Gokaldas Exports: Buy

An investment can be considered in the stock of Gokaldas Exports, India's largest garment exporter. The extension of TUFS is likely to benefit companies such as Gokaldas, which are on an ongoing expansion drive. Import of fabrics is likely to be cheaper with the cut in Customs duty. The inclusion of income from its export-oriented units under the Minimum Alternate Tax may not have too adverse an impact on net margins, considering that the company already bears an effective tax rate of more than 10 per cent.

From a long-term perspective, the stock valuations are reasonably attractive. The stock trades at 10-11 times its likely FY-08 per-share earnings, assuming its expansion programme remains on track. Fresh capacities, a diversifying product and client mix and the identification of the domestic retail market as a new revenue stream would ensure that revenue growth remains in strong double-digit. Gokaldas has been fairly conservative both in its expansion strategy and growth targets. We are inclined to view this positively, however, as it limits the downside. The stock may be suitable for investors with modest return expectations of 15-20 per cent.

Capex plans

In the first nine months of this fiscal, Gokaldas invested about Rs 65 crore in expanding its facilities. Four factories came up in the third quarter in Chennai and in and around Bangalore; utilisation is likely to be ramped up over the next couple of quarters.

A plant in Mysore and a bottoms facility near Bangalore are likely to become operational in April 2007, while a unit in Hyderabad is likely to come up later this year. By the end of FY-08, Gokaldas' annual garment capacity would go up by about 25 per cent to 30 million pieces.

As Gokaldas is operating at optimum capacities, there is room for volume growth once these capacities come on stream.

Domestic retail, a new avenue

Ramping up production to full utilisation levels should not be much of a problem for Gokaldas, which recently set its eyes on the rapidly-growing domestic market as well. Gokaldas' retail initiative,

The Wearhouse, has not made much of an impact beyond the South Indian market.

Given its reputation as a quality garment exporter, the company, however, appears well-placed to capitalise on the demand from domestic retailers such as Reliance and Bharti that will be sourcing locally for their labels.

Diversifying product mix

Gokaldas has a product portfolio that is fairly untapped by other organised players, with jackets, coats, windcheaters, ski wear, sportswear forming a significant portion of its exports.

Given the fashion edge these products tend to have, Gokaldas is less vulnerable to severe price undercutting that takes place in volume-based segments such as cotton knitwear. It has, however, been diversifying its product portfolio and ramped up the contribution of trousers, chinos and other bottomwear and casual wear and babywear.

A new suits facility is likely to go on stream this quarter. Gokaldas is also in talks with an international player for a joint venture to start a apparel line. It has also diversified its customer base and appears to have made greater inroads into Europe since its public offer.

With an expanding number of customers, including those of repute, there is likely to be demand for its new products as well.

Polaris Software: Buy

Investors with a high-risk appetite can consider an exposure in the Polaris Software stock taking advantage of the recent weakness. At the current market price, the stock trades at a price-earnings multiple of 16 times its likely per share earnings for 2006-07. We have a buy recommendation outstanding on the stock, made in end-November at Rs 123.

Given its good order pipeline and overall improvement in the execution, the robust growth momentum of the past three quarters is likely to be sustained over the next year or so. Its growth engines, particularly an increased contribution from the IP-led intellect product, may add to the operating profit margin in the coming quarters.

On the downside, however, Polaris will have to contend with stiff competition across the banking products space and efficacy of cross-selling its testing/ERP solutions to the existing product clients. Any scaling down of revenues from Citibank, its key client (accounting for 44 per cent of revenues), or a slowdown in order flows from the US or Europe, poses additional risks. The impact of the introduction of the Minimum Alternate Tax and Fringe Benefit Tax in the latest Budget may not materially alter the per share earnings projections for 2007-08. sConsidering the sharp run-up in the stock since our earlier recommendation, investors need to moderate their return expectations to 15-20 per cent. But the returns are likely to be steady and linked to financial performance in the coming quarters.

