Goldman Sachs upgrades India to "market weight"

Goldman Sachs Group Inc. raised its recommendation on Indian equities citing expectations of some pick-up in the domestic economy and lower risks from the euro area debt crisis. The US investment bank upgraded Indian equities to "market weight" from "underweight", Goldman Sachs analysts led by Timothy Moe wrote in a report yesterday. "Asset markets around the world have discounted a lower probability of a more severe European debt crisis, and we believe these risks will remain relatively muted in the near term," the analysts wrote. "Growth will indeed pick up in India over the next one to two quarters." Goldman Sachs raised its March 2013 estimate for the S&P CNX Nifty Index to 6,100, up 17% from Thursday's closing level.

Tough Times

Tough Times

India Markets

India Markets

Monster F&O series...Dis-May for bears

For the May F&O series, the NSE Nifty and the BSE Sensex index both rallied over 25% each.

Bears were in dismay in the month of May as the NSE Nifty posted its biggest percentage gains in the F&O series ever. While the verdict of the election was the best that Indian parliamentary democracy has got in a long, long time, the reaction of the stock market was unimaginable.

On May 18, 2009, the BSE Sensex soared by 2,110 points or 17.24 % to 14,284 while the NSE Nifty zoomed 651 points or 17.35% to 4,323 both freezing at upper circuit.

For the May F&O series, the NSE Nifty and the BSE Sensex index both rallied over 25% each.

Among the BSE Sectoral indices, the BSE Realty index was the top gainer, the index shot up by over 67% followed by BSE Metal index up 53%. Among the other major gainers were BSE Small-Cap index up 48%, BSE Capital Goods index up 44%, BSE Mid-Cap index up 35%.

Among the banks, Kotak Bank rallied over 80%, ICICI Bank rose over 53% and SBI surged by 43%.

The top gainers in the metals sector were, Tata Steel up 62%, JSW Steel up 60%, Hindalco up 52% and SAIL 50%.

Among the Realty stocks, Indiabulls Real Estate up 75%, Unitech up 73% and DLF up 67%.

However, not all the stocks had a good time in May. Heavyweights like, Tata Communications dropped 10%, ITC lost 3%, Cipla declined 2% and HUL fell 1%.

India the best performing market

The 2,111-point surge on ‘Magnificent Monday ’ pushed the Indian stock market ahead of competition as the best performing market across the world with over 48% gains.

With factors like the government’s stability and the Left’s clipped wings, investors furiously bought sensex constituents, keeping the ‘India story’ alive and kicking.

From sub-10 ,000 point levels at the end of 2008, the Indian benchmark has gained over 4,600 points in less than six months—thanks to the rally that began in early March.

Before Monday, the sensex had gained 26% in 2009. But the one-minute bull blitz leading to the unprecedented gain turned out to be the game-changer for the open slot of the best performing market this year. Marketmen expect India to turn into one of the lowest risk, highest growth investment destinations globally.

India could outperform emerging markets (EMs) in the coming 12-months especially if the government delivers on policy front, said Ridham Desai of Morgan Stanley . He has an year-end target of 15,300 for sensex.

“Global investors will be chasing outperformance and the Indian economy can offer them the best chance with 7-8 % GDP growth in the next few years. While investors were earlier chasing value, now they will chase growth. The mindset has changed and there is lot of money waiting to come into India,’’ said Seturam Iyer, chief investment officer at Shinsei AMC.


With political risk less of an issue, the Indian stock market—still under owned by FIIs—is being re-rated . With the re-rating process still unfinished, many expect India to continue to outperform other countries like China , Brazil, Taiwan, Russia and Vietnam.

In terms of year-to-date performance, India’s sensex is followed by China’s Shanghai SE A-Share index with 45.6% gains, Taiwan’s TAIEX (up 43.3%), Russia’s RTS-2 (33.2% gain) and Indonesia’s Jakarta Composite (up 31.2%), Bloomberg data shows.

Even if equity markets head lower sharply later in the year, $10-15 billion of capital may be transferred from global financial investors to Indian corporates and their major shareholders before that, Credit Suisse analyst Nilesh Jasani said.

