Market more riskier than in 2008 ?

W ith the BSE Sensex breaking past 19000 after a long spell, the market ‘targets' are being busily upgraded to levels of 21000 plus, the previous market high. But did you know that the rally this time round has been underpinned by much lower earnings growth than in 2007-08?

How to time the market ...

Signals to look for before deciding when to enter, lie low or get out of stock markets.

Cautious Bull, Optimistic Bull, Fearful Bear are some of the terms thrown at equity investors in the past several weeks. Most investors are waiting on the sidelines, mulling whether to enter the market or not. Some question if this rally is sustainable. Remember two things. One, there is no way for anyone to predict what the markets can do in the next few days. Two, and a key point:equity markets recover much before the actual economy does. There are no easy answers but, yes, there are certain signals one should look at.

FII FLOWS
Let's start with this, an easy one for most people. India is a very shallow equity market and in global market parlance, is like a village when compared to developed equity markets where there is a lot of participation, not just from institutional investors but also from retail investors, through retirement and education plans. The point is that Indian markets are highly dependent on flows from foreign institutional investors (FIIs).A few billion dollars have the propensity to take the market in either direction. Hence, FII inflows and outflows must be tracked carefully to see if delivery-based buying has been taking place consistently. If markets move up consistently on rising volumes and increasing FII flows, it's a signal that buying interest has come back and its time to scale up equity exposure. Of course, it is important to take stock of valuations but these can remain stretched for an extended period of time.

CREDIT SITUATION
Then there is credit, the lifeline of any economy. It's important that companies and individuals have access to credit at reasonable rates. High inflation is followed by higher interest rates and this often has a dent on corporate and consumer balance sheets. At the same time, if banks are unwilling to lend, the short-term outcome will not be rosy. On the other hand, low inflation, low interest rates and easy credit flow are good signs for corporations and individuals. When this happens, take a look at the loans disbursed by banks and financial institutions. The question to ask is, have banks started to lend and are corporations and individuals borrowing? A healthy credit situation and easy liquidity situation, beside good future corporate performance, also means equity markets could see decent inflows and less outflows.

GENERAL SENTIMENT/ CONSUMER SPENDING
This is, again, an important signal a lay person can see if around him. Are people buying homes , cars, taking vacations , buying electronic items, queuing at restaurants and so on? If you see most of these things happening around you, it means people have disposable income and access to credit. If this is so, corporate profits are likely to improve or increase in the future. Also ask yourself: "Are people more optimistic about the future now than they were six months before? What about businesses? Have they started hiring again?" Recruitment activity picking up is again a very important signal and one to be watched closely. Though there is no employment or unemployment data that is released in India every month, talking to people from different sectors and companies could give you a good indication. Look within your own firm or business. Has the business scenario changed for the better or worse?

IMPROVEMENT IN MACRO NUMBERS
That means corporate earnings, inflation, GDP growth, agriculture output, IIP numbers, export numbers, oil prices -- being some of the macro numbers one should look at. Their interpretation should be viewed in the context of what has happened in the immediate past and whether there are any improvements in these numbers. Most analysts were expecting a GDP growth of below 5 per cent last year, but this prediction was short-lived, as the numbers were a strong 6.3 per cent. If in one of the worst years the economy has the potential to grow at 6.3, does it mean we could grow at much higher rates if the economic and investment environment were favourable?. There are several such questions to review on every parameter. At the same time , do not overanalyse, as it may lead to inaction.

EQUITY MARKET MOVES
Then again, are equity market moves more broad-based across sectors or restricted to one or a few sectors? During the technology boom of 1999 and the power sector boom of 2007, any company that had technology and power written on it would go up by leaps and bounds, defying logic and common sense. At the same time, there are times when the market moves are broader-based, like the ones we saw during a substantial part of the bull run. If the market moves are broad in nature and mid-caps also start to catch up, then there is a strong likelihood that a much stronger upward move will happen in the future.

Finally, remember two cardinal rules. Do not put any short-term money, required in the next one to two years, in equity. Second, the best time to invest is when the markets stink, so ignore the noise around you and invest if you get to do so between PEs of 8 to 12 of the market. Rational and courageous investors who did buy between October 2008 and March 2009 are now laughing all their way to the bank.

by Amar Pandit, BS

Market and Stock Analysis

Markets continue to be highly volatile. Stock specific movements have also become like a pendulum. HDIL raced ahead to Rs. 150/- in few days from a low of Rs. 80/- and has fallen back to same levels. DLF also went up again in few days from Rs. 190/- to Rs. 300/- and has already now retraced to Rs. 170/- level. There are many factors for this volatility. Firstly, electronic and print media is mainly dominated by Chartists who are advising about timing entry and exit. For them, share market has become a casino and as per them, stock prices are based upon trading statistics and not fundamentals/economics. Secondly, there is more big element and speculation. Even in cash market, delivery ratio varies from 5% to 40% which proves that day traders buy and sell within the same day. It means, investors are using the market just to punt. Further, even delivery is backed by margin funding. Thus, 70% - 80% trades of the market are not backed by actual wealth of investors/traders. Thirdly, out of the total value of trades done, more than half is in the derivative segment. Within this portion also, Futures trading takes major share. Per se, derivative is a necessary evil in the market but, complete domination of derivatives/intraday trading scares away genuine investors.

1) Ispat Industries Rs. 10/-: Earlier, this writer had raised strong objections for including this scrip in F&O as credentials of the promoter are suspect and company has disappointed since inception. Promoters have been main beneficiary by inclusion of this company in F&O as they managed to rig up the share price and sell big chunk of their holding at high high price. Now, for Q3, its sales have crashed to 1123 crs. as against 3223 cr. sales in Q2. Net loss is massive 976 crs. Promoters stake has come down by 4.80%. It is high time that stock exchanges decide to remove such a rotten group from F&O.

2) Adlabs Ltd. Rs. 170/-, Rs. 5/- F.V.: Company has made loss of 25 crs. in Q2. Share price is ruling high due to promoter fancy and speculator's favourite counter. Fundamentally, scrip should not be more than Rs. 25-30. If, scrip is removed from 'A' Group, share price will tumble. Sell.

3) After Satyam scan, many other companies which have been busy in bogus figures will be more cautious, and such companies may show declining nos. in coming quarters. Such a trend is already visible.

4) Rajesh Exports Rs. 27/-, Re. 1/- F.V.: For Q3, topline has gone upto 2732 crs. but net profit has crashed to 17 crs. as against 61 crs. Staff cost is just 2.29 crs. which is less than 0.1%. I wonder if, how many companies can achieve such a feat? Even other expenditure is just 6.22 crs. (which normally includes administrative, selling, distribution, petty cash expenses). This again works out to just 0.22% of sales. A miraculous feat!.

Many promoters get their companies listed at stock exchange to make a killing in stock market. Promoters stake in Rajesh Exports has gone down by 7%.

