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Wednesday, March 07, 2007

Zero to Hero - Udayan Mukherjee

Clarifying the government's stand on the ban on cement exports, Commerce Minister Kamal Nath mentions that he has not said that they will ban cement exports, rather he would look at all options.

He says that the government wants cement companies to be healthy and profitable. He does not want cement companies to take advantage of the demand-supply mismatch. Nath also mentions that they are examining the reasons whether levies can be absorbed.

According to Nath, the ban on exports may not be imposed if companies choose to absorb duties. In his view, cement companies must make profits; he is concerned about excessive profits.

Excerpt's from CNBC-TV18's exclusive interview with Kamal Nath:

Q: The market is very worried by what you said this afternoon. Did you actually go on record saying that you are considering banning exports for cement?

A: I didn’t say that. I said that we are going to look at all aspects to see if cement companies will absorb new levies that have been imposed. We do not want them to profiteer; we want them to make a profit in a healthy way. At the same time we have to ensure that there is no extra fat there. It’s a question of having muscle and not fat.

Q: What is profiteering in your eyes, since these are cyclical businesses, which sometimes do well and sometimes don’t. Where does the concept of profiteering come in?

A: Excessive profit; taking advantage of a supply-demand mismatch or temporary supply demand constraints, raising prices by taking advantages is profiteering.

Q: It is disturbing to hear you say that because in all industries across the world when demand exceeds supply prices go up. Isn’t that the basic law of economics that when demand exceeds supply prices move it?

A: It’s certainly the law and that’s how the market operates. The market operates on supply demand basis but when there is an unnatural temporary situation, one has to consider it. So we are examining the options on whether these levies can be absorbed. Infact the Finance Minister has said that his intention was to ensure that there is no increase in prices. It’s a matter of looking into this whole issue in detail and also for cement companies to see to what extent these levies can be absorbed with or without them being passed on.

Q: If they cannot absorb the levies and choose to pass it on would you consider banning exports to cool prices?

A: I do not think there is any point in answering the question, which starts with IF because that would be another question.

Q: If they choose to absorb it then will you not consider it?

A: Certainly not. Price control is not something, which should be used and not export banning because export markets are developed and you must remember that I also want to see exports rise. But at the same time one has to look at it holistically, so we are in discussions with them and I am sure solution will be found.

Q: What if a solution is not found because our talks with the cement companies seem to indicate that they are reluctant to absorb this entire excise themselves?

A: Those are your talks, we are also having talks and that is not necessary everybody’s talks are your talks.

Q: Your talks are showing up that they will absorb the excise hike?

A: My talks are with everybody looking at it and it is going to be studied in the next 2-3 days.

Q: What is your definition of excess profits, you used the phrase that they are making excess profits?

A: Excessive profits are when an advantage is taken for temporary dislocations in supply-demand. I am sure everybody understands what excessive profits are and what profiteering is. I said that the companies must be healthy and should make profits. That’s the whole basis of this.

Q: By the same logic, if these companies face a temporary excessive supply in the market then would the government actually step in to stem some of the losses of the cement companies because if you are taking away their profits today, then excess supply situations leading to losses should also be addressed which you did not when the cement companies really when through bad times for the last many years?

A: I have not said we are going to take their profits away. So don’t put those words in my mouth.

Q: I don’t think there is any great hue and cry from the consumer. We don’t hear any resistance on the part of consumers of cement. Is it not that the government has a problem with the inflation number which is why its training a few sectors like cement?

A: If you have not heard it, I don’t know how much ears you have to the ground because no consumer wants a price rise.

Q: Why don’t you freeze all prices in the economy then? Why just cement?

A: We will do what we have to; we are doing whatever we can to curtail the rise in price rise. We will continue to take effective steps.

Q: Which are the sectors you are training other than cement because it has started with sugar, which you have effectively killed in the last 3 months?

A: That’s your perception of it. That’s not the consumer’s perception of it.

Q: On the sugar sector?

A: No, that’s not the perception for the sugar sector.

Q: That is very much the perception of the sugar sector; I can play you sound byte after sound byte of the sugar manufacturers coming out and saying that they will start making losses this quarter and throughout this year because of your ban on sugar exports?

A: They have made losses, that’s not what the figures have shown, that’s not what they have said in their discussion with me.

Q: Of course that figure shows that? Have you seen the quarterly numbers of sugar companies this quarter?

A: Their losses are not because of prices.

Q: Their losses are centrally due to the ban on export of sugar, which has led to a collapse in sugar prices locally?

A: Do you know how much sugar was imported two years ago?

Q: Why don’t we discuss the issue at hand? Because of your ban on sugar exports, sugar companies are making losses today, is that a fact or not? Will you please go and check with the sugar companies?

A: Will you please go and check with the consumers what they have to say and will you go and check with the farmer, if you ever have any connection with him because you should not talk just on behalf of the sugar companies. You got to talk to the farmers, you got to talk to the consumers. That’s it. If you ever have an opportunity to talk to farmers, then talk to them and then make a statement of it.


Bulk Deals to Watch

07-MAR-2007,CREWBOS,Crew B.O.S. Products Limi,ARISAIG PATNERS - INDIA FUND,BUY,474002,165.05,-
07-MAR-2007,GITANJALI,Gitanjali Gems Limited,JP MORGAN SECURITIES LTD,BUY,552000,190.96,-
07-MAR-2007,MINDTREE,MindTree Consulting Limit,MORGAN STANLEY DEAN WITTER MAURITIUS CO. LTD,BUY,231626,634.98,-

Man Financial - Hero Honda

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Sharekhan Investor's Eye dated March 06, 2007

Cluster: Apple Green
Recommendation: Buy
Price target: Rs220
Current market price: Rs162

VAT fears allayed
ITC had been underperforming the market owing to fears of the implementation of the value-added tax (VAT) and a hike in the excise duty on cigarettes (read our report, "All-round performance", dated February 01, 2007). Finally in this budget, the excise duty on cigarettes was increased by 5% and the hike was at the lower end of the expectations. Moreover with no change in the additional excise duty, the fear that VAT may be levied sometime in the near future has been allayed. The likelihood that the government may allow VAT on cigarettes through a separate amendment also appears low.



Rubber's loss, tyre's gain
The easing of the rubber prices is a positive development for tyre makers, given the fact that rubber accounts for around 39% of the total raw material cost.

In the past, owing to a buoyant demand scenario, the tyre manufacturers had been able to pass on a large part of the increased cost of inputs to user industries. Most of the tyre majors have announced a number of price hikes in the last twelve months (in the region of 20-25%). In fact, a price hike was initiated in February this year to pass on the upmove in the rubber prices during January. Apollo Tyres raised its prices in the passenger car radial segment by about 2% while MRF Tyres raised the prices by about 1.5-2%. The price hikes has limited the adverse impact of the rising input costs on the margins of the tyre manufacturers. We have also noticed that the tyre prices tend to remain sticky and do not come down as sharply with a fall in the raw material prices.