Improving fundamentals

At the broad level, the six sub-verticals created within the BFSI space — retail banking and credit cards; consumer finance and mortgages; insurance; capital market and wealth; corporate banking and cash and enterprise solutions; and mainframe — will be Polaris' engines of growth. The three variables that inspire confidence in its fundamentals over the next year are:

Order pipeline: The traction on the order front has been encouraging. As of the third quarter ended December 31, 2006, Polaris had 55 strategic accounts, with 13 AAA (potential to generate revenues of $ 10 million), 15 AA ($5-10 million) and 27 A ($1-5 million). The Polaris management has also indicated that of the top 25 financial institutions, 11 are their customers and 11 are prospects. In the latest conference call, the company stated that it has nine $5-million accounts (compared to seven in 2005-06), six have moved in the $3-5 million basket (from four last year) and 16 are in the $ 1-3 million bracket (from eight last year).

Contribution of intellect: The contribution from the high-margin IP-led intellect core suite has been rising steadily. In the latest quarter, it accounted for 18.5 per cent of revenues, up from 16.6 per cent and 14.9 per cent in the two previous quarters. As the contribution from this stream increases, it is likely to impact positively the overall margins and create good scope for downstream revenues from services. The sustained investment in sales and marketing is likely to yield good results.

Balanced geographic mix: The fairly balanced geographic mix among North America, Europe and Asia-Pacific is a positive. In the latest quarter, North America accounted for 35 per cent of revenues, with Europe and Asia Pacific accounting for 31.6 per cent and 21.6 per cent respectively. The successful penetration of Europe is likely to work to its advantage in the next few quarters.

It is a combination of these variables that have helped the Polaris management talk in terms of a 5-7 per cent sequential growth over the next few quarters.

Riding the equity turbulence

The storm clouds of inflation, higher interest rates and global jitters had been hovering over the stock market much before the Budget, which, given that it was long on populism and short on reforms, took a further toll on equity values.

The Sensex cracked 540 points on Wednesday, making it a 1,200-point fall in a fortnight. As the dust settles after the Budget, there is a key question: Is the market poised for a spirited pull-back and how can investors play the volatile equity theme over the next few months?

Investors need to take stock of three key variables:

Global nervousness and portfolio flows: The fear of a crackdown on speculation in China (which was the best performing market in 2006) has triggered massive concerns across the globe.

The prospect of tighter monetary conditions across Asia (including Japan) may stem the flow of easy money away from the fancied emerging markets.

There is a possibility that funds may flow away from the BRIC countries towards Malaysia, Indonesia or the Philippines in the short run. This trend may be aggravated if the threat of a slowdown in US growth intensifies.

The latest figures suggest that the US economy grew by an annual pace of 2.2 per cent compared to 3.5 per cent earlier.

Since FII flows are directly linked to these factors, any sluggishness in liquidity will have a direct impact on market movements in India.

Overhang of interest rates: The domestic interest rate cycle has been on an upturn for the past few months (see related story). Despite recent policy moves on this front by the Reserve Bank of India, some economic commentators and analysts feel that the central bank may be behind the curve in increasing interest rates.

Taming inflation may not be easy for the government, if one goes by the hike in cement and steel prices, post-Budget.

If inflation hardens over the next quarter, the Government may be left with no choice but to increase interest rates further.

From an investment valuation standpoint, rising interest rates are usually a negative for the stock market as they are negative for corporate earnings and increase the risk-free rate used to calculate cost of capital. And the impact of this will catch up with the markets.

No sectoral favourites: For the first time over the past year, investors may be running out of sector favourites. Heavyweight sectors such as oil and gas, automobiles and pharma have been out of favour the past quarter.

And post-Budget, it appears that investors need to be selective in stock-picking, even in such fancied sectors as construction, capital goods, software and cement.

Among the index heavyweights, barring a couple of telecom stocks, the market is running out of investment ideas.

Despite attractive valuations, in the absence of investment triggers, the mid-cap and small-cap stocks continue to languish.