While some experts feel there could some consolidation before the market moves on, analysts at Credit Suisse believe Indian stocks could overshoot considerably , global markets permitting, from pre-budget period to July. With investors in developed nations like Australia, France, the US, the UK and even Switzerland registering 1-6 % losses or at best, flat gains in 2009, experts believe India’s outperformance will bring in more FIIs, hedge funds and big institutional investors.

via ET

India Markets

India Markets

Useful Market Links

1. Reserve Bank of India

2. Ministry of Corporate Affairs

3. Ministry of Finance

4. Insurance Regulatory Authority of India

5. NIPFP DEA Research Program on Capital Flows

5. National Institute of Securities Market

6. SEBI Investor Awareness Website

7. Electronic Data Information Filing and Retrieval System (EDIFAR)

8. Corporate Filing and Dissemination System

Stock Exchanges in India

1. National Stock Exchange

2. The Stock Exchange, Mumbai

3. Ahmedabad Stock Exchange

4. Calcutta Stock Exchange

5. Cochin Stock Exchange Limited

6. Coimbatore Stock Exchange Limited

7. Delhi Stock Exchange

8. Inter-connected Stock Exchange of India Ltd.

9. OTC Exchange of India

10. Saurashtra Kutch Stock Exchange Limited

Colleges Offering Securities Law Courses

1. Government Law College, Mumbai

Market Regulators Worldwide

Asia

1. Capital Market Board (Turkey)

2. Securities Bureau of the Ministry of Finance (Japan)

3. Securities Commission (Malaysia)

4. Securities and Exchange Commission (Bangladesh)

5. Securities and Futures Commission (Hong Kong)

6. Securities and Exchange Commission of Pakistan

Europe

1. BAWe - Bundesaufsichtsamt für den Wertpapierhandel (Germany)

2. Central Bank of Cyprus

3. CNMV - Comisión Nacional del Mercado de Valores (Spain)

4. COB - Comission des Opérations de Bourse (France)

5. CONSOB - Commissione Nazionale per le Società e la Borsa (Italy)

6. Financial Services Department (Jersey)

7. Financial Services Authority (United Kingdom)

Australia

1. Australian Securities Commission

2. The New Zealand Securities Commission

North America

1. British Columbia Securities Commission (Canada)

2. Canadian Grain Commission

3. CFTC - U.S. Commodity Futures Trading Commission

4. SEC - U.S. Securities& Exchange Commission

Latin America

1. CNBV - Comisión Nacional Bancária y de Valores (Mexico)

2.CNV - Comisión Nacional de Valores (Argentina)

3. CONASEV - Comisión Nacional Supervisora de Seguros y Valores (Peru)

4. SVS - Superintendencia de Valores y Seguros (Chile)

5. Superintendencia de Valores (Colombia)

6. The Jamaica Stock Exchange

7. Comissao De Valores Mobiliários - Brazil

Others

1. BID - Banco Interamericano de Desarollo

2. BIS - Bank for International Settlements

3. COSRA - Council of Securities Regulators of the Americas

4. FASB - Financial Accounting Standards Board

5. FIABV - Federación Iberoamericana de Bolsas de Valores

6. FIBV - Federation Internationale des Bourses de Valeurs

7. ICI - Investment Company Institute

8. IFC - International Finance Corporation

9. World Bank

10. WTO - World Trade Organization

11. Association of National Numbering Agency

12. International Organization of Securities Commissions

India Market Watch

India Market Watch

Market Outlook and Index

Market Outlook and Index

Lesson - When you read things like these , you should exit stocks immediately

As global investors dump stocks in a flight to safety that has whipped gold prices to a series of record highs, Indians are doing just the opposite.

In a nation that buys a third of the world's gold output, even bullion dealers are selling the stuff in hopes of a seventh year of stock market gains, a trend that could cause gold's record run to above $900 an ounce this year to stumble.

Far removed from gloomy global peers who are bracing for a US recession, Indians increasingly see limited upside for gold after last year's rise of more than 30 per cent, and are ready to shift more of their savings from jewellery toward a stock market that notched up over 40 per cent gains for three years running.

"I, myself, have sold gold and invested in the equity market," Pawan Choksi, a bullion dealer based in Ahmedabad, told Reuters. "I am restructuring my portfolio."

"Who will take a chance with gold at these levels?" he said. "Maybe there will be a correction."