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KR Choksey - Investment Idea - ICICI Bank

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Edelweiss - International Travel House

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Market slips amid sharp volatility

Positive international indices failed to lift the sentiment in the domestic market as the Sensex drifted into negative territory after gains of 205 points in early trades. The sentiment turned extremely bearish in the afternoon as sustained selling in heavyweight, metal, banking and fast moving consumer goods stocks dragged the index below the 12400 mark to an intra-day low of 12390. The Sensex witnessed a swing of 512 points during the day. It ended the session with losses of 117 points at 12580, while the Nifty shed 29 points to close at 3627.

The market breadth was extremely negative. Of the 2,576 stocks traded on the BSE, 1,955 stocks declined, 578 stocks advanced and 43 stocks ended unchanged. All the sectoral indices ended in the red except the BSE HC Index and the BSE Auto Index. The BSE Metal Index dropped 2.80% at 7776 followed by the BSE Bankex (down 2.56% at 6191), the BSE FMCG Index (down 2.09% at 1664), the BSE IT Index (down 1.36% at 4895) and the BSE PSU Index (down 1.24% at 5400).

Out of the 30 Sensex stocks, only nine stocks managed to close in positive territory. Among the losers Gujarat Ambuja slumped 8.48% at Rs104, ACC tumbled 4.73% at Rs814, Wipro plunged 4.17% at Rs557, Ranbaxy declined 3.85% at Rs310, ICICI Bank dipped 2.94% at Rs827, SBI shed 2.69% at Rs965, Hindalco lost 2.49% at Rs127, ITC was down 2.34% at Rs158, HDFC Bank fell 2.14% at Rs916 and HLL was down 2.10% at Rs168. Cipla, however, bucked the downtrend and advanced 4.99% at Rs233. Reliance Communications gained 2.51% at Rs411 and Dr Reddy’s advanced 2.18% at Rs635. Larsen & Toubro, Reliance Energy, HDFC, Bharti Airtel and Hero Honda ended with steady gains.

Metal scrips continued to reel under sustained selling pressure. Nav Bharat Venture plummeted 8.21% at Rs85, Mahindra Ugine tumbled 6.59% at Rs89, Mukand dropped 6.15% at Rs79 and Jhagadia Copper shed 6.12% at Rs10. Jindal Steel, Southern Iron & Steel Company, Jindal Saw and Shah Alloys shed 5% each.

Over 1.85 crore IFCI shares changed hands on the BSE followed by Oriental (1.54 crore shares), Ashok Leyland (87 lakh shares), Gujarat Ambuja (32 lakh shares) and Reliance Communications (30 lakh shares).

Value-wise Reliance Industries registered a turnover of Rs181 crore on the BSE followed by Reliance Communications (Rs119 crore), Tech Mahindra (Rs80 crore), Century Textiles (Rs71 crore) and ACC (Rs70 crore).

Sensex finishes 117 points behind

The Sensex, which had opened firm, kept on declining as the day progressed. Adamant investors refused to desist from selling. But the final loss was surprisingly much short of the showdown expected at one point of time. Value-buying at the lower levels pulled the Sensex out of the woods, albeit partially, in the late-afternoon session.

The 30-share BSE Sensex settled 117.34 points (0.92%) lower, at 12,579.75. It recovered partially from an intra-day low of 12,390.46.

The barometer index had opened higher, at 12,792.90, as buying continued following a 282-point spurt on Wednesday (7 March 2006). It had also surged to an intra-day high of 12,902.18, tracking firm Asian markets. The Sensex also suffered from high volatility during the day, and swung 512 points.

The S&P CNX Nifty slipped 28.80 points (0.79%), to finish at 3,626.85.

Technical analysis says if the Sensex were to breach 12,300 levels, it could lead the market towards a free fall. The Sensex can touch 11,000 levels on the lower side. On the contrary, the BSE benchmark has strong resistance at 13,200 levels.

The correction is expected to continue for some time now, and will be difficult to predict which way the market is headed.

The total turnover on BSE amounted to Rs 3512 crore, indicating lacklustre trade. The turnover was Rs 3816 crore on Tuesday (6 March 2007)

The market-breadth, a yardstick of the overall health of the market, underwent a complete reversal in line with the broader indices. It was strong in the opening session, but was unable to sustain the momentum. It turned extremely weak, as selling began for small-cap and mid-cap stocks.

Shares from the small-cap and mid-cap space are prone to selling, and decline much sharply than their large-cap peers in times of sharp correction on the exchanges. This mostly happens due to a lack of liquidity in that basket of stocks.

The BSE Small-Cap Index finished at 6,088, down 2.74%, while the BSE Mid-Cap Index settled at 5,114, down 2.01%.

There were close to 3.5 losers for every gainer on BSE. Against 1,990 shares declining on BSE, only 600 advanced. As many as 40 scrips also remained unchanged.

Among the 30-Sensex pack, 20 declined while the rest advanced.

Cement shares saw renewed selling. The government said it will review the increase in cement prices after companies passed on higher excise duties to customers. Commerce Minister Kamal Nath said he will hold meetings with ministry officials to ensure there is “no profiteering” by cement makers.

The government may also consider banning cement exports if such a move would help bring down prices, Nath added. Cement makers are unwilling to lower prices following a duty increase last week, but have pledged to raise capacity to help battle inflation.

India raised the excise duty on cement in the Union Budget for 2007-08, prompting firms to increase prices by Rs 10 - Rs 12 per 50 kg bag in some states, 1 March 2007 onwards.

While the government cannot prohibit cement companies from passing on the increase in the levy to customers, it is trying to find a “way out” of the situation, the minister explained.

Gujarat Ambuja Cements (GACL) plunged 8.52% to Rs 104.10, on a volume of 32.74 lakh shares. It was the top loser. The GACL scrip had also touched a low of Rs 100.

ACC (down 4.03% to Rs 820), UltraTech Cement Company (down 1.86% to Rs 805.55), Shree Cement (down 2.51% to Rs 1138), India Cements (down 5.75% to Rs 152.50) and Birla Corporation (down 2.60% to Rs 219) also plunged.

Frontline IT stocks slipped on renewed selling. The BSE IT Index lost 67.24 points (1.36%), to 4,894.70. Satyam Computers (down 0.46% to Rs 432), Infosys Technologies (down 1.30% to Rs 2089) and Wipro (down 3.92% to Rs 558) advanced.

Ranbaxy Laboratories dropped 3.26% to Rs 311.40, despite the company's subsidiary, Terapia, in Romania, reporting 50% growth in sales for 2006. Ranbaxy also informed that Terapia had won approval for 20 new products, which it plans to launch soon.