5) Reflex Rs. 24/-: Few months ago, when its share prices had gone upto Rs. 200/-, we had pointed out that promoters were borrowing money from the market to rig up the share price. Now, promoters stake has already come down by 7%. It sums up the whole story. Since promoters devote more time for stock market operations, company suffers. Company has made big loss of 4.56 crs. for Q3. May be, funds given to the borrower siphoned off from the company.

6) BHEL Ltd.: It is a very respected company and a giant in the sector globally. Company has been providing good results. However, this writer, has a point. For Q3, its topline has gone up by nearly 800 crs. But, PAT is up only by 19 crs. Although everyone will blame higher R/M cost but, employee cost has also gone up by 174 crs.

7) From time to time, this column brings to the notice many companies which are suspected of bogus billing and money laundering. Some of these companies do not pay any dividend although, have huge EPS. When this writer asks promoters about it, they give standard excuse that company needs funds for expansion and will also invariably say that even Warren Buffet does not pay dividend. Promoters don't want to pay dividend, but do they forego their hefty salary, business/first class air travel, 5 star hotel comforts and all other vulgar expenses? Mr. Warren Buffet lives in the same old house which he bought in 1961 and still draws the same salary. Such promoters don't deserve to even bring on their lips name of Warren Buffet.

Further, these companies mainly show income from exports but have no losses of forex/derivatives. Strange!.

However, main regret is that, even big analysts and big FIIs do not however bother to think whether such profit figures are possible? Investment banking arms of brokerage houses (in their greed to earn fat fee) push their analysts to release Buy reports on such companies, a pre-cursor to fund raising. This writer has no hesitation in saying that a large portion of investment bankers have no qualms of business integrity and morality.

8) Sunil Hi-tech Rs. 80/-: Despite FII taking stake at Rs. 360/-, share price has crumbled. This writer got money calls that I should buy this scrip. However, looking at declining share price, this writer got suspicious that some bad news is on the way. Now, Q3 results show that company has made a loss of nearly 15 crs. by investing in mutual funds. It is really strange that promoters do not stick to core business and take public money for a ride. It happens when FIIs give money to the rotten promoters which they don't deserve. It is like an infertile woman getting 5 kids.

9) Pyramid Symira Rs. 25/-: One year ago, this writer had recommended to sell at Rs. 300/- when everyone was recommending to buy. Now, one after another, cans of worms keep on opening. Company alleges to have made loss of Rs. 75 crs. in share market. This writer is dumb struck to make any comments about this promoter.

10) Zenotech Laboratories Ltd. (Rs. 98/-): Floated by a former Honcho of a big Hyderabad based pharma company, investors had high hopes from this company that success of that big pharma company will be replicated in Zenotech. Such hopes became more alive when Ranbaxy acquired big stake in the company. However, performance of the company so far has been absolutely abysmal as is evident from trailing 4 quarters:

Sales (cr.)	1.53	2.77	0.67	1.55
Loss (cr.)	- 3.47	- 2.67	- 6.65	- 3.77
Equity	34.42	-	-	-

Loss in each Quarter is more than the sales. Turnover in TTM is less than 7 crs. Fundamentally, scrip should be quoting below par. Now, Japanese company is making open offer at Rs. 113/-. However, promoter is crying foul that it should be at Rs. 160/-. He wants highest reward for worst performance of pharma industry! Hats off to his cheek. Stake by a renowned company does not necessarily mean strong fundamentals of the company. Ranbaxy had acquired stake in Krebs and Jupiter Bio and still, performance of both companies is much below expectation and their share pricess are significantly lower than acquisition cost of Ranbaxy. There are companies like; J.B., Unichem, Torrent Pharma which have decades of proven performance and still available at P.E. ratio of 4-5.

11) Shree Ashtvinayak Rs. 500/-: For 07-08, company had reported topline of 94 crs. and PAT of 12.63 crs. EPS worked out to 12.63. Scrip is available at P.E. Ratio of 40/-. In current meltdown, scrip has come down by just 20%. Reportedly, scrip is in the grip of a strong operator as company wants to place shares with some FII at Rs. 550/-. Fundamentally, grossly overpriced.

12) Minda Industries (Rs. 98/-): For 07-08, company had reported PAT of 15.72 crs. on 396 cr. turnover. Equity is Rs. 10.50 crs. Although, company has been maintaining average performance, last year its share price zoomed to Rs. 358/- as a Mumbai based operator was colluding with promoter for placing shares with a leading DI @ Rs. 350/- per share. As per our sources, deal was in the final stages of being struck when company was making presentation to the investment committee of DI, chairman of the committee asked the officer of the company about his holding in the company and the officer replied that he already sold his 15,000 shares @ Rs. 250/-. This innocuous but truthful reply of the officer torpedoed the placement deal and subsequently share price has crashed to its original reasonable levels.

13) Winsome Textiles Rs. 37/-: Despite heavy losses, share price continues to rise. For Q3, losses have increased to 5.35 crs. Quarter 3 EPS is -9.10 (negative). Q3 interest charges are more than 5 crs. For 9 months, EPS is -15.42 (negative). On a small capacity of 63,000 spindles, company has huge debt. In the past, we had pointed out that how some operators take convertible warrants by paying 10% and then rig up the share price. This is what is happening in Winsome Textile. Fundamentally, scrip is worth Rs. 6-7.

14) Geojit Rs. 23, Re. 1/- F.V.: For Q3, company has made a loss of Rs. 1 cr. Short term prospects remain bleak. Scrip is highly overpriced. Sell and buy FDC Ltd. in its place.

15) Religare Enterprise Rs. 340/-: Scrip is trading at 26 x FY08 EPS. Short term prospects of the industry are dismal. Sell and buy Gujarat Gas Ltd. in its place for better appreciation.

16) WWIL Rs. 18, Re. 1/- F.V.: Company has again reported big loss for Q3. Losses for 9 months are 75 crs. on Equity of 22 crs. Still, share price went up by 80% in 2 days. It shows that operators can do what fundamentals cannot.

by HK Gupta

Volatility Analysis - Dec 11 2008

Volatility Analysis - Dec 11 2008

Volatility Analysis - Nov 3 2008

Volatility Analysis - Nov 3 2008

Volatility Analysis - Oct 21 2008

Volatility Analysis - Oct 21 2008

Reliance Power, ONGC dumped. Sesa Goa, IDFC, LT and Reliance Industries accumulated

As bourses witness a stocks meltdown, Anil Ambani-led Reliance Power and PSU energy giant ONGC are among those seeing the maximum flight of investors from their books.

The stock market's latest entrant from Anil Ambani group is accompanied by two other private sector firms, Orchid Chemicals and Tech Mahindra, among the top ten companies with maximum decline in the number of their shareholders during the latest quarter ended September 30.







However, this league is heavily dominated by the public sector with as many as seven entries, led by the country's most valued PSU firm ONGC and includes Bank of Baroda, NTPC, BPCL, Union Bank, Indian Oil and LIC Housing Finance.