Earlier this decade, most Indians preferred gold to a share market that they viewed as dominated by speculators and saddled with companies that had dubious earnings potential.

The shift, though slow, is already taking its toll on gold.

Imports by India fell as much as a fifth last year and are likely to tumble again this year if prices stay high, says Suresh Hundia, president of the Bombay Bullion Association.

"Imports have virtually come to a standstill in the last 20 days because of the high prices," he told Reuters Tuesday.

Bullion analysts are, for the moment, maintaining a bullish stance, with many expecting the spot price to test the $1,000 an ounce watershed before year's end as the falling dollar and US economic doom and gloom add to gold's allure.

But the prospect of another 10 per cent gain is not luring many buyers into the jewellery shops in New Delhi's famous Karol Bagh, where some banners scream "Sale" at a time when demand usually is high because of marriages in January and February.

"Demand! Where is the demand?" says Ravi Sood, partner of Kidarsons Jewellers, his eyes sweeping over a near-empty shop as a lone customer huddled in a corner took apart some old jewellery to assess its value.

"Only those who are in desperate need because of a marriage in the family are buying," he said. "Even then they bring a bagful of old gold to exchange so that their budget does not go haywire."

Stock Market Appeal

Gold jewellery has a long tradition in India as an auspicious gift for Indian marriages, and a lifetime saving for brides, while the share market was regarded with some trepidation.

But a record-breaking run by India's stock market has elevated its profile in society, with new blue chips, huge share offerings and the rapid growth of mutual funds elevating investor confidence along the way.

Analysts say gains may be checked this year by the risk of a US recession and a slowdown in the influx of foreign funds, although most still see another positive year and there appears to be little waning in retail appetite.

Tuesday, the initial public offering of billionaire Anil Ambani's Reliance Power raised $3 billion, the most ever for an Indian IPO, in under 60 seconds.

Mutual fund holdings, seen as a good barometer of retail investment, are estimated to have accounted for 4.8 per cent of household financial savings in the fiscal year that ended last March, up from only 0.4 per cent two years earlier.

"Gone are the days when fly-by-night companies could float an initial public offering," said Prithvi Haldea, managing director of Prime Database, an expert on India's primary share market. "Almost every IPO in 2007 got listed at a premium."

Indian IPOs raised a record $8.3 billion last year and are expected to nearly double that this year, according to Thomson Financial data.

Gold, in comparison, looks a little less lustrous.

"Everybody and anybody is entering equities as penny stocks worth five to ten rupees are also rallying and going up to 20 to 40 rupees," said Krishna Kumar Nathani, managing director of Indiabullion.com, a local consultancy.

"You are getting 100 to 200 per cent in a month's time on shares," he said. "I have never made 100 per cent in gold in such a short time."

Via Reuters

Speculation driving counters

Speculation may be an integral part of trading in the stock market, but the growing frenzy in an increasing number of stocks maybe a cause for concern for investors, particularly retail players.

A sharp rally in some of the biggest outperformers during the past few weeks has raised many eyebrows as their gains have not been supported by sufficient delivery-based volumes. Brokers fear that excessive speculative interest, which is also reflected in huge non-delivery-based volumes in these counters, could be driving these shares to new highs. In such a situation, it may make sense for small investors to stay out of the madness and take a call only after valuations come down to reasonable levels.

"Intra-day volumes of above 80% in a particular stock is surely something to worry about. Investors should be wary of investing in those stocks witnessing a sudden upswing after remaining out of market favour for years," said Karvy Stock Broking vice-president Ambareesh Baliga.

Tracking trading patterns in high-momentum stocks showed that some of them including Reliance Capital (RCL), Essar Oil, Ispat Industries, Reliance Natural Resources (RNRL) and Bhushan Steel have attracted delivery-based volumes much lower than the average ratio of around 50% for all BSE-listed stocks. RCL, Essar Oil and Bhushan Steel, in fact, saw delivery-based volumes lower than 10% on a few days in the past one month.

For instance, out of the total 4.9 lakh RCL shares traded on BSE's cash segment on Friday, trading in only 43,603 shares, or 9%, resulted in deliveries while transactions in the remaining 91% were squared off without taking delivery. The RCL stock has risen 16% in the past one month when delivery-based volumes ranged between 7.5% (November 27) and 27%. The scrip scaled a new peak of 2,525 on Tuesday and closed with a small loss of 1.2% at Rs 2,399 on Friday.