Indian bulk drug major Cipla was the top gainer, up 5.12% to Rs 233, on a volume of 3.45 lakh shares. The scrip had also surged to an intraday high of Rs 236.50.

Dr Reddy’s (up 2.85% to Rs 638.50), Tata Motors (up 2.57% to Rs 745), and Reliance Communications (up 3.25% to Rs 414) were the other gainers.

Engineering and construction major L&T gained 2.48% to Rs 1463, on reports that the company was in talks with Japan's Toshiba Corporation for a joint venture for power plants and equipments in India.

As per the deal, L&T would hold majority stake in the joint venture and would invest about $ 173 million to build plants for steam turbines and power generators. The joint venture aims to have an annual turnover of 20 billion yen in five years. L&T's entry into this segment catering to the power sector follows its recent tie-up with Mitsubishi Heavy Industries, another Japanese major, for manufacture of boilers for power projects. This is a good move from L&T's point of view. It will help the company take advantage of the huge investments coming up in the country's power sector.

Index heavyweight and India's top private oil company, Reliance Industries (RIL), was down 0.57% to Rs 1292. The stock had, however, eased from the day’s high of Rs 1331, while its low was at Rs 1262.10. As many as 14.05 lakh shares had changed hands in the heavyweight counter.

There are reports that RIL will transfer its overseas oil assets to a new holding company, to reduce risk on its balance sheet as many of these are located in politically risk-prone areas. Reports say the new company will first take over Reliance's assets in West Asia. RIL was also scouting for opportunities in oil-rich nations including Russia and Central Asian countries. While RIL has won an exploration block in Iraq in conjunction with ONGC Videsh, it has interests in Yemen and Oman as well. The private sector oil behemoth has also entered into an exploration and cooperation agreement with Ecopetrol, Colombia's national oil company.

RIL, which had scheduled a board meet on 10 March 2007, to consider interim dividend will also consider and recommend the amalgamation of Indian Petrochemicals Corporation (IPCL) with the company.

MindTree Consulting settled at Rs 620.30 on BSE, a sharp premium of 45.88% over the IPO price of Rs 425. The stock debuted at Rs 599. It hit a low of Rs 575.20 and a high of Rs 678.80. A huge 87.66 lakh shares had changed hands in the counter.

The IPO of MindTree Consulting had received an overwhelming response from a cross-section of market participants, institutions, high networth individuals (HNIs) and retail investors. The IPO of the IT firm got bids for 57.76 crore shares – 103 times the issue size of 55.9 lakh shares. The IPO was priced at the upper end of Rs 365-Rs 425 price band.

Broadcast Initiatives settled at Rs 69.40, a steep discount over the IPO price of Rs 120. The stock debuted at a discount, at Rs 117, and struck a high of Rs 118. The scrip had also dropped to a low of Rs 66.60. As many as 1.17 crore shares changed hands in the counter on BSE. The IPO was priced at the upper end of the Rs 100 - Rs 120 price band.

Oriental Trimex, engaged in marble and granite business, settled at sharp discount at Rs 29.45 on BSE, over the IPO price of Rs 48. A huge volume of 1.54 crore shares was traded on the BSE. The Oriental Trimex scrip got listed on BSE at Rs 42, down 14.28% compared to its IPO price of Rs 48. The scrip had also touched a high of Rs 47, and fallen to a low of Rs 28.20. The IPO of Oriental Trimex scraped through with bids 1.05 times the issue size. The company offered 94 lakh equity shares (excluding promoter contribution of 6 lakh equity shares) to investors.

Evinix Accessories closed at Rs 73.75 on BSE, a sharp discount over the IPO price of Rs 120. The stock had debuted at Rs 110, dropped to a low of Rs 70.25 and attained a high of Rs 128. 91.92 lakh shares changed hands in the counter on BSE.

Suzlon Energy rose 2.33% to Rs 1035, after its target company, Germany's REpower, reported a turnaround in 2006 on Tuesday. The Suzlon Energy scrip had tumbled in early-February 2007 on concerns that the big-ticket acquisition would put a short-term strain on its financials.

REpower on Tuesday reported a profit for 2006, as a restructuring programme took effect. REpower's earnings before interest and tax (EBIT) were 12.2 million euros ($16 million) in 2006, up from a loss of 4.3 million euros the year before. Net profit rose to 7.1 million euros from a loss of 6.8 million euros in 2005, REpower informed.

REpower also recommended the offer made by Suzlon Energy to the German firm's shareholders, on Tuesday. “The supervisory board and management of REpower welcome the offer from Suzlon and recommend it, as Suzlon will be a suitable strategic partner for REpower for increased growth in the international windpower industry,” REpower said in a statement.

Ashok Leyland (ALL) slipped 0.92%, to Rs 37.80, after advancing to a high of Rs 43, on reports that it had won the race for a stake of over 43% in Punjab Tractors (PTL), beating tractor stalwarts Mahindra & Mahindra (M&M) and Tafe, in the process. According to unconfirmed reports, ALL has placed the highest bid of Rs 380 per share for acquiring the combined equity of Actis and the Burman family (a little over 43%) in PTL.

If ALL does eventually pull off the deal, it will have to make a mandatory open offer of another 20% to shareholders, thus becoming a majority shareholder in PTL. An announcement about PTL's stake sale is expected shortly.

Patni Computer lost 3.5% to Rs 399.95, after the RBI on Tuesday banned foreign portfolio investment in the counter without prior permission. The FII limit for the scrip is 24% and it has already reached a threshold 22%. FII-holding in the scrip was 20.62% (at-end December 2006) compared to 19.29% at end-September 2006.

The Nikkei 225 Index shed 0.47% on Wednesday as shares of leading exporters such as Canon Inc were hit by continuing concerns about the outlook for the US economy. But losses were limited as investors picked up stocks dependent on domestic demand such as real estate firm Sumitomo Realty & Development Co. The Nikkei 225 index settled 79.88 points lower at 16,764.62.

The Hang Seng Index was down 139.92 points (0.73%), to 18,918.64.

US stocks too extended their recovery on Tuesday. The Dow Jones industrial average rose 157.18 points, or 1.30%, to 12,207.59. The Standard & Poor's 500 Index gained 21.29 points, or 1.55%, to 1,395.41. The Nasdaq Composite Index led the rebound on Wall Street, climbing 44.46 points, or 1.90%, at 2,385.14. Stocks shrugged off US data showing a big drop in pending US home sales, and a decline in factory orders.

Equities across the globe had declined sharply over the past few days due to worries pertaining to the US economy, volatile markets in China, and more frequently, the unwinding of yen carry trades, or when investors borrow the yen to take advantage of low interest rates in Japan, and then invest in higher-yielding assets. The key data this week is the US non-farm payroll for February 2007, due on Friday (9 March 2007).