In contrast, there is not a single PSU entity among the top ten firms in which has noted increase in the number of shareholders during the same period.

This league is led by Vedanta group's Sesa Goa and comprises of IDFC, L&T, Mukesh Ambani-led Reliance Industries, Tata Motors, Mercator Lines, Axis Bank, Nagarjuna Fertilisers and Chemicals, Development Credit Bank and Indian Hotels.

However, the total number of companies where number of shareholders went down during the July-September quarter is still below the number of those having registered an increase in the number of their shareholders.

While 190 companies witnessed an increase in the number of their shareholders during the quarter, another 131 firms took a dip on this front among the entities whose latest quarter shareholding pattern is available with the bourses.

Reliance Power, which debuted on bourses earlier this year after India's biggest ever IPO of about three billion dollars, saw the number of its shareholders plunging by 63,931, while ONGC was a distant second at 25,611.

R-Power still remains the country's most widely held company with more than 40 lakh shareholders, the maximum for any Indian entity. Two other Anil Ambani group firms RNRL and Reliance Infra saw an increase in number of their shareholders.

A total of 22 companies have so far reported a fall of more than a thousand shareholders in their books during the quarter including Tata Communications, Indian Bank, Uttam Galva, Cadila Health, Bosch Chassis, Jindal Saw, ACC, Ultra Tech Cement, Rain Commodities, Coromandel Fertilisers, BSEL Infra and Thermax.

Besides, the number of shareholders declined by over 100 in companies like Syndicate Bank, Canara Bank, Mahindra Lifespace, 3i Infotech, Dishman Pharma, OnMobile Global and Emami.

Among the companies witnessing an increase in the number of shareholders, Sesa Goa recorded a surge of 1,22,766 entities on its books, followed by 50,727 for IDFC, L&T's 48,398 shareholders and an addition of 36,453 shareholders for RIL.

Besides, Tata Motors registered an increase of more than 20,000 shareholders and firms like Mercator Lines, Axis Bank, Nagarjuna Fertilisers, DCB and Indian Hotels added 9,000- 17,000 shareholders to their books.

A further seven companies added more than 5,000 shareholders comprising JSW Steel, Lanco Infratech, Gujrat Mineral Development, RNRL, HDFC, GMR Infra and Bombay Dyeing.

About 50 companies recorded an increase of more than 1,000 shareholders and these firms included Reliance Infra, Hotel Leela Ventures, Godrej Industries, Adani Enterprises and Financial Technologies. So far, 114 companies have shown an increase on more than 100 shareholders on their books.

via Asia Pulse

Shareholding Analysis

Shareholding Analysis

Bears going for the kill

Bears seem to be moving in for the kill, aware that the micro as well as macro conditions are in their favour. A low profile market operator — famed for his bearish calls, and known to have made a killing in the past few months — is said to have built significant short positions, convinced that the market is set to breach its July lows shortly. Given the absence of any positive triggers on the horizon, traders with long positions in the derivatives segment do not have any incentive to carry forward their positions. On the macro front, inflation climbed to a fresh 16-year high of 12.63%, raising concerns that interest rates may be hiked further. Globally, the situation is even more gloomy, as experts feel that the worst of the sub-prime crisis is yet to unfold.

Given these factors, market watchers expect another round of sell-off in the next few days. Many brokers feel this bout of selling could be far more painful than the ones seen so far.

On Thursday, the 30-share Sensex plummeted 434.50 points or nearly 3% to close at 14243.73, with sellers targeting banking and real estate shares. The 50-share Nifty shed 131.90 points to close at 4283.85. Dealers attributed the steep fall in real estate and banking shares to the build-up of long positions recently, as many traders felt that the worst for these sectors was over. But with inflation still mounting, it appears that RBI will have to announce further liquidity tightening measures.

“We are likely to see a sideways movement for the next one year at least,” says Edelweiss Capital chairman and managing director Rashesh Shah, adding that the next 3-4 months could be tough.

“There are no positive triggers in sight. Inflation and crude oil prices are still not under control, and corporate earnings are set to plateau over the next couple of quarters,” he added.

Thursday’s decline was not backed by strong volumes. Market watchers say this is an indication that the market may not have bottomed out yet. Traded turnover on both exchanges combined was around Rs 65,000 crore. ICICI Bank, HDFC Bank and State Bank of India were among the worst-performing frontline shares, falling between 5% and 7%. Technology shares too were not spared, despite the fact that the rupee is likely to stay weak against the dollar. TCS, Wipro and Infosys were down between 2% and 3%.

via Economic Times

Market Analysis

Market Analysis

Biggies wealth eroded

It was not long back that many Indian promoters figured in the global billionaire list. The Sensex’s rise last year saw the likes of DLF’s KP Singh coming out of nowhere and becoming the third richest Indian for a while. And there was much speculation as to when, rather than if, Mukesh and Anil Ambani would eclipse Bill Gates.

However, the recent stock market turmoil has resulted in an erosion of net worth of India’s wealthy lot, which is just as spectacular as the rise was. In all, the net worth of India’s top 10 promoters is down by 35% since the peak in early January.

Indian biggies including Mukesh Ambani, Anil Ambani, DLF’s Singh, Tatas and Sunil Mittal of Bharti Airtel have seen their combined net worth shrink by around $100 billion in the last two months.

Topping the list of losers is India’s biggest real estate baron KP Singh. His net worth has nearly halved to $22.5 billion from a peak of $45 billion in January.

Next in line is Anil Ambani. His personal wealth, as denoted by his holdings in group companies, has declined by over $21 billion, or 46%, to around $25 billion. Big Brother Mukesh Ambani has done relatively better with his net worth falling to $41 billion from a peak of $58 billion.

Another real estate baron to lose heavily during this meltdown is Ramesh Chandra of Unitech, whose market cap has halved since this bear phase began. The Hinduja Group too has taken a knock with the market value of its holdings down by nearly 43%.

The promoters who have seen maximum wealth erosion are those with business interests in real estate, power and energy. These sectors, which were the darlings of the markets all of last year, are suddenly seen as untouchables.

In order to calculate a promoter’s net worth, we have excluded the cross-holding among group companies. For instance, to calculate Mukesh Ambani’s net worth, we have excluded the value of RIL’s stake in Reliance Petroleum.

Via ET

Few companies meet 25% ‘public’ stake limit

Indian primary stock market, presently facing poor investors responses could be flooded with fresh issues if the Government’s proposal for a minimum 25% public holding is implemented in one go because the average individuals’ holding is mere 1.8% in PSUs and that of 13.56% in private sector, an ASSOCHAM Eco Pulse (AEP) study has revealed.

An analysis of Nifty and Sensex companies done by the industry chamber has found out that while 94% of them already satisfy the minimum 25% of non promoter shareholding criteria along with holdings of qualified institutional bodies, only a handful meet the ‘public’ quota as proposed by the Finance Ministry.

