashes. "us investors have lived through an 18-year bull market and, therefore, are attuned to buying on dips. Indian investors conversely sell on every rise since they have never seen any sustainable rally due to the excesses of 1992. And that explains why more and more share ownership is moving to foreign hands now," says Chokhani of Enam. Now, however, with other assured return tax-free products drying up (RBI Relief Bonds have gone, and the future of PPF is also under a cloud), Indian investors have no option but to invest in the stock market. Other factors will also contribute in increasing Indian ownership: For instance, with more and more young people getting into the investing class, the risk appetite also will increase. "The young will be ready to take higher risk," says Chakraborty. Other long-term monies, like pension funds, are also expected to enter the stock market soon. If our market holds on to higher levels for a reasonable time-and there's little reason why it won't-a bull market based on Indian public ownership will commence. By then, fears of "hot money" fleeing the country won't count for much, and hopefully Indian investors will be more attuned to corrections than crashes.

FII Investments

Equitymaster has some interesting figures on FII investments here. You can see Yearly, Monthly and Daily figures and the gain they have made over days/months/years. Maybe one of you can determine their investment pattern !

Deadpresident's Valuepicks

Buy ONGC - India's most valuable company with the largest market capitilization is a easy pick for any investor for a medium to long term horizon. At around 825, its trades a P/E of 13. This year has been a boom for ONGC thanks to the high crude oil prices and will continue to be hugely profitable as long as crude hovering above 35-40 $.

A net PAT of 103% this quarter was stupendous showing by this Oil Giant and would have been higher if not for subsidies. There is also talk about other downstream companies being merged with ONGC which will drive up profitability. This stock has not participated in the current rally and can't be ignored for too long. Pick and reap profits now !