As per provisional data, FIIs were net buyers to the tune of Rs 28 crore today. FIIs were net sellers of Rs 570.40 crore on Tuesday 6 March 2007.

Oil prices edged higher in Asian trading today, ahead of a US government inventory data which is expected to show decline in gasoline stocks for the fourth week in a row. Light, sweet crude for April delivery rose 4 cents to $60.73 a barrel in electronic trading on the New York Mercantile Exchange midmorning in Singapore. The Brent crude contract for April gained 7 cents to $61.46 a barrel on London's ICE Futures Exchange.

The contract rose 62 cents to settle at $60.69 a barrel on Tuesday (6 March 2007) as global stock markets recovered and traders bid up oil contracts. Major Asian markets rose for a second day today.

Trading on BSE and NSE was stopped from 11:45 IST to 12:25 IST due to sun outage. The staggered trading schedule will be applicable till 19 March 2007.

In a major development, Singapore Exchange (SGX) is close to buying a stake of about 5% in India's premier exchange - the Bombay Stock Exchange (BSE), news reports said. An announcement was likely later in the day. In February 2007, Germany's Deutsche Boerse bought 5% stake in the over 125-year-old stock exchange in a deal that valued the BSE at $910 million.

This amount is far below the $2.3 billion valuation of the National Stock Exchange (NSE), BSE's rival, for little more than a decade, after NYSE Group and others including Goldman Sachs paid $460 million for stakes totaling 20% in January 2007.

General Atlantic and SoftBank Asian Infrastructure Fund were the others parties, each of whom bought 5% stake -- the maximum permitted under Indian laws -- in the NSE.

Analysts say the higher valuation for NSE was due to higher trading volumes, especially in the increasingly popular derivatives segment, although the country's benchmark stock index is on the BSE. On an average, NSE's cash segment trading volumes have been 50% higher than that of BSE's.

The acquisition of stakes in Indian bourses by foreign exchanges follows a series of agreements between international exchanges, which are under pressure from customers to offer global services and cut fees.

In February 2007, Nasdaq Stock Markets Inc., a rival of the NYSE Group, failed in its bid to take over the London Stock Exchange, Europe's largest share market. Earlier, the NYSE Group announced a strategic alliance with Asia's biggest bourse, the Tokyo Stock Exchange.

Nasdaq has signed memorandums of understanding (MOUs) with the Shanghai Stock Exchange, Korea Stock Exchange and Jasdaq, Japan's biggest market, for initial public offerings

Sharekhan Reports

Sharekhan Highnoon dated March 07, 2007
Sharekhan Commodities Buzz dated March 07, 2007
Sharekhan Daring Derivatives for March 07, 2007

Anand Rathi - Daily Fundamental Snippets

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Edelweiss - Daily Market Outlook 7th March, 07

Market Snapshot

The Sensex opened with a huge positive gap of 158 points at 12,573. After advancing to higher levels, the market witnessed intra-day profit taking wherein the index touched a low of 12,427.The index, however, bounced back to higher levels backed by aggressive buying in technology stocks. The Sensex rallied to a high of 12,760, before settling with a gain of 282 points (2.3%) at 12,697. Nifty gained 80(2.3%) points to close at 3655.

The NSE & BSE cash volumes were slightly lower compared to the previous day at INR 84 bn and INR 38 bn. The F&O volumes were a touch higher at INR 354 bn.

Sentiment Indicators

The Implied Volatility (IV) across Nifty strikes has decreased to 30-31% levels. The WPCR of Nifty Options increased to 1.17 compared to the previous day while the 5 day average is 0.87.


We expect the market to open marginally positive taking cues from its Asian peers. The US wage and production data and Yen carry trade has brought some comfort to dollar and interest rate markets across the world softening the negative tone.

We expect the IT sector lead by Satyam, WIPRO, Infosys and other Telecom stocks to outperform the market. Cement sector may see continued selling after the cement manufacturers have agreed to lower their prices.

Yesterday, FII’s bought INR 1338 CR of Index futures indicating investor’s sentiments to take positions in broader market over single stocks. Nifty OI also saw a fall on Tuesday after 6 consecutive days of OI buildup implying short covering. We expect this short covering to continue as there is some large OI in Nifty leading to a reduction in discount for Nifty futures over spot.

In the last five weeks Nifty has fallen by around 700 points from its all time high of 4245. Technical charts expect a bounce back to 3800. 3591 and 3561 are support levels for Nifty. The immediate resistance is at 3740 and 3800.

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Investsmart - Morning Call

Market Grape Wine :

In House :

Nifty at a resistance of 3745 which can be a trend setter 3775 & 3820 with
support at 3619 & 3575

Major short covering to give support to the market with Jp Moragn &
GoldmanSacs buyer .

Buy : RIL at dips

Buy : Glenmark at dips

Buy : JSwSteel & MonnetIspat with medium term view

Buy : Wipro above 580 target 597 s/l 573

Buy : IDBI above 71.8 target 77.9 s/l 68.4

Out House :

Sensex at a support of 12515 & 12613 levels with resistance at 12786 &
12848 levels .

Buy : RIL & RelCap

Buy : INFY & Satyam

Buy : IciciBank & SBIN

Buy : Polaris & Mphasis

Buy : Titan & ABB

Buy : Maruti & M&M

Buy : Praj , EKC , Gitanjali & Gujfluro

Dark Horse : IFCI , ABB , SesaGoa , Gitanjali , Titan , Praj , Bharti &


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IDEA Cellular will LIST on March 9 2007

From the Research Desk

Dishman Pharmaceuticals & Chemicals Ltd.

Recommendation Maintain BUY
CMP Rs215
Target Price Rs270

Dishman Pharma’s (Dishman) non Solvay contracts are gaining increasing traction. The company has been working with big pharma like Astra Zeneca, GSK, Krka and Merck and has been able to secure contracts in the range of US$10-

Dishman’s relationship with Solvay, which begun over 2002-03 through the supply of intermediate/ API for Eposartan Mesylate (EM) has gained critical mass. Dishman is confident of generating revenue of Rs1bn from EM for FY07.

Carbogen Amcis (CA) business is witnessing increasing traction and is on track to record sales of Rs5.3bn for FY08. Growth would be driven by increasing capacity utilization at Cabogen and volume growth at Amcis.

Dishman, through Dishman India and Synprotec has identified contract research as an area for development which would result in contract manufacturing opportunities.

Dishman’s MM segment is likely to deliver 20% annual growth over the next two years. Dishman is increasingly changing its product mix from low end QUATs to high end QUATs.

We expect Dishman to witness revenue CAGR of 77.4% to Rs8.73bn over FY06-08. We believe Carbogen Amcis would be the growth engine for the company over the next few years and is expected to account for 48% of sales by FY08.