If the share of FIs, FIIs, MFs, Employees, NRIs/OCBs, Private Corporate Bodies is kept out from the non-promoters, the average individuals' holding is far below the limit under the amendments in the Securities Contracts (Regulation) Rules, 1957 (SCRR). "Implementation of the proposed changes in the Act, will lead to a huge flow of IPOs and Follow-on offers by a large number of companies into the primary markets," says Venugopal Dhoot, President of ASSOCHAM.

The Study has revealed that only two companies among Sensex and Nifty scrips satisfy the proposed criteria of 25% of ‘public’ shareholding- Bajaj Auto and Larsen & Tourbo with a share of 27.7% and 35.5% respectively. In majority of the companies, FIIs occupy the maximum share of non-promoter holdings which fall in a range of 60% to 40%.

They are followed by insurance companies with a range of 20% to 5% and mutual funds ranging between 3% to 1%. Interestingly, the average individual shareholding of the public sector companies is only 1.81% which is far less than the average individual’s share of 13.56% in the private sector companies. Among the Sensex firms, the average retail shareholding was estimated by the AEP to be 11.89 per cent and 10.08 per cent among the Nifty companies.

The Finance Ministry has proposed raising the ‘public’ shareholding limit for listed companies from the existing 10% to at least 25% in a move to encourage more public participation, transparency and overall governance in the market. With the implementation of proposed changes in the Act, the listed firms will have to dilute their shares within a period of three months.

If the proposal is implemented in one go, public sector companies will have to shed their promoter’s stake like BHEL with the least percentage of ‘public’ shareholding of 0.37%, ONGC with a share of 1.99%, NTPC (2.03%) and SBI at 2.86%.

The phenomenon is not restricted to public sector companies alone. Even private sector companies would have to dilute their equity to stay listed on the stock exchange. Bharti Airtel with the least percentage of the individual shareholding would have to dilute 23.65% of its promoter’s stake. Maruti Suzuki and TCS would have to follow the suit having a very small percentage of Individual shareholding of 2.46% and 5.34% respectively.

The study also found that promoters of the company own over 70-80% stake in most of the energy, IT and telecom companies like TCS (77.78%), Wipro (79.50%), Reliance Petroleum (75.38%), ONGC (74.14%), NTPC (89.50%).

Stock Market Analysis

Stock markets have rebounded to make new highs and are likely to continue rising over the long-term. A report.

Arun Kumar, a regular stock market investor, is making substantial gains on his existing equity investments. With the Sensex crossing a record high of 17,000 points, he is both glad as well as worried.

He questions as to how high the markets can go from the current levels. He also wonders with caution whether the market can keep jumping from such higher levels. If the answer is 'yes', then what factors will help the bulls have their grip over the market.

India is now increasingly interlinked with the global economy, which has been grappling with challenges like credit or liquidity crunch following the subprime crisis, weakening dollar, galloping rise in crude oil prices and fears of global economic slowdown especially in the US.

Among the domestic factors, there are uncertainties over interest rates and elections likely next year. Thus, Kumar is perplexed as to whether this is the time to hold on to his portfolio and add more scrips (most of them have gained 30 per cent on an average) or sell off now only to enter at lower levels at every dip?

Like Kumar, many other investors are wondering what to do. Their questions are: Where are the markets headed? How much steam is left? Is a correction overdue? If yes, then how much will the markets slide? Will factors like rising money inflows, inflation, appreciating rupee and economic slowdown in the developed markets derail India's scorching growth?

The Smart Investor helps you answer these questions with the help of market experts and economists.

Rapid fire round
Investors, the world over, gave a euphoric welcome to the 50 basis point cut in interest rates by the US Federal Reserve in response to the credit crunch and interpreted it as a proactive step towards avoiding a recession.

However, the party was merrier for the emerging markets like Hong Kong, India and Brazil, as these markets gained more than the developed markets on account of strong comeback of foreign institutional investors' money.

India, one of the key emerging markets in Asia, has seen FIIs pumping in $2140.8 million in seven days ending September 26.

Starting the week at 16,845 (after crossing 16,000 and gaining 1,000 points only in the week before last), the Sensex zipped past another threshold of 17,000 and gained another 1,000 points within just six trading sessions.

Says Manish Sonthalia, vice president, equity strategy, Motilal Oswal, "The US Federal Reserve has ensured through the rate cut that enough liquidity is available. As liquidity chases growth, which is there in Asia, equity markets in India, one of the fastest growing economies in the world, have also rallied."

Adds Ketan Karani, vice president, research, Kotak Securities, "Asian markets especially China and India have been re-rated after the Fed rate cut, which has resulted in a shift in investments among various global asset classes."

Sandip Sabharwal, chief investment officer, JM Financial Mutual Fund, has yet another reason. Says he, "Indian economy and corporate profits have exhibited robust growth even during challenging times of rising interest rate cycle which started from 2003 onwards."

What's next?
The Sensex currently trades at a trailing twelve month price to earnings multiple of over 20 times. This is still cheaper than its closest comparable peer China, which is trading at double the valuations at 48 times.

The Sensex trades at about 19.5 times and 16.5 times for FY08 and FY09 estimated earnings. Though market experts are cautious over the medium term, they believe that the long-term trend of the Indian markets is that of a secular bull run.

Says Balakrishnan Kunnambath, managing director - Indian Subcontinent, SG Private Banking (Asia Pacific), "Strong liquidity will continue to chase risky assets and drive valuations beyond fundamental fair valuations. We are cautious on the overall market as valuations are in the expensive zone and growth is tapering off."

So is a correction underway? "We expect a correction in the short-term as sectors hit by rupee and interest rates have significant weightage in the index. However Sensex has support at 13500-14500 levels for the current year," says Harendra Kumar, head of research, ICICI Direct.

Even Sonthalia feels that the markets should consolidate and be range bound in the short term.

Sandeep Sabharwal, while agreeing to it goes on to add that it could oscillate 3-4 per cent on the either side. However, long term investors should not pay much heed to the short term gyrations.

Speed-breakers ahead
Market experts believe that the party will last for a few more years. However, this doesn’t mean that the road will be smooth and free of difficult times having reached such high levels. India will have to battle some storms in the medium term.

The appreciating rupee, high oil prices, fears of US economic slowdown, and tapering growth in industrial production and corporate earnings still remain major risks.

However, market experts are unperturbed. Says a much enthused Karani, "Since India is a net importer, the appreciating rupee will be positive." Further, the risk of weakening dollar and US slowdown is limited to sectors like IT and textiles, adds Sabharwal.

High oil prices also pose a limited risk because even if crude oil price have risen more than 30 per cent since the beginning of the year, rupee (the best performing Asian currency in 2007) has also appreciated by 10-11 per cent.

Moreover, corporate earnings growth is also likely to be healthy at 15-20 per cent on a higher base except some sectors like IT, sugar and pharma.

However, some players feel that it is better to watch for August and September data for a better picture as the growth in index of industrial production has slowed down in the recent past.