Essar Group stocks, particularly Essar Oil, have taken the market by surprise with their performance in the past few weeks. Essar Oil had zoomed 37% to close at Rs 121 on November 14 when only 15% of the traded quantity was delivered in the market. Essar Oil has, in fact, shot up 356% in the past one month. Confirming that speculative activity has increased significantly, a Delhi-based broker said, "The trend is not healthy for the market as speculative trading creates false volumes and misleads genuine investors."

The frenzied action in these stocks is mostly triggered by strong rumours or expectations of major development in respective companies. Analysts, however, warn that investors should not fall pray to such rumours unless the concerned company is fundamentally sound with high growth visibility and good management. Many a time in the past, investors had burned their fingers by chasing penny stocks, displaying unwarranted exuberance.

High level of speculative activity has also been evident in new listings, particularly those where the offers met with overwhelming public response, attracting subscription several times higher than the size. Speculators apparently have made a killing in many of the past successful IPOs, anticipating huge demand from prospective investors on listing. Listed on November 27, Mundra Port attracted delivered-based volumes of 25% on that day, which fell to 11% on November 30, the lowest since its listing. Since November 27, the stock has risen 14% to close at Rs 1,099.5 on Friday when the counter saw delivery-based volumes of 15.8%.

25000 in 2 years - very bearish isn't it ?

The Bombay Stock Exchange's (BSE) benchmark index Sensex, which attained new milestones this year, is expected to cross the landmark 25,000-level in the next two years, industry body FICCI has said.

According to a majority of respondents in a survey conducted by FICCI, the BSE barometer's new achievement is likely despite the overall business confidence dipping to a five-year low and GDP growth slowing down to 8.9 per cent in the second quarter of this fiscal from 10.2 per cent in same period last year.

The Sensex has been fluctuating, of late, on account of various reasons such as rupee appreciation, turmoil over Participatory Notes, US Federal Reserve rate cuts, increasing crude oil prices and sub-prime crisis. But the market sentiments have not been dampened by these factors, the survey 'Indian Capital Markets Ahead of Curve' said.

The mood of the market players is overtly optimistic, with 58 per cent respondents believing that the market in one year would achieve 20,000-23,000 levels and another 23 per cent feel that it would move beyond 23,000.

While, 55 per cent of the respondents predict the market level to reach 25,000 and above at the end of two years, about 26 per cent feel that Sensex would remain between 23,000-25,000.

A majority of respondents has identified banking and engineering as well-performing sectors, while IT, pharma and auto are the few sectors that are likely to under-perform, FICCI said.

With bank credit becoming more expensive and external commercial borrowings (ECBs) tighter, the capital market is the only other option for raising funds, the report said.

Fed meet to determine market direction

The Sensex has been moving in the range of 18,300-19,900 since the third week of October and is now trading at the higher end of the range. Both the Sensex and the Nifty have failed to close above their psychological levels of 20,000 and 6,000 ,respectively.

The benchmark indices are likely to see new highs, after a period of consolidation, if the large caps perform better. But a Fed rate cut and industrial growth figures, which are to be announced on December 11, will have an important bearing on the market sentiment.

An opinion is gaining ground that the nervous ninety syndrome has lasted too long, with the markets being in a consolidation mode since the last two months. The Sensex has been encountering a strong resistance at 19,900 and Nifty has been finding it tough to cross 5,900. The selling by FIIs, despite the buying by domestic funds, has acted as a dampener.

The FIIs have, however, turned net buyers this month, as the Fed is expected to reduce the interest rates at its meeting scheduled next week. A rate cut in US will make arbitrage attractive for the FIIs as interest rates in India are expected to remain stable. The FIIs are big arbitragers on the NSE derivative segment.

The employment data released by the US on Friday has shown a bias towards growth. This will translate into lesser pressure on the US Fed to cut the rates. The interest rates are being reduced in the US to prevent a recession. Higher employment would mean less chances of a recession.

The industrial production data for the month of October would be closely watched. The September IIP figures were a mere 6.4 per cent. It will be bad news if the slowdown continues in October.

