Markets not a cracker but its still a Happy Diwali !

In a day that was expected to be a complete wash out with the US markets collapsing on the back of worries in the financial sector hit by subprime worries. US continues to see the fallout of the subprime issue. This time there were casualties in large Financial Institutions such as Citibank and Merril Lynch. That is serious. A word going around is that " One could expect the resignation of one top boss of a US Finance company each week now on"

Just extending the argument on the IT sector. if the banking companies are going through a crises, it is not tough to guess what the IT stocks will do. Banking sector exposure we mentioned couple of weeks ago was another headwind for the IT sector. Getting price hikes would be really tough here. The Exposure for the companies to this space is as follows. TCS - 43%, Infosys - 36% Wipro - 24% Satyam 24% HCLT 28%. The pressure will remain on the downside here as now the one bright spot (business visibility) in this sector now comes under a cloud. The tech sector saw weakness this week and we dont expect that to change anytime near term. This sector is expected to see more weakness.

Another big event was PetroChina which listed at Shangai earlier this week. It has become the world's first Trillion dollar market cap company and over double the next biggest which is Exxon.

This week was expected to be a big blast off week on the back of the biggest ever gains logged in October. This is the Diwali week and there were hopes that Sensex would touch the 21000 milestone but the global selloff played spoil sport.

However an interesting part of the move this time was that there was some interest in the mid cap section and stocks did move there. The money power exists with the public but there is still skepticism on the rapid rise in the Market indices in the last month. Investors have started nibbling value in the broader market. The market was lead by a handful of blue chip names.in the recent run up so far. This strength into the broader market is a healthy sign.

Crude hit $97+ and thats certainly not good news. A $10/bbl increase in average crude oil price in a full year will an impact GDP by 1% for high energy intensity countries like India and China as per a report. There were reports of hikes .. but really it will be interesting to see how the Congress manages that in the face of coming elections. This is not good news for the Autos, cement sector etc.

The following are some extracts about what Global Investor Jim Rogers has to say and our comments on that ! Quote
" Sell U.S. investment banks, U.S. housing stocks and the dollar, avoid India and Russia and place large bets on China and commodities. One of the few areas of excess I see in the world is on Wall Stree -". Twenty-nine-year-old kids make $1 million. They think that's normal. You will see those excesses washed out."

"I shorted U.S. housing stocks three years ago the slump has a long way to go. Huge bubbles don't clean themselves out in months, they take years," he said, adding that the dollar was taking the consequences of American excess.

Loose money was not the answer to problems in the United States and U.S. Federal Reserve Chairman Ben Bernanke is "making horrible mistakes", Mr. Rogers said. "America has given him the printing press, who knows how fast they will run it when we have serious problems."

India is an extraordinary country. [But] it's horribly bureaucratic and anti-capitalist. They have no infrastructure." To make money in India, investors need to have friends in the government, Mr. Rogers said.

"The wind is at my back in China, in my face in India," he said. "The 21st century is going to be the century of China, China is a communist state, but they are among the best capitalists in the world." Yes, there would be setbacks in China, but those, Mr. Rogers said, would provide opportunities to invest in the country.
End Quote

Our Comments
1. India is certainly not anti capitalistic.. but yes, the political system brings in the socialistic tinge.. rather hue to subjects which can creatte wider political noises.. such as sugar prices, fuel prices, food prices. Thats the constraints one has to live with.

2. "India has no infrastructure..."This is true but taken in the right perspective, this could be taken as a positive as well and thats why we see the infrastructure companies doing as well in the markets as an opportunity.

3. " To make money in India, Investors need to have friends in the government". This is sad and true but lets also hastily add that this is limited to a few areas. The SEZs allocations, Mines allocations of late have been the big stories of late and that is whether you are at the fancy of the Government. Government bashing is a good past time in India and there could be full fledged note on that. However this is still many times better than the license raj years. However to prove a point, lets put in the case of the software sector, the Telecom sector, Cement sector, Autos, Banks which have been doing well on their own. The entertainment sector and real estate rallies have had not much Government help. To add to that, surely the Governments needs to be on the right side to promote Investment in any country and India has been doing particularly a good job in that.

There was research on many stocks put out this week. They included. Kesoram, Titan, Balkrishna Tyres, Hanung Textiles, Transport Corporation and many more.. A lot more notes just ready for you. Do read them next week.

There is lot of hope this Diwali but markets havent given reason for markets to smile as they would have liked to. But really the year has been a good one. Markets are up 70%for the year so far. Of course its led by selected few and largely the Reliance group. But on an absolute basis gains are good even for the others who are not invested into markets. It has been a year of upsides for almost all categories.. Whether it was stocks,. metals, agri commodities real estate art and what have you. Clearly there is more money chasing lesser investment avenues. This liquidity driven markets can be quite risky.

Near term there seems to be a cloud on the global economic scenario.. but there is a new economy in place where companies have become more effiicient and decision making is quickier. Thus chances of a recession in the US ios remote. The US will have to pass through a painfuil period where its excesses will get washed out.. which we think could happen quite rapidly if managed well.

Almost all experts and forecasts agree is that long term the India story is good. We have no argument against that We don?t think that the US economy will fall off a cliff. The Indian Markets have a risk of an external shock such as that and Indian Markets could see some selloff or profit taking on such a probable risk aversion that an external shock could bring in. Near term markets are likely to be ranged. There would be buying on weakness and selling highs on the basis of valuations. We believe markets are headed for a stock pickers game and that's what we think we are pretty good at.