Softer interest rates-a succour
Among all the factors, market players are watching interest rates keenly. Will Y V Reddy follow Bernanke's lead of reduction of interest rates?

Market participants feel that interest rates could soften going forward. However, economists differ. They don’t expect RBI to follow the footsteps of US Federal Reserve at least in the medium term.

Says D K Joshi, director and principal economist, Crisil, "I do not see RBI signalling interest rate reduction soon as high global crude prices remain a critical risk to domestic inflation. However if inflation remains at the current low levels and GDP growth slows down as expected by us, then we might see a reduction in rates later this year."

Rupa Rege, chief economist, Bank of Baroda, agrees that interest rates are likely to be stable for the time being; however with an upward bias in the second half on account of accelerated money inflows, rising inflation and good demand for loans from agriculture and infrastructure sector.

However, an analyst alleviates fears by saying that Indian corporates are insulated as they are relatively quite underleveraged with a comfortable debt-equity ratio. But continued money inflows remain a risk as it could stoke inflation again.

Strategies to adopt
Investors need to brace up for bouts of volatility due to factors like profit booking at higher levels, uncertainty over interest rates and elections next calendar year among others. Moreover, experts advise investors to whittle down returns expectations.

The trick could be to pick and choose stocks and still make decent gains as the rally hasn’t been broad-based. A better strategy would be to remain invested in sectors or stocks led by domestic growth and accumulate at every dip.

FIIs are attracted to India as the growth is largely driven by domestic consumption and thus are relatively immune to global shocks.

Thus, market experts as well fund managers are most positive on domestic growth stories like banks, infrastructure, power, capital goods, cement, metals and to some extent select media and telecom companies.

India provides huge business potential whether it is for building infrastructure like power, roads, ports and airports (which will require cement and metals) or changing demographics with substantial share of younger population boosting demand for autos, consumer durables, property and retail.

All this requires capital which is partly met by banks and financial services.

JM’s Sabharwal and Motilal Oswal’s Sonthalia are also positive on interest rate sensitive sectors like auto (except two-wheelers), real estate besides banks and financial services. This is because India has to maintain a benign interest rate scenario to keep the growth running.

But investors should be cautious on sectors like textiles, information technology, sugar, pharma and two-wheelers as they are going through a rough phase and various challenges and uncertainties.

But some analysts don’t mind taking a contrarian call on IT stocks as they are available at cheap valuations. Large-caps are going to be the market's favourite due to better liquidity.

Via BS

Managing volatility

The sharp spikes and steep declines in the markets are a short term reaction. The Indian growth story continues...

The volatility in the markets is increasing. What could explain a 1,000 point whack to the Sensex two weeks ago followed by a 600 point rebound to be accompanied by 900 point dip immediately after? Taking an investment decision based on events in the preceding two weeks in a volatile market is not a good idea. The best way to figure your way out of this mess is to look at the problems that have led to this crisis, the impact they may have on your portfolio and decide on your investment outlook for the medium term.

The credit squeeze The loss from the subprime crisis which came about due to rapid increase in American real estate prices and subsequent cooling off is estimated at $150 billion. While hedge funds and banks such as Bear Stearns, Macquarie and BNP Paribas have been affected, its impact on the US economy is expected to be minimal. In this context, why did it create a global market meltdown? With delinquencies and underlying bonds falling in value there has been a squeeze on liquidity and a flight of safety to assets that are less risky, and thus the volatility.

This has also played out in India, with institutions preferring to park their assets in safer instruments. Should you be worried? With nearly half of the fund flows into the country coming via the participatory note route, it is unclear which hedge funds are involved and what their exposures are to the Indian market. For the next four weeks, there will definitely be a squeeze on the money available for investments in emerging markets.

FIIs pumped in nearly Rs 24,000 crore in July and this figure was more than their investments in six months preceding that. What were the reasons for such strong inflows? Says Manish Sonthalia, vice president- market strategy, Motilal Oswal Securities, "Interest rate arbitrage is the main reason why we are seeing massive capital inflows and combined with the 10 per cent rupee appreciation against the dollar, the returns become phenomenal." While the appreciating rupee vis-à-vis the dollar is keeping the flow of greenbacks coming in, it is having a negative impact on the export dependent sectors. In this context, its movement will have a bearing on liquidity, inflation and interest rates.

Rising rupee The large inflows on account of rupee appreciation has been the major source of volatility and is a major headache for policy makers. The RBI started intervening to plug rupee appreciation and between April 2006 to May 2007, it bought greenbacks to the tune of $33 billion infusing equivalent rupees in the system. When this happened, liquidity, credit and inflation went up. The RBI let go the rupee to control inflation and the resulting rupee appreciation made our markets even more attractive.

The appreciating rupee which was threatening to break the nine-year high of Rs 40.20 was reined in by tightening ECB norms. The rupee now trades closer to the Rs 41-mark. So where is the rupee headed? Subir Gokarn, chief economist, CRISIL, believes the ECB measure and the extra funds available under the market stabilisation scheme will ensure that the rupee stays in the Rs 40-Rs 41 band. Unlike other emerging markets like China, a $50 billion trade deficit will ensure that the dollar will continue to remain over the Rs 40 mark. While sectors that have a competitive advantage like software will ride out a hit to their export earnings due to high margins, industries such as leather and textiles will suffer. The only way for these sectors to tackle the situation, believes Ritesh Jain, head of fixed income at Kotak Securities, is to improve efficiencies and move up the value chain. While the rupee is an external factor has there been a change in India's growth story?

Growth worries The numbers, be it the index of industrial production (IIP), slowing down of credit growth or the decline in export realisations are not too encouraging. What has dented the high levels of 9.4 per cent GDP growth in FY07 in the current fiscal? Three reasons: First the rupee appreciation. IT exports stand to lose and cheaper imports mean a threat to the local manufacturers. Second, the tightening of credit by RBI has pushed up interest rates and affected sectors such as auto, real estate and consumer durables making purchases more expensive and finally the government's poor response on the supply side is stalling growth as infrastructure struggles to catch up with demand. Parallels are being drawn between the situation now and those prevailing in 1997 when the growth process was derailed as high interest rates and new capacities had few takers and GDP growth went under 5 per cent from a high of 7.81 per cent. Could there be a hard landing?

In better shape A hard landing is unlikely. The conditions this time are different and the lower numbers should not be a cause for worry. Says Madan Sabnavis, chief economist, NCDEX, "The numbers are coming from a higher base.

This is a lean season and production will pick up as demand starts improving after the kharif season (October). Finally, high credit growth last year means investments have taken place, and there would be a time lag before investments fructify into output." The only cause for worry, believes Devendra Nevgi, CEO and CIO of Quantum Mutual Fund, are supply-side constraints. Unless infrastructure comes through to match the expansions and capacities, we could have a problem and the situation will be tested in this fiscal and the next.