Recent employment data suggests that the fear of recession is not rampant. “Most problems are in housing sectors. The remaining sectors are not doing that bad,” said Subir Gokarn, Chief Economist, Standard & Poor’s Asia-Pacific. “Countries such as India need not worry much.”

Moreover, the fact remains that India is growing on the strength of domestic demand.” he emphasized. S&P is neutral on the Indian equity markets in 2008.

The small and mid caps performed better than the Sensex last week, as has been the case over the last month.

The Sensex provided weekly returns of 3.11 per cent and monthly gains of 4.76 per cent. The BSE small cap index rose by 7.75 per cent on a weekly basis and 18.01 per cent over the month. The mid cap index gave returns of 5.48 per cent for the week and 13.54 per cent through the month.

India to outperform

What has been the impact of the participatory note (P-Note) restrictions on the Indian market?
One view is that it’s responsible for the slowing down of foreign institutional investor (FII) inflows, and it’s true that FII funds flow into the Indian market turned negative in November. But the numbers don’t seem to bear out this theory.
Data culled from Bloomberg show that while the Indian market saw an FII outflow of $1.1 billion (Rs4,345 crore) last month, that’s peanuts compared with the money flowing out of South Korea or Taiwan.
What’s more, even the sell-off in August by FIIs in the Indian market was relatively muted compared with South Korea and Taiwan. And finally, flows into the Indian market were also greater than in these markets during the rebound in September. All this has had its impact on market performance.
As on 6 December, the Morgan Stanley Capital International (MSCI) India index, for instance, had risen by 18.62% in the past three months, compared with a negative 0.04% for the MSCI Korea and -5.34% for the MSCI Taiwan index.
In fact, three-month returns on the MSCI India index were second only to Indonesia among emerging markets.
It’s not a coincidence that a recent Citigroup Inc. report says that India and Indonesia are the two best places to hide from a US slowdown, from a robust domestic demand story point of view. Their loan growth and investment trends look strong as well as sustainable. Indonesia and Vietnam markets are two Asian markets that saw net foreign inflows last month.
Could it be that the divergence in fund flows and the performance of different markets reflect how exposed they are to a US slowdown and to the subprime contagion?
That seems very probable: In Asia, export-oriented economies such as Korea and Taiwan are far more exposed to a US slowdown than a country like India. Globally, contrast the negative returns in the last three months for the MSCI USA and MSCI UK indices with the returns on India.
Simply put, investors have not been lumping all emerging markets together, but instead have been discriminating among markets on a rational basis, depending on their growth prospects. Whether the market continues to go up will depend on the extent of the liquidity being withdrawn by the credit crunch in the developed markets. But if the trends of the last three months are any indication, India should outperform both developed and most other emerging markets.
Indian banks are dwarfed by their Chinese peers, especially when it comes to market capitalization. To take an example from a recent Citigroup report, ICICI Bank Ltd, the largest Indian bank by market cap, had a capitalization of $30.9 billion as on 26 November.
On that date, Industrial and Commercial Bank of China (ICBC), the largest Chinese bank had a market cap of $329.8 billion, 10.6 times that of ICICI Bank. China Construction Bank, the Chinese No 2, had a market cap of $226.5 billion, compared with $29.8 billion for the Indian No 2 bank, State Bank of India.
Among Hong Kong banks, Hang Seng Bank Ltd’s market cap on that date was $35 billion, more than any Indian bank.
However, apart from the Chinese and Hong Kong banks, Indian banks were the biggest by market cap in the region. South Korea’s biggest bank, Kookmin Bank, had a market cap of $22.5 billion. DBS Bank Ltd, the largest Singapore bank, had a market cap of $20.7 billion on that date. Indonesian, Taiwanese, Thai and Malaysian banks were all much smaller than Indian banks.
The report shows that India has some of the most expensive banks in terms of price-to-book (P/B) ratio value, with Kotak Mahindra Bank having a P/B ratio of 7.41, according to Citigroup’s forecasts for calendar 2007. Other Indian banks with high P/B ratios are Yes Bank Ltd (5.71), HDFC Bank Ltd (5.49), Centurion Bank of Punjab Ltd (4.38) and Axis Bank (4.31). Using this criterion, China’s most expensive bank is China Merchants Bank , with a P/B ratio of 7.12, but the other banks are much cheaper, with Bank of Communications being the next most expensive with a P/B ratio of 4.28.
In Hong Kong, Hang Seng Bank is valued at a P/B ratio of 5.33. Korean banks all have P/B ratios below 1.4, while the Singapore and Thai banks have P/B ratios below 2. Only a couple of Indonesian banks have a P/B ratio of slightly more than 4.
Perhaps the high P/B ratios are justified by high return on equity? Not really, quite a few of the Chinese, Hong Kong, Indonesian and Korean banks have a return on assets above that of Indian banks.