While Solvay contracts are on track, contracts with other large pharma companies are gaining increasing
traction and Dishman is emerging as a preferred Asian partner for those companies. MM segment is witnessing strong volume growth driven by a shift in product mix for the company.

We believe Dishman is well placed amongst its peers to capitalize on the lucrative CRAMS opportunity. At Rs215, the stock is trading at 19.5x FY07E EPS of Rs11 and 13.5x FY08E EPS of Rs15.9. We maintain BUY with a target price of Rs270, an
upside of 25.5%.


Four listings and a survival

I have survived and possibly I should not hope for more than that.

It’s survival of the fittest as four new companies make their debut on the bourses. The bulls managed to survive and hung on to their gains despite an intra-day dip, which almost saw the bourses in red. The rebound was mainly due to a rally in Asian markets and a reversal in the value of yen versus the dollar. Some short covering also helped propel the key indices higher. The script appears to be similar this morning, except that the Nikkei in Japan has slipped in the red after a positive start.

What may not help though is the negative FII figures. Provisional data from the NSE shows them as net sellers to the tune of Rs4.9bn yesterday. On Monday, they pulled out Rs3.13bn from the cash segment. However, what is heartening is that foreign funds were net buyers of Rs20.45bn in the F&O segment. Mutual Funds also pumped in Rs1.92bn on Monday.

The London Telegraph had a headline - "Goldman Sachs warns of 'dead bodies' after market turmoil." The Wall Street Journal says, "Seven years after the stock-market bubble busted, the troubles in the housing market look strikingly familiar. In fact, everything is going according to the textbook - the textbook in this case being Charles Kindleberger's 1978 classic, Manias, Panics, and Crashes."

But given the rally on Wall Street and other global markets, we expect a positive start. Having said that the bulls' stamina will be put to test today as the market breadth yesterday was negative. Also, the small-and mid-cap shares retreated after the initial spurt. We reiterate our cautious stance in the wake of the recent mayhem. But, for those who are here for the long haul, tank up by gradually buying fundamentally-strong stocks at lower levels. And again, give less weightage to seemingly better small and mid-cap stocks. Because the long road to recovery for these counters stretches a little extra.

We are going to have four listings today. MindTree, Broadcast Initiatives, Evinix Accessories and Oriental Trimex will make their stock market debut. Meanwhile, Idea Cellular will list on Friday.

Yesterday, we had recommended Infosys to our clients of SMS service pre-market. The stock was in limelight surging over 5% to close at Rs2114.

Sugar shares may be back in favour amid media reports of the Government considering decontrolling the sector from April. Sesa Goa may come under pressure as a financial daily says that the Chinese companies have threatened to boycott imports iron ore imports from India over the proposed export tax announced in the Budget. Britannia could be in focus as the Wadias and its JV partner Danone are reportedly in talks to resolve differences amicably. Also watch out for Tata Motors. At the Geneva Motor Show yesterday, Chairman Ratan Tata said that the much-hyped Rs1-lakh-car may cost more on road.

Punjab Tractors will remain in the limelight amid daily reports about the ongoing bid for the tractor maker. Now we here that the Tatas and TAFE have pulled out of the race, leaving only M&M and Ashok Leyland behind. Banks will also attract attention as the RBI has capped their inter-bank liabilities at 200% of net worth of the previous fiscal year. Punj Lloyd might gain as the company has approved a 5:1 stock split.

US stocks rallied on Tuesday as a rebound in overseas markets pushed the Dow Jones Industrial Average to their biggest gain in more than eight months. Twelve stocks rose for every one that fell on the New York Stock Exchange.

Treasury Secretary Henry Paulson eased concern that rising mortgage defaults will undermine the world's largest economy. The Treasury Secretary said the woes won't spill over to banks that make less risky loans. Countrywide Financial, Lehman Brothers and Citigroup led financial shares to their steepest advance in more than six months.

The S&P 500 Index added 21.29 points, or 1.6%, to 1395.41. All 10 of its industry groups rose. The Dow climbed 157.18 points, or 1.3%, to 12,207.59. For the S&P 500 and Dow, it was the best performance since July 24. The Nasdaq increased 44.46 points, or 1.9%, to 2385.14.

In currency trading, the dollar rallied against the yen and edged higher versus the euro. Treasury prices slipped, raising the yield on the 10-year note to 4.53% from 4.5% on Monday.

US light crude oil for April delivery rose 62 cents to settle at $60.69 a barrel on the New York Mercantile Exchange. The front-month contract was quoting 15 cents higher at $60.84 a barrel in extended trading in Asia. COMEX gold for April delivery rose $7 to $646.20 an ounce.

A morning report showed that US labor productivity was revised downward in the fourth quarter, as expected. Unit labor costs, the report's inflation component, was revised upward.

A separate report showed that factory orders fell a steeper than expected 5.6% in January, after rising 2.6% in December.

Among the Indian ADRs, Patni was up 4.2%, VSNL surged by 5.6%, Infy rose 4.3%, Wipro rallied 5.7%, Satyam jumped 5.7%, Tata Motors was down 0.3%, Dr. Reddy's gained 1.6%, HDFC Bank soared 6.1%, ICICI Bank put on 4.2%, MTNL advanced 1.6%, EXL Service fell 0.7% despite almost doubling its earnings in the fourth quarter; rival BPO major WNS was up 0.5%, Rediff climbed 3.2% and Sify jumped 3.8%.

In Europe, the FTSE 100 in London closed up 1.3%, or 79.80 points, at 6,138.50.

In emerging markets, the Bovespa in Brazil shot up by nearly 5% to 43,218 while the IPC index in Mexico climbed 2.2% to 26,355 and the RTS index in Russia advanced 1.5% to 1763.

China's stocks rose on Wednesday for a second day, led by brokerages. The Shanghai Composite Index, which tracks the bigger of China's stock exchanges, gained 2.2% to 2901.13. The Shenzhen Composite Index, which covers the smaller one, rose 2% to 745.76.

Most Asian stock benchmarks were up this morning. The Morgan Stanley Capital International Asia-Pacific Index advanced 0.2% to 141.06 at 12:01 p.m. in Tokyo. Stock benchmarks elsewhere in the region advanced.

The Nikkei is quite volatile and was last quoted up 73 points at 16,917 while the Hang Seng in Hong Kong gained 170 points to 19,228 and the Kospi in Seoul rose 10 points to 1413.

Australia's S&P/ASX 200 Index added 0.5%. The Philippine Stock Exchange Index jumped 3%, the region's biggest advance, while Malaysia's Kuala Lumpur Composite Index surged 2.6%, set for the biggest gain since Oct 2003. BHP Billiton rose after metals prices climbed and the Australian economy grew twice as fast as economists forecast.

Flows into EPFR-tracked funds during the final week of February again reflected the increased risk aversion evident among equity investors since the beginning of the year, a trend that is likely to gain further impetus from the rout of global stock markets going into March, says Boston, USA-based Emerging Market Funds Research.