Two other issues, oil prices and interest rates can cause problems. Crude prices have been above the $70 to the barrel for some time now while prime lending rates have moved up 200 basis points over the last one year to 13.25. Gokarn, however, believes that both are manageable. "In FY05, oil prices peaked but we were able to manage the price rise." RBI by leaving the interest rates untouched twice in a row has indicated that it is comfortable with the rate. While the central bank has estimated India's GDP growth at 8.5 per cent for the current fiscal, experts believe that in the long term, growth could revert to trend rate between 6.5 per cent and 7.5 per cent. What will this mean for India's corporate earnings?

So far, so good With capacity utilisation at its peak, Indian corporates have been reporting excellent numbers on profitability, return on assets and return on equity. According to CMIE, the debt to equity ratio for corporate sector (non-financial companies) has significantly improved from 1.13 to nearly half that in the last five years. Net profit to sales has also shown a dramatic increase growing six-fold to 6.74 per cent. While sales has been growing consistently at over 15 per cent over the last three years, gross profits of the private sector have been registering a 20 per cent growth every year in the same period. However, with the next phase of expansion under way, bottom lines could be affected due to high fixed costs, depreciation and interest charges.

Says Shriram Iyer, head of research, Edelweiss Securities, "Operating leverage and pricing power will come down with a increase in supply." In case of a slowdown, companies will start offering discounts and promotional schemes to clear inventories which could put realisations under further pressure.

The impact would, however, vary from sector to sector with cement and automobiles, which are in expansion mode likely to be affected the most. Industrial growth and earnings, experts believe, will be muted and could perk up when expansions come through in FY09.

Where to invest? With triggers for growth to come from consumption, infrastructure-related spending and offshoring, analysts are bullish on stocks in sectors such as capital goods, engineering, power, banking and construction. They are underweight on petrochemicals, realty, utilities and information technology.

What about valuations? Despite the sharp correction, the Sensex at 15000 levels discounts current earnings by an expensive 21 times. But if we are to go by the Bloomberg EPS estimates of Rs 855 for FY08, the benchmark index is trading at just under 18 times, which matches its earnings growth. The future growth is thus priced in. A further correction would take it to levels of 15-17 times FY08 earnings and will be considered cheap. Advice for investors? Hold on to your investments. Analysts warn against short term trading in this choppy market and instead advice that you add quality stocks in your portfolio preferably in the defensive sectors (pharma and FMCG) and reduce risk.

Which market will blow up next? - Jim Jubak

Who's next?

It's only logical to wonder after the 9% plunge in China's Shanghai stock market led to a global sell-off on Feb. 27. That ended with the Dow Jones Industrial Average down 416 points on the day.

There are the usual suspects, of course:

• The U.S. markets, if the crisis in the submortgage market spreads to the rest of the debt market.
• Japan, if investors panic at signs that the economy might be slipping back toward recession after the latest interest rate increase.
• Russia, if investors decide that the country's booming stock market -- up 51% in 2006 -- and state-controlled economy too closely resemble the Chinese market that just blew up.
• The $345 trillion derivative market, if some of the math whizzes that carve up risk sent too much risk to the wrong investors.

But I've got another candidate: India.

It's as big as China. It's growing just about as fast. Its economy is in more danger of overheating. And it's more dependent on speculative hot money. The Indian stock market suffered through a 30% drop in May and June of 2006, so similar volatility in the days ahead is certainly a possibility. And the country looks like it's on the road to a genuine economic and political crisis.

And, of course, with the global financial markets as spooked as they are after the Feb. 27 meltdown in Shanghai and the subsequent global sell-off, any short-term blip in a major developing market such as India could set off big ripples across the globe.

In the long term, however, I think India might be the most attractive of all global stock markets: Its population is younger than China, its educational system is expanding and improving, and its companies are more focused on creating wealth for shareholders.

Do the long-term rewards outweigh the short-term risks? Should you buy in now, determined to weather any storm, or wait for the rain to fall and the clouds to clear? Let me lay out the short-term risks and the long-term potential.

First, the short-term risks

• Asset prices are high, so high that they show all the signs of a classic asset bubble. The market valuation of the main Indian stock market in Mumbai, despite that 30% downturn in 2006, had climbed to $836 billion in mid-February from $121 billion in April 2003, an increase of 591%. Property values have soared, with the value of prime office space in Mumbai up 70% in the last year.
• Those high asset prices depend on a flood of easily withdrawn overseas hot money. Flows of capital into the Indian stock market climbed to $12.5 billion in fiscal 2006, up from $2 billion in fiscal 2002.
• India is very dependent on global cash flows. Unlike China, India runs a trade deficit and only showed a total capital account surplus in fiscal 2006 because of that $12.5 billion from overseas investors in stocks, foreign direct investment of $6 billion in 2006 and rising corporate borrowing on international capital markets (about $6 billion in fiscal 2005). India was relatively untouched by the Asian financial crisis of 1997, but it is much more vulnerable to changes in external cash flows today.
• Bank lending is out of control. Over the past three and a half years, bank credit outstanding has jumped by 76%, according to Morgan Stanley.
• Inflation is out of control. Nationally, inflation recently hit a two-year high of 6.7% and is running even higher -- about 9% -- in the rural areas where two-thirds of Indians live. Inflation at the wholesale level has increased to 6% from 4% last spring.
• The Reserve Bank of India, the country's central bank, raised its benchmark interest rate to 7.5% at the end of January without noticeably slowing either inflation or the lending boom. Finance Minister Palaniappan Chidambaram has thoroughly undercut the central banks efforts by urging banks not to pass on interest rate increases to lenders.

My short-term prognosis: A big domestic credit crunch -- caused when lenders stop lending and borrowers can't get the cash they need to run their businesses -- causes India to fall far short of current forecasts of 9% to 10% annual growth. Foreign investors begin to withdraw money from the Mumbai stock exchange, producing another 30% "correction." The current Congress Party government loses power. After stumbling with politically motivated attempts to reduce food and fuel prices in rural areas, a new government bites the bullet, raises interest rates and cuts bank lending enough to slow inflation and the economy. Overseas cash begins to return.

It won't play out exactly like that, of course. I don't know how deep any credit crunch might be or how much the Reserve Bank of India might have to slow the economy to reduce inflation to its 5% to 5.5% comfort zone. I don't know how long the Congress Party government might be able to cling to power. I don't know how other global markets would react to a big drop in Indian stocks.

Most of all, I don't know when all of this might happen. This mess took a while to create, and my suspicion is that it will take a while to correct. The core of the problem -- the imbalance between urban areas quickly growing wealthy (in Indian terms) and rural areas left behind in the boom -- isn't unique to India, and it won't be solved by just one crisis. And subduing inflation in India will require big increases in supply, since Indian companies are now operating at full capacity, and improvements in infrastructure that reduce the costs of moving food and fuel. A recent study by the Reserve Bank of India says that it will take 18 months to two years to add significant supply. I think it's reasonable to look for an Indian crisis within that 18- to 24-month parameter.

