2006 - Discovery of India and the rally of disbelief !

2006 is now passe and we are heading into 2007. This year has been a year of India really. Indian Markets have rallied 47% based on the 30 stocks based Sensex where as a broader Nifty 50 gained by 40%. Certainly whopping gains and more creditable after they came over the 42% gains made last year. It was the discovery of India this year and India as an investment destination became the household name. A fund not investing in India didnt know its business. FIIs now registered in India exceed 1000 in number. The five-year, unbroken winning streak has seen the index appreciate 10,525 points from 3,262 at close in 2001 to 13,787 today. And has zoomed 323% in last 5 Years

Sensex started off the year with 9000 crossed and there were only few who would not find the the markets expensive. It was free flow of money and no level could prove a tough hurdle. Starting with 10000 it moved to 11k and 12k but it also suffered a shock in May. Markets had not had any level of consolidation and that created a vaccuum when the sellers came in. Valuation sheets came out and again numbers were looked at ..but then markets slowly and steadily climbed up. However an interesting part about this was that the gains continued to be led by the large caps. ICICI bank., Reliance, State bank of India, HDFC bank, HDFC, Larsen, Reliance, Bharti Airtel, Telco, TCS were the leaders in the Index driving it up to 14000 in the last month of the year. This was followed by profit taking and worries of a May encore !. However things have been stable bringing in some level of comfort and value buying.

It was a year of change at wow-india.com as well. We had our biggest client break this year. It would enthrall you to know that wow-india.com now advises and FII fund which is called Shanti Gestion and is based out of France. The quality of research has improved and we are diligent and objective as ever in our analysis. We have started working on DCF models amongst other things and the impact of that will be seen over the longer term.

It was a year of the BSE capital goods this year taking the cake with 56% gains. This was a sector which seemed highly overvalued but if you were not here you missed the big gains whether it was in BHEL, Siemens or ABB. The laggard was BSE FMCG index which gained only about 18%. BSE Teck index including the media sector was up 50%. . The BSE infra index was up 39%. BSE auto index with 29%, BSE Bankex up 38%. this year and BSE healthcare index saw smaller gains of 22%. However the BSE Mid cap index was up only 30% for the year leaving many investors with not such a positive feel in the pockets.

It was a super year for the world markets as well. China brought in big land reforms and there was no rival to its growth. The markets saw gains.. China +120%, Indonesia + 54%, India + 47%, Hang sang up 35%, Nikkei up 7%. Straits Times + 27%, Taiwan Weighted + 18%, Seoul Composite + 3.9%, DAX + 21%, FTSE 100 + 10%, CAC + 16%.

It is important to note that these performances have come in the face of high crude prices. Crude prices threatened to cross over $ 80 per barrel and this performance was in the face of adverse conditions of rising crude prices and also rising interest rates in US. However it was the later half of the year where it was benign conditions set in with a wait and watch approach by almost every Central bank. This was the sweet spot and many markets have been making all time highs.

GDP growth for India was placed at 8% plus and the only blip came in October where Industrial production numbers showed some drop in growth. Agriculture has been a problem area but increasing disposable incomes across cities and the change in mindsets towards taking EMIs has fuelled consumption. This economy will grow. As we said the economy is doing well and will continue to do well. As we head into 2007 we believe that there are many pockets which are still undervalued and thats where the valuation gaps will get filled.

Among the index gainers.. Reliance Comm gained 127.9% for the year after it got listed in Sensex on June 12 2006.. Followed by ACC 103% , Grasim 101%, Bharti 82%, Guj Amb Cem 78% who made the big gains.

This year it was a sector of the capital goods. BHEL, Siemens, ABB did extremely well not to mention the power companies. Crompton, Voltamp, Emco, Indotech , Jyoti structures et al. The Indo US nuke deal was signed this year. Though the final deal has still the T's to be crossed and Is T be dotted to the satisfaction of bothsides, it has created a big step forward for the Power sector. The other big step was the Ultramega power Projects and the successful bidding and awarding for the same.

Telecom sector was the sector of the year with amazing growth recorded in terms of penetration and growth. The penetration now has increased to about 14% and this is expected to double in a year. Bharti and Rel com were the biggest gainers of this. Hutch continued to hog the limelight about its probable suitors where as Bharti made a high on its Walmart tie up talks. MTNL continues to be a laggard where as BSNL was mired in controversy after awarding some contracts.

Cement sector was the other which never had it such easy in life. The Government at one point even threatened to bring in some price controls. The Developers were crying hoarse but that stopped as they made huge gains on the property prices shooting up. Cement stocks, ACC, Ambuja, Ultratech, Grasim, Kesoram, Century and every company in the cement sector hit gold as cement prices were hiked. The view remains positive as new addition will only be delayed if at all and that the going will remain good for next 12 months at least. We had our clients enjoying our research on the sector.

However it was the best year for the developers Bombay Dyeing, Unitech, Indiabulls, Prajay Engg et all had a ball with stocks doing exceptionally well. Atlanta, Ansal Housing and anything to do with realty flared up.

The media stocks also found flavour. Zee was a find our clients will not forget in a hurry. Hinduja TMT also was another big mover not to forget TV 18, NDTV HT Media.

All in all the mid caps had selective runs and there were some from the IPOs. It was Atlanta, AIA Engg, Sun TV which put on mind boggling gains. We missed most though some gains were realised in Hanung and Sun TV. Though it was a year for the air travel travellers the airlines had a tough time with high oil prices and increasing competition. There were more budget airlines launched and competition was intense. Its likely to remain so.