Investors pulled money out of Emerging Market Equity Funds, amounting to $615mn, for only the second time this year after flows had slowed in recent weeks. Global Equity Funds, whose broader mandate allows them to spread their country risk over numerous markets, were again the big winners as investors parked another $1.77bn in these funds. Year-to-date flows into Global Equity Funds are already at 46% of last year’s record-setting total.

Elsewhere, Japan Equity Funds also had an outstanding week as that country’s equity markets hit a seven year high. US Equity Funds strung together their first two-week winning streak since early December while investors rotated into more defensive Global Utilities Sector Funds, moved back into Global Energy Funds and continued to pump money into Real Estate Sector Funds.

Market Watch & Insider Trades

Insider Trades:

Pyramid Saimira Theatre Limited: UBS Securities Asia Limited A/C Swiss Finance Corporation (Mauritius) Ltd has purchased from open market 775000 equity shares of Pyramid Saimira Theatre Limited on 2nd March, 2007

IVRCL Infrastructures & Projects Ltd: Citigroup Global Mkts (Mauritius) Pvt. Ltd has sold in open market 650000 equity shares of IVRCL Infrastructures & Projects Ltd on 28th February, 2007.

Market Volumes:

The turnover on NSE was down by 2.2% to Rs83.61bn. BSE Technology index as the major gainer and gained 4.07%. BSE Oil & Gas index (up 2.21%), BSE Bank index (up 2.13%), BSE Capital Good index (up 1.52%) and BSE Pharma index (up 1.17%) were among the other major gainers.

Volume Toppers:

IFCI, SAIL, Ashok Leyland, IDFC, R Com, Nagarjuna Fertilizers, Gujarat Ambuja, India Cement, ITC, Tata Steel, Hindalco, Praj Industries, MTNL, IVRCL Infrastructure, HCC, Reliance Industries, Tata Motors, Century Textile and Aptech

Upper Circuit Filters:

Unitech, Saksoft Ltd, Rama Pulp, DS Kulkarni, Binanni Industries and BF Utilities

Delivery Delight:

Ashok Leyland, ACC, Bajaj Auto, Bharat Forge, BPCL, Dr Reddys Laboratories, EKC, HCL Technologies, Hexaware, India Cements, Satyam Computer, Sesa Goa and Videocon Industries.

Brokers Recommendations:

Reliance Industries – Buy from Edelweiss

Bajaj Auto – Outperform from CLSA

Long Term investment:
Bharti Airtel

Major News Headlines:

Ashok Leyland Feb sales at 8036 units (up 33%)

Vivimed Labs approves as a global supplier to L'OREAL

Govt says imports of cement may not help lower prices

Cement producers plan to add 100mn tons of capacity

GE unit to lend Rs750mn to Binani Cement's thermal power plant

Aban Offshore unit gets drilling contract in West Africa

Rane Holdings founders offer to buy 20% more at Rs192 per share

FIIs need RBI’s approval to buy Patni Computers shares


Bulls will take cue from global markets

The markets ended with healthy gains after falling sharply in last few trading sessions, the key indices finally looked in good health today led IT stocks. The large cap stocks like Infosys, ACC, Bharti Airtel, TCS and L&T heavily drove the rally. Select Mid-Cap stocks like Glenmark Pharma, Ashok Leyland, Divi’s Lab and TVS Motors also participated in the rally. The Technology stocks led from the front with Bank and the Capital Good stocks also contributing towards the gains. Finally, the 30-share benchmark Sensex jumped 282 points to close at 12697. NSE Nifty surged 79 points to close at 3655.

Ashok Leyland paced ahead by over 5% to Rs38 after the company registered its February sales at 8036 units (up 33%). The scrip touched an intra-day high of Rs38 and a low of Rs36 and recorded volumes of over 1,00,00,000 shares on NSE.

Rane Holdings gained 3% to Rs172 after the founders offered to buy 20% more of the company at Rs192 per share. The scrip touched an intra-day high of Rs182 and a low of Rs170 and recorded volumes of over 4,000 shares on NSE.

Technology stocks were the top gainers. Heavy weight Wipro surged by over 8% to Rs580, Infosys spurred by over 5.5% to Rs2122 and Satyam Computer added 5.5% to Rs433. Rolta, Moser Baer and Mphasis BFL were among the major gainers.

Telecom stocks also rang with gains. Index heavy weight Bharti Airtel surged nearly by 5% to Rs720, MTNL rose over 5% to Rs141, VSNL was up by 2.5% to Rs363 and Reliance Communication added 0.5% to Rs400.

Pharma stocks also were in good health. Glenmark rallied by over 9% to Rs551, Divi’s Lab rose over 4% to Rs2759, Cadila was up by 2.6% to Rs312, Cipla advanced 2.1% 5o Rs221 and Dr Reddy’s Lab added 0.8% to Rs622.

Auto stocks also shifted to higher gear towards the end. TVS Motor raced ahead nearly by 7% to Rs57, Maruti advanced 2.5% to Rs791, M&M gained 2.3% to Rs725 and Bajaj Auto edged higher by 0.4% to Rs2461

FMCG stocks pared its intra-day gains on back of profit booking. HLL dropped by over 1.5% to Rs171, Dabur slipped 1.4% to Rs91, Colgate was down 1.8% to Rs307 and Nirma edged lower by 0.3% to Rs319.

Anand Rathi - Daily Strategist

The NIFTY futures saw a fall in OI 6.28% with prices closing at 3655.65 indicating that lot of short covering took place as market opened with gap as foreign markets recovered which forced bears to cover their positions and weak longs liquidating their positions as market recovered .we feel that till the market doesn't sustains above 3750 levels we may not see aggressive short covering and fresh money coming in the market .The nifty futures discount narrowed again indicating aggressive short covering .The FIIs were buyers in nifty futures to the tune of 1337 crs .The PCR has come up from 0.93 to 0.96 levels indicating some support in the market .The volatility has come down from 34.95 to 30.80 levels indicating some buying support in the market.

Among the Big guns, ONGC saw fall of OI to the tune of 2.93% with prices coming down 0.54% indicating long positions are liquidated in the counter as the counter moved up not showing much of strength whereas RELIANCE saw fall of OI to the tune of 4.37 % with prices coming up 3.05 % indicating that the counter saw lot of short covering performing in line with the market.

On the TECH front, TCS, INFOSYSTCH, , WIPRO saw fall of OI with sharp rise in prices indicating lot of short covering g seen in these counters performing in line with market whereas SATYAMCOMP saw rise in OI with rise in price indicating lot of lot positions built up in this counter indicating strength in this counter.