Second, the case for long-term rewards

• There's no going back to the highly regulated economy of the past. Even the Congress Party, no friend of an open economy, wasn't able to resist the momentum. And with Indian companies increasingly making big bucks from the global economy, there's no reason to put the genie back in the bottle. That means future growth should be in the range of 7% to 10%, not the anemic rates of the 1980s, when growth was just a third of that.
• The Indian middle class numbers 200 to 300 million, enough to make them the driver of a domestic consumer economy. With Indian per capita GDP of $3,460 in 2005 (adjusted for purchasing-power parity because money goes further in a poorer country), India is still poorer than China at $6,660 per capita in 2005, but the country has crossed the economic threshold where growth in consumption takes off. Only 10% of Indians have life insurance now, only 2% have credit cards and less than 15% have refrigerators.
• Even some of India's problems have major economic upside. India's investment in infrastructure has lagged China's. In 2002, for example, the country spent only $31 billion, or 6% of GDP, on building the roads, ports, railroads and airports necessary for competing as a global economy. China in that year spent $210 billion, or 20% of GDP. But the Indian government recognizes its need to catch up.
• Education is getting the attention -- and rupees -- it needs. Indian society has been soundly shaken over the last two years by studies that show that the country spends too little (just 3.8% of GDP), educates too few (only 8% of 18- to 24-year-olds go on to higher education, about half the Asian average), and teaches too poorly (although 95% of 5- to 10-year-olds go to school, 40% drop out by age 10). The government's next budget, though, is expected to show an increase in education spending to 6% of GDP.
• Demographics work in India's favor. Half of India's 1.1 billion people are under 25 today, and the country is among the least rapidly aging in the world. In 2002, according to the United Nations, in the developed world 20% of the population was 60 or over. In China, the figure was just 10%, and in India, 8%. By 2050, according to projections, the percentage will have climbed to 33% in the developed world and to 30% in China, but to just 21% in India. That means that India has time to fix its problems before the needs of a huge cohort aged 60 and older begin to dip into national savings. India can take comfort in research that shows younger economies grow faster, too.
• India's companies have a culture of creating value for shareholders. I know this is subjective, but it is important. If you're going to be a passive shareholder in a company, you'd better hope that the goal of the company is growing the value of all shareholders' stakes. Many Indian companies -- and some of the biggest -- have that culture, maybe because so many started life as businesses run by extended families. I think that culture takes much better care of shareholders than that of corporate China, where companies are often run to enrich local officials, managers and party elites.
• India's companies show above-average profitability. Here's something much more concrete: The average return on equity for Indian companies on the Mumbai stock exchange is 21%. That's significantly above the 18.7% average return on equity for the U.S. members of the Standard & Poor's 500 Index
  
• In addition, Indian companies are comparatively underleveraged, with an average debt-to-equity ratio of just 70% compared with a ratio of 123% for the S&P 500 companies. That means they're got plenty of room to add debt, which will in turn increase leverage, return on equity and profitability for investors.

My long-term prognosis: India is the most attractive stock market in the world for the long haul. By that I mean over the next decade or so.

Adding it all up: After weighing the long-term pluses and short-term minuses, I'd wait for another 30% correction in the Indian stock market. The risks in the Indian economy and the global financial markets are just too great in the short run at current prices in Mumbai. And as the panic on global markets that followed the 9% drop on the Shanghai stock market on Feb. 27 indicates, there are just too many hot-money investors around the world, all hoping to be the first out the door at any sign of trouble.

If I didn't get my correction in Indian stocks by early 2008, I'd re-evaluate my calculations of risk and reward to see if the global risk picture had changed.

How Market Fared

Bulls take a breather

The Markets snapped up a 2-day winning streak on the New year and closed lower with Sensex closing 13872, down by 143 points and NSE Nifty losing 35 points to close at 3989. Profit booking was seen in Infosys, Bajaj Auto, Wipro and SBI. However, select Mid-cap stocks rallied further. In addition, the mood was dampened weak Asian markets. Hang Seng Index lost over 380 points. While, The Nikkei 225 Stock Average climbed 0.7% to an eight-month high. However, US stocks erased an initial rally in 2007's first trading day after minutes from the Dec. 12 meeting of Federal Reserve policy makers suggested that the central bank was still concerned about slowing economic growth and accelerating inflation.

The only positive factors this morning was the fact that oil prices have fallen towards the $58 per barrel mark, which lifted the refinery stocks higher. BPCL, HPCL and IOC were among the major beneficiaries.

Technology stocks witnessed some profit booking after being in the limelight in the recent trading sessions. Satyam, Wipro and Mphasis BFL were among the major losers. HCL Tech lost 1.8% to Rs620 and Infosys was down by over 1% to Rs2285.

Pharma stocks recorded healthy gains. Ranbaxy, Sun Pharma, Glaxo and Dr Reddy's Labs were among the major gainers. Lupin edged higher to Rs609 after the company received Tentative nod for Generic of Pfizer's Zoloft. Ranbaxy added 0.5% to Rs413, Dr Reddys Labs was up by over 2% at Rs828.

Heavy profit booking was seen in FMCG stocks led by drop in ITC. The scrip lost nearly 4% to Rs169 on concerns that Value-Added Tax may be put on Cigarettes and HLL was down by 1% to Rs211. Others like Archies, Colgate and Marico Industries were among the major losers.

How Market Fared

New year begins for bulls

The bulls lost some ground. After surging nearly 400 points in the week the key indices slipped for the first time in the week on account of the F&O expiry. The key indices ended with moderate loss as selling pressure was witnessed in the frontline stocks like Reliance industries, SBI, ABB, Tisco, BHEL and L&T dragging the markets to close in red. The BSE Pharma index lost 0.89% and BSE Oil & Gas index was down 0.49%. Finally, the BSE benchmark Sensex slipped 13 points to close at 13846. NSE Nifty was down 4points to close at 3970.

PNB edged lower 0.4% to Rs513. The company revised benchmark Prime lending rate to 11.75% p.a. effective from January 1, 2007. The scrip touched an intra-day high of Rs520 and a low of Rs505 and recorded volumes of over 5,00,000 shares on NSE.

Reliance Industries lost 1.5% to Rs1274. According to reports the company has planned to invest as much as 50 billion rupees in a lignite gasification project in the western Indian state of Gujarat. The scrip touched an intra-day high of Rs1303 and a low of Rs1268 and recorded volumes of over 40,00,000 shares on NSE.

Lupin gained 2% to Rs615 as the company announced it ended an agreement with Cornerstone BioPharma Inc. to develop an anti-infective treatment for selling in the U.S. The scrip touched an intra-day high of Rs625 and a low of Rs604 and recorded volumes of over 83,000 shares on NSE.