Congratulations - India is second most expensive

Indian stock market is the second most expensive after China's in the Asian region, following strong rally driven by robust economic growth, a report says.

"India is the second most expensive market in Asia after China. However, unlike China, its momentum has deteriorated rather than improved from October," global financial service major Citigroup said in a research report.

Citigroup said November was a turbulent month for Asian markets with MSCI AC Asia Pacific index ending down 8.39 per cent.

All constituents of this index, except Indonesia, generated negative returns in the period under review. Japan is not a part of this index.

The monthly report reveals that India's earning sentiment had turned negative last month, though its price momentum is still going strong.

"India is supported by strong momentum in expectation of its strong economic growth," the report said.

Rising stock prices make the market more expensive, but it also implies improving long-term price momentum and all else being equal, stronger momentum characteristics, it added.

Last month, the benchmark Sensex had witnessed global pressure and the index lost 361.16 points in the period.

The index ended at 19,363.19 points after falling to a low of 18,182.83 in November, as investors turned cautious after Foreign Institutional Investors (FIIs) pulled out sizable funds from equity.

Indian Markets Expensive?

Are Indian stocks too expensive after the breathless rally of the past few months? If you take the Sensex as a proxy for the Indian markets, yes. Its price earnings multiple, at 26.9 based on past year’s earnings, definitely looks stiff both in relation to long-term trends and in comparison to its peers in other emerging markets. The Sensex’s PE multiple now is several levels above its five-year average of 18. Over the past five years, the bellwether’s PE multiple has swung between 10 and 27 times its historic earnings. It has averaged 15 for a 10-year period. The Sensex also appears dear compared to many other emerging market indices that figure on the radar screens of institutional investors.

The Sensex is much more expensive than Brazil’s Bovespa, which trades at about 15 times, Taiwan’s Taiex (21 times), Thailand’s SET (21 times) or Korea’s KOSPI (16 times). The only exception is the Shanghai Composite index of China, which trades at a whopping 68 times.
Higher growth rates

Indian companies will have to deliver much higher growth rates in earnings than most other emerging market peers to justify the current Sensex valuation. The PE of 27 assumes that earnings of the constituent companies would sustain a 25-30 per cent annualised growth at least over the next five years. Is it time to raise the flag of caution? Especially after the slowdown in earnings growth reported by India Inc in the September quarter.

However, investors can probably take heart from the fact that not all of the Indian stock market is as expensive as the Sensex.

With the recent market rally bypassing large swathes of mid- and small-cap stocks, the PE multiples of these stocks are far below those of the Sensex constituents. The PE multiple of the BSE Midcap index is, for instance, at just 22. What is more, a good 60 per cent of the stocks listed on the NSE are still trading at a PE multiple of less than 20, based on their past year’s earnings.

Via Businessline

Market will continue to be nervous

The Indian stocks are perched at uncomfortable levels and if the global cues continue to remain weak, there could be further selling in the domestic markets. The weak closing on Muharat day suggests that the ongoing correction might continue, amid volatility. Friday’s close far below the opening levels, accompanied with low volumes, was also an indication that bears were making their presence felt. The market has already corrected by 7 per cent from its all-time high. But since the near-term trend looks weak, a pull-back may attract further profit booking.

The stock market has given 50 per cent returns in Samvat 2063, as has been the trend in the last three years. But the market is lately showing signs of some nervousness as foreign investors have got into a sell mode since the Sebi proposed to regulate participatory notes (P-notes). Since 17th October, the FIIs have been net sellers in the cash market to the tune of 2.3 billion dollars. The domestic institutions have supported the market during this period, buying shares worth $1.35 billion. Foreign investors have reasons to sell as valuations appear to be rich. Asian markets in general have received strong inflows as they have been perceived as safe investment heavens. The resultant rise has made historical valuation irrelevant.