The BANKING counter SBIN saw flat OI with prices going up by 2.64 indicating that shorts covered their positions and fresh long positions built up in the counter which may give some support to the counter whereas ICICIBANK saw fall in OI with prices 3.20% up indicating heavy short covering in the counter performing in line with the market & HDFCBANK saw OI coming up with prices coming down indicating that both bulls and bears were aggressive in this counter.

In the METALS TATASTEEL, SAIL saw fall in OI with prices almost flat indicating liquidation by both bulls and bears in these counters .JSWTEEL saw rise in OI with price rise indicating that their was buying support in the counter indicating strength in this counter . HINDALCO saw fresh short positions building in indicating further weakness in this counter whereas NALCO saw fall in OI with price rise indicating short covering in this counter and fresh buying happening h in this counter indicating strength.

Considering the overall scenario and the markets recovery the market may move up today and we would see bears running for cover if the market sustains above the critical level .Traders are advised not to go short on the market and any position taken today should be with strict stop losses to be adhered too.

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Geojit - ESAB

Esab India Limted

Esab India, 37% subsidiary of Charter PLC, UK, has reported decent performance for Q4 CY 2006.

Net Sales (excl. excise) grew by 32.4% to Rs. 78.7 crore (Rs. 59.4 crore) led by almost doubling of Equipment sales to Rs. 23.87 crore (Rs 12.07 crore). Consumables sales were up by 15.9% to Rs. 54.80 crore (Rs. 47.3 crore). OPM% improved noticeably to 19.4% (16.2%) mainly due to lower other expenses (to 11.16% from 15.07% of sales), thereby offsetting impact of spurt in raw material cost to Rs. 62.3% (59.9%) of sales. PBIT% of Equipment division has improved considerably to 17.5% (5.1%). Consequently, PBT (before extra ordinary income) jumped up by 49.5% to Rs. 15.1 crore (Rs. 10.1 crore). However almost doubled average tax rate of 32.2% (16.8%) restricted growth in PAT of Rs. 10.1 crore (Rs. 8.3 crore) to 21.6%.

For CY 2006 as a whole, net sales were up by 20.6% to Rs. 287.2 crore (RS. 238.2 crore). OPM% stood at 22.6%. PBT (before extra ordinary items) rose by 20.9% to Rs. 64.8 crore (Rs. 53.6 crore). PAT increased by 7.5% to Rs. 42.7 crore (Rs. 39.7 crore) in absence of extra ordinary income (Rs. 4.5 crore) as in CY 2005.

In CY 2006, company has introduced new products in both segments i.e. equipment & consumables. More impact of these introductions will be reflected going forward. Profitability will be good because these are niche products. A greenfield project for manufacture of Welding and Cutting equipments at Irungattukottai, near Chennai commissioned from June 2006. All new products will be made at new factory.

Since company’s future is linked to consumption of steel, fabrication industry is expected to perform well over next 5 years. Commissioning of new factory coupled with rigorous cost control initiatives under taken by the company is expected to boost profitability in near future.

At CMP of Rs. 346.35, the share (Rs. 10/- paid up) is trading at 12.5 times CY 2006 actual EPS of Rs. 27.7 and 10 times CY 2007 expected EPS of Rs. 34.6. Considering bright future prospects, we recommend to “BUY” the share at CMP.

Recovery to continue on firm Asian markets

The market may edge higher with Asia-Pacific markets extending Tuesday’s rebound and on expectations that FIIs may resume buying after their recent heavy sales.

Key benchmark indices in Hong Kong, Singapore, Australia, Taiwan, South Korea and China were up by 0.3% to 1.6% on Wednesday. But Japan’s Nikkei 225 average slipped into the red after a firm start. It was down 0.4%. Asian markets had risen 1% to 2% on Tuesday (5 March) as investors resorted to bargain hunting after a steep fall.

US stocks too extended their recovery on Tuesday. The Dow Jones industrial average rose 157.18 points, or 1.30 percent, to 12,207.59. The Standard & Poor's 500 index gained 21.29 points, or 1.55 percent, to 1,395.41. The Nasdaq composite index led the rebound on Wall Street, climbing 44.46 points, or 1.90 percent, at 2,385.14. Stocks shrugged off US data showing a big drop in pending US home sales and a decline in factory orders.

Equities across the globe had declined sharply over the past few days due to worries pertaining to the US economy, volatile markets in China, and more frequently, the unwinding of yen carry trades, or when investors borrow the yen to take advantage of low interest rates in Japan, and then invest in higher-yielding assets. The key data this week is the US non-farm payroll for February 2007 due on Friday (9 March).

As per provisional data, FIIs were net sellers to the tune of Rs 489.57 crore on Tuesday, the day when Sensex had surged 282 points. FIIs were net sellers to the tune of Rs 312.70 crore on Monday (5 March 2007), the day when the Sensex had tumbled 471 points. FIIs were net buyers to the tune of Rs 324.90 crore on Friday (2 March 2007), the day when the Sensex had lost 273 points.

FIIs were net buyers to the tune of Rs 1338 crore in index based futures on Tuesday. They were net buyers to the tune of Rs 245 crore in individual stock futures on that day.

Mutual funds were net buyers to the tune of Rs 192 crore on Monday, the day when Sensex had tumbled 471 points in a sell-off in Asian markets.

Key Indian ADRs surged on Tuesday. Infy ADR rose 4.3% to $53.67, Satyam Computer ADR surged 5.6% to $21.90, Wipro ADR rose 5.7% to $15.66, HDFC Bank ADR gained 6.1% to $64.90 and ICICI Bank ADR advanced 4.1% to $39.43.

NYMEX crude was steady, just below $61 a barrel after an overnight climb

Anand Rathi - Daily Technical Note

Nifty and Sensex have exhibited a bullish candlestick.

Technically, one may use the level of 3575 (Nifty) and 12400 (Sensex) as the stop loss level.

Nifty faces resistance at 3750 and Sensex at 12800.

BSE Smallcap exhibited a bearish candlestick and BSE Midcap exhibited near doji candlesticks.

CNX IT has gained ground.

In the Punter's zone we have a BUY in Rel Comm , Praj Ind & SELL in ONGC.

In the Technical call section, we have a BUY in Bajaj Auto , A.C.C.& SELL in Satyam Computers.

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Anagram - Daily Call

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A Walk Down Wall Street

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Gains likely

Overnight gains in the US indices and the firm Asian market trend could lift the domestic market sentiment, though FIIs are not lending in good support by turning net sellers of equities in the current month so far. In the near-term, the Nifty could face resistance at around 3700 - 3785 levels on the upside while on the downside there is good support at 3565. The Sensex has a likely support at 12500 and resistance at 12800.

US indices exhibited a positive trend on monday, with the Dow Jones moving up by 157 points to close at 12208 and the Nasdaq gaining 44 points to close at 2385.