Sugar stocks rose after being on the side lines for long, as Government allowed sugar producers to sell 4.1mn metric tons of sweetener domestically in first Quarter of 2007 as production is expected to reach a record. Balrampur Chini advanced 2.1% to Rs84, Sakhti Sugar was up 1.1% to Rs101 and Dhampur Sugar has added 0.5% to Rs94. Bajaj Hind gained 1.6% to Rs218 after the company declared its Q4 result with net profit at Rs382mn and gross sales at Rs3.88bn (up 31%) and the board of Directors also recommended Dividend of 60%.

Metal stocks ended lower on back of selling pressure. Tisco lost 1% to Rs476, Sterlite Industries was down 0.5% to Rs533, Hindustan Zinc shed 0.5% to Rs828 and National Aluminum slipped 0.7% to Rs214 and Hindalco edged lower by 0.2% to Rs174.

Technology stocks pared their intra-day gains. Mid-Cap stocks like Tata Elxsi, NIIT Ltd and i-Flex were among the major losers. Among the heavy weights Satyam Computer slipped 0.7% to Rs489 and Infosys lost 0.2% to Rs2248.

Telecom stocks today were a mixed bag. Reliance Communication advanced 0.5% to Rs477, and MTNL gained 0.5% to Rs145. However, VSNL lost 2.25 to Rs405 and Bharti Airtel was down 0.2% to Rs630.

Pharma stocks witnessed profit booking. Cipla slipped 2.7% to Rs254; Sun Pharma declined 1.2% to Rs974, Glaxo was down 1% to Rs1158 and Dr Reddy's Lab slipped 1% to Rs800.


The bulls lost some ground. After surging nearly 400 points in the week the key indices slipped for the first time in the week on account of the F&O expiry. The key indices ended with moderate loss as selling pressure was witnessed in the frontline stocks like Reliance industries, SBI, ABB, Tisco, BHEL and L&T dragging the markets to close in red. The BSE Pharma index lost 0.89% and BSE Oil & Gas index was down 0.49%. Finally, the BSE benchmark Sensex slipped 13 points to close at 13846. NSE Nifty was down 4points to close at 3970.

PNB edged lower 0.4% to Rs513. The company revised benchmark Prime lending rate to 11.75% p.a. effective from January 1, 2007. The scrip touched an intra-day high of Rs520 and a low of Rs505 and recorded volumes of over 5,00,000 shares on NSE.

Reliance Industries lost 1.5% to Rs1274. According to reports the company has planned to invest as much as 50 billion rupees in a lignite gasification project in the western Indian state of Gujarat. The scrip touched an intra-day high of Rs1303 and a low of Rs1268 and recorded volumes of over 40,00,000 shares on NSE.

Lupin gained 2% to Rs615 as the company announced it ended an agreement with Cornerstone BioPharma Inc. to develop an anti-infective treatment for selling in the U.S. The scrip touched an intra-day high of Rs625 and a low of Rs604 and recorded volumes of over 83,000 shares on NSE.

Sugar stocks rose after being on the side lines for long, as Government allowed sugar producers to sell 4.1mn metric tons of sweetener domestically in first Quarter of 2007 as production is expected to reach a record. Balrampur Chini advanced 2.1% to Rs84, Sakhti Sugar was up 1.1% to Rs101 and Dhampur Sugar has added 0.5% to Rs94. Bajaj Hind gained 1.6% to Rs218 after the company declared its Q4 result with net profit at Rs382mn and gross sales at Rs3.88bn (up 31%) and the board of Directors also recommended Dividend of 60%.

Metal stocks ended lower on back of selling pressure. Tisco lost 1% to Rs476, Sterlite Industries was down 0.5% to Rs533, Hindustan Zinc shed 0.5% to Rs828 and National Aluminum slipped 0.7% to Rs214 and Hindalco edged lower by 0.2% to Rs174.

Technology stocks pared their intra-day gains. Mid-Cap stocks like Tata Elxsi, NIIT Ltd and i-Flex were among the major losers. Among the heavy weights Satyam Computer slipped 0.7% to Rs489 and Infosys lost 0.2% to Rs2248.

Telecom stocks today were a mixed bag. Reliance Communication advanced 0.5% to Rs477, and MTNL gained 0.5% to Rs145. However, VSNL lost 2.25 to Rs405 and Bharti Airtel was down 0.2% to Rs630.

Pharma stocks witnessed profit booking. Cipla slipped 2.7% to Rs254; Sun Pharma declined 1.2% to Rs974, Glaxo was down 1% to Rs1158 and Dr Reddy's Lab slipped 1% to Rs800.

1,100 cos hit 52-wk lows during bull run

Skeptics of the stock market rally never tire of pointing out that only a handful of shares have participated in the recovery between June till now.

In the past 100 trading sessions, even as benchmark equity indices continued to soar, 1,100 companies listed on the BSE hit 52-week lows. But, supporters of the bull run argue there is a strong reason for the market to have ignored these companies. A majority, if not all, of these companies have seen their earnings decline over the past one year.

For the purpose of analysis, recent listings and companies whose comparative net profit figures were unavailable were excluded, leaving a total of 946 companies. These firms were categorised in the different groups and their group-wise four-quarter trailing net profit from September 2005 to September 2006 was analysed.

The hardest hit has been companies in the B2 Group comprising 420 companies, followed by B1 with 172 and S Group having 149 firms. At the same time, these B2 group companies posted a combined 24% decline in net profit over the past four quarters. This included 50 companies whose bottomlines slipped into the red during this period.

The combined net profit of the 946 companies has shown an increase of 23%, but that is mainly because high profits by a handful of them. In the A group, the combined net profit has risen by 28% from Rs 4,805 crore to Rs 6,157 crore. Here again, the increase is due to companies like National Aluminium, Canara Bank and Dena Bank, which together comprised about Rs 1,750 crore of increase in profit.

Similarly, the combined 25% rise in net profits in the B1 group was mainly because of companies like EID Parry and UB Holdings that together posted a net profit of over Rs 500 crore. In the Z group, the increase of 140% is due to the effect of one or two companies.

Harendra Kumar, head-research, ICICIDirect, says, “When a company hits a 52-week low, there is something fundamentally wrong with it. Just because the rally is happening, it does not mean that all companies in the industry are performing accordingly. There are large numbers of them unable to catch up with the growth witnessed by the industry.

Their stock prices could have tumbled down due to various reasons like rising operational costs, increasing input costs and margin pressures, lacklustre sales growth and lack of entrepreneurial skill sets et al. It is the big companies that benefit first when the growth in the economy takes place.”

He says some of these stocks also provide an opportunity as investment candidates. This cannot be interpreted as a buy signal, but there are many stocks that represent value and investing opportunity for those who complain that they have missed the bus.

“There has been a sharp increase in the profitability of large companies like information technology, financial and financial services like banking that witnessed a four-month rally, beginning late July on the back of falling bond yields, lower loan losses and investment provisions, as seen in the September quarter profits. Many small industries have not been able to catch up with the productivity factor and that is reflecting the stock prices of these companies,” says another analyst.