A Citi group report has said that Asia is now the most expensive region. It is trading at a P/E premium of 29 per cent to the developed world and 14 per cent against the general emerging markets. On a PV (price to book value) basis though, Asia is at a moderate discount against the general emerging markets despite the recent selling by foreign funds in the Indian market.

The Indian and Korean specific country funds attracted inflows worth $1.6 billion in the last four weeks, almost double the inflows into the Hong Kong and China funds. This would translate into buying at lower levels. Despite pressing sales, the FIIs were not eager to take money out due to the rupee appreciation, according to banking circles. “Hedge funds are selling as they need to have cash to pay dividend to their investors,” said an FII broker. The impact of sub-prime crisis is showing in the September quarter results of US-based hedge funds, thereby forcing them to book profits.

The crude oil prices, which are at a sniffing distance of the $100 mark, are expected to affect corporate bottom-lines as the prices of many industrial raw materials and intermediates have started moving up. Imports have already become costlier and domestic companies have started raising the prices of their products. Petrochemicals, polymers, chemicals and solvents and furnace oil prices are moving up. The government is under pressure to revise prices of petrol and diesel, which will make transport costlier. Globally, the Asian and US markets have been correcting for some time due to the high crude oil prices and re-emergence of the sub-prime crisis. Once stability returns, foreign money waiting in the wings is bound to enter the Indian markets. Hence, the global factors hold the key to a recovery back home.

India, Satyam Computer

India, Satyam Computer

Equities - a worthy asset class

Subprime fears, political instability or rupee appreciation — Indian equities have proved to be a worthy asset class for investors. A peep into the performance pattern of prominent asset classes reveal that equities, even in adverse market conditions, seem to provide a comparatively better bet for investors looking to pocket appreciable returns.

Stock investments have managed to yield a relatively decent 7% (base index taken is BSE Sensex) returns to investors, according to a sample study conducted by ET. Alternative asset classes like commodities (base index taken is ET Commodities Index), silver and gold have fallen in the 3-14% range over the past eight months, the study points out.

“Equity investments will always be good for people who are willing to ride volatility and stay invested for long. Going ahead, it should continue to outperform most alternative asset classes on a long-term basis,” said ASK Wealth Advisors CEO Rajesh Saluja. According to him the ideal investment time-frame in equities is five years. “
Generally speaking, on a normal market course, equity investments double in five years. This inference is reached by pinning the annual rate of return at 20%. In good market years, returns could scale up to 30-40% annually,” Mr Saluja added.

According to wealth managers, commodities, as an asset class, is cyclical and inversely proportional to the equities market. When equities do well, commodities generally tend to go into a ‘shell’. Over the past six months, commodities markets worldover have been witnessing volatility due to rapid changes in economic cycles.

India, which has a buoyant agri-commodity market, has been grappling with huge price instability, thanks to a wide supply-demand mismatch. Among metal commodities, nickel and zinc managed to do well in the initial months of 2007.

Likewise, gold and silver too have not being doing well in the past couple of months and is trading on a bearish note. Being traded in dollars internationally, gold was hit severely by an appreciating rupee. Any rise in the rupee against the dollar will push down the rupee value of gold. However, the segment is expected to pick up once the festival season sets in, says market observers.

Financial institutions and currency traders benefited the most with the rupee strengthening against the dollar between March and July. But such gains from the currency movement in a specific period can well be erased in the next, as the relationship between the domestic and foreign currency reverses, says experts.

“More than the return profile, it is the understanding of investors that make equities different from other assets. Asset classes like currency and commodities are complex for retail investors to understand and trade; there is no guarantee that investors will make money in these asset classes. Moreover, there is less retail play in these asset classes,” said Unitis Tower Wealth Advisors CEO Nipun Mehta.

Next to equities, real estate can be a performing easy-to-comprehend asset class. However, the returns profile (in the long term, the logical returns on real estate will be 15-18% annually) will be a bit lower than returns from equities, the sector is also a bit illiquid when compared to equities,” he added.

Market Watch

Market Watch