Indian floats were largely strong on the US bourses. Infosys, Wipro, Satyam, ICICI Bank, HDFC Bank, VSNL, Patni Compuetrs and Rediff were up nearly 4-5% each while Dr Reddy and MTNL inched up marginally. While only Tata Motors is on the negative zone with 0.29% respectively.

Crude oil prices gained, the Nymex light crude oil for April delivery gaining by 62 cents to close at $60.69. In the commodity space, while the Comex gold for April series gained $7 to settle at $646.20 a troy ounce.

Emkay Mornings Notes, Four Wheeler Update

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Long-term investing - Chetan Parikh

In a classic, Classics II, there is an interesting article by Jack Treynor.

“The investor who would attempt to improve his portfolio performance through unconventional, innovative research is currently being challenged on three fronts: (1) The efficient marketers say he will be unable to find any ideas that haven’t been properly discounted by the market. (2) Lord Keynes says that even if he finds these ideas his portfolio will be viewed as “eccentric” and “rash” by conventionally-minded clients and professional peers. (3) The investment philistine says that even if he stands by his ideas he won’t be rewarded because actual price movements are governed by conventional thinking, which is immune to these ideas.

Successful response to the first challenge lies in distinguishing between two kinds of investment ideas: (a) those who implications are straightforward and obvious, take relatively little special expertise to evaluate, and consequently travel quickly (e.g., “hot stocks”); and (b) those that require reflection, judgment, special expertise, etc., for their evaluation, and consequently travel slowly. (In practice, of course, actual investment ideas lie along a continuous spectrum between these two polar extremes, but we can avoid some circumlocution by focusing on the extremes.) Pursuit of the second kind of idea—rather than the obvious, hence quickly discounted, insight relating to “long-term” economic or business developments—is, of course, the only meaningful definition for “long-term investing.”

If the market is inefficient, it is not going to be inefficient with respect to the first kind of idea since, by definition, this kind is unlikely to be misevaluated by the great mass of investors. If investors disagree on the value of a security even when they have the same information, their differences in opinion must be due to errors in analysis of the second kind of idea. If these investors err independently, then a kind of law of averages operates on the resulting error in the market consensus. If enough independent opinions bear on the determination of the consensus price, the law of “large numbers” effect will be very powerful, and the error implicit in the consensus will be small compared to errors made on the average by the individual investors contributing to the consensus.

Under what circumstances, then, will investors’ errors in appraising information available to all lead to investment opportunities for some? As the key to the averaging process underlying an accurate consensus is the assumption of independence, if all—or even a substantial fraction—of these investors make the same error, the independence assumptions is violated and the consensus can diverge significantly from true value. The market then ceases to be efficient in the sense of pricing available information correctly. I see nothing in the arguments of Professor Eugene Fama or the other efficient markets advocates to suggest that large groups of investors may not make the same error in appraising the kind of abstract ideas that take special expertise to understand and evaluate, and that consequently travel relatively slowly.

According to Fama, “disagreement among investors about the implications of given information does not in itself imply market inefficiency unless there are investors who can consistently make better evaluations of available information than are implicit in market prices.” Fama’s statement can best be revised to read: “Disagreement among investors due to independent errors in analysis does not necessarily lead to market inefficiency.” If the independence assumption is violated in practice, every violation represents a potential opportunity for fundamental analysis.

The assertion that the great bulk of practicing investors find long-term investing impractical was set forth almost 40 years ago by Lord Keynes:

Most of these persons are in fact largely concerned not with most superior long term forecasts of the probable yield of an investment over its whole life, but with foreseeing changes in the conventional basis of evaluation a short time ahead of the general public. They are concerned not with what an investment is really worth to a man who buys it for keeps, but with what the market will evaluate it at under the influence of mass psychology three months or a year hence.

Obviously, if an investor is concerned with how the “mass psychology” appraisal of an investment will change over the next three months, he is concerned with the propagation of ideas that can be apprehended with very little analysis and that consequently travel fast.

On the other hand, the investment opportunity offered by market inefficiency is most likely to arise with investment ideas that propagate slowly, or hardly at all. Keynes went on to explain why practical investors are not interested in such ideas:

It is the long term investor, he who most promotes the public interest, who will in practice come in for the most criticism, wherever investment funds are managed by committees or boards or banks. For it is in the essence of his behavior that he should be eccentric, unconventional and rash in the eyes of average opinion. If he is successful, that will only confirm the general belief in his rashness; and if in the short run he is unsuccessful, which is very likely, he will not receive much mercy. Worldly wisdom teaches that it is better for reputation to fail conventionally than to succeed unconventionally.

Thus Keynes not only described accurately the way most professional investors still behave; he also supplied their reasons for so behaving. He was careful never to say, however, that the long-term investor who sticks by his guns will not be rewarded.

But is the price of unconventional thinking as high as Keynes alleges? Modern portfolio theory says that an individual security can be assessed only in the context of the overall portfolio: So long as the overall portfolio has a reasonable level of market sensitivity and is reasonably well diversified, the beneficiary has nothing to fear from conventional holdings—and still less to fear from conventional holdings bought for unconventional reasons. There is, of course, marketing advantage in holding securities enjoying wide popular esteem but, as investors as a class become more sophisticated, they are less likely to be challenged on specific holdings.

There is, finally, a school of thought that asserts that research directed toward improving our analytical tools is automatically impractical because it does not describe the behavior of a market consensus based on opinions of investors unfamiliar with these tools. This line of arguments puts a premium on investment ideas that have broad appeal or are readily persuasive, while rejecting the ideas that capture abstract economic truths in terms too recondite to appeal to the mass of investors.

The investment philistine who assets that it is impossible to benefit from superior approaches to investment analysis if the market consensus is not based on these approaches misunderstands what appraisal of a security means: An analyst’s opinion of the value of a security is an estimate of the price at which, risk-adjusted, the return on the security is competitive with the returns on other securities available in the market. A superior method for identifying undervalued securities is therefore tantamount to a method of identifying securities that at their present prices offer superior long-term returns. The mere inclusion of such securities in a portfolio will guarantee a superior investment performance.



To the threefold challenge, a threefold is offered: (1) The efficient marketer’s assertion that no improperly or inadequately discounted ideas exist is both unproved and unlikely. (2) Keynes’ suggestion that unconventional investing is impractical is no longer valid in the age of modern portfolio theory. (3) The investment philistine who says good ideas that can’t persuade the great mass of investors have no investment value is simply wrong.

The skeptical reader can ask himself the following question: If a portfolio manager . . . [is consistently right when the consensus is wrong, while] maintaining reasonable levels of market sensitivity and diversification, how long would it be before his investment record began to outweigh, in the eyes of his clients, the unconventionality of his portfolio holdings?”

Edelweiss - Lupin

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IDBI Capital - Vimta Labs

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Sharekhan Commodities Watch Magazine for March 2007

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