In the backdrop of these factors, investors may be better off:

Staying on the sidelines in the near term, without taking fresh exposures. Inflationary pressures may worsen in the near term, as the supply side may not be able catch up with demand quickly.

If it persists, manufacturing companies may face margin pressures. On the contrary, from these levels, even if the market were to rally, it may offer only a 10 per cent return, which may not adequately compensate the risks involved.

Consider booking partial profits in some of their deep in-the-money positions.

As a measure to reduce risk through diversification, you could move some of those profits into mutual funds with multi-cap portfolios that straddle large-, mid- and small-cap stocks.

Funds such as HDFC Equity and Franklin Prima Plus may be ideal investments, apart from a dose of short-term debt.

As the long-term India story remains intact, investors with a long-term perspective can stay invested for now.

However, more attractive opportunities may open up later for taking fresh exposures at lower levels.

Five points someone overlooked

We have been short-changed in the Budget, says India Inc. The corporate sector is like a strong oak tree while the agriculture sector is like a plant which has to be nursed, said Mr P. Chidambaram in defence, implying that the former does not need support any longer. "We have done nothing to hurt the growth story," he says.

Corporate India's grouse is that most of its suggestions have not been considered by Mr Chidambaram even as he proposed such not-so-friendly measures as higher education cess, application of the Minimum Alternate Tax on IT companies, extension of the Fringe Benefit Tax on employee stock options and increase in the dividend distribution tax to 15 per cent.

Focus on agriculture is fine, and with two-thirds of the population depending on it for their livelihood it is also probably necessary. But tending to the plant does not necessarily exclude caring for the oak because it is the latter that is generating the resources to help the former.

Here are five proposals which, had they been considered by the Finance Minister, might have balanced the Budget better between industry and agriculture. They would have certainly pleased India Inc. and the best part is that these measures are either revenue neutral or would have had but a minor impact on revenue. So, here are those proposals that were not to be:

excise duty on cars

The passenger car industry had suggested a reduction in the excise duty on all categories of cars and utility vehicles to 16 per cent. At present, except small cars conforming to a specified definition on size and engine capacity, all other vehicles suffer 24 per cent excise. Paan masala is the only other product to suffer a similar excise duty!

Mr Chidambaram could have considered the suggestion favourably given last year's experience, when sales of small cars shot up following the reduction in their excise duty.

Small-car sales zoomed 31 per cent when the overall car industry grew 23 per cent in April-January this fiscal. Incidentally, the growth rate for small cars for the whole of 2005-06 was half that.

The beneficial effect is clearly visible here with the increase in sales compensating for the revenue loss from duty reduction. Who knows, a reduction in duty on all cars this year could have stimulated sales in a similar manner. The auto industry is a major employer and contributes 5 per cent to GDP now. The trickle-down effect to the component sector in terms of investment and employment would have been tremendous. Did Mr Chidambaram miss something here?

Focus on tourism infrastructure

Tourism is an industry that is largely neglected especially given the potential in the country. As anyone who has travelled to any of the major cities recently would tell you, it is just impossible to get good hotel rooms for even a night's stay. Occupancy levels are at 100 per cent and most good hotels boast of a waiting list of guests.

How can tourism prosper in such conditions? While the hotel industry had asked for infrastructure status, Mr Chidambaram could have at least considered extending the five-year tax holiday that he has granted to new hotels coming up in the Capital and surrounding areas, to all over the country. Tourism is probably the next big thing waiting to happen and a couple of concessions to the sector would have gone a long way in promoting its growth.

Duty structure for petroleum products

The petroleum industry is riddled with tax conundrums and Mr Chidambaram has just made a peripheral attempt at solving them by reducing excise duty on petrol and diesel to 6 per cent.

He could have tried his hand at reforms by shifting to specific duties and abolishing the ad valorem component on the two products. This would have been an equitable measure as in the ad valorem mechanism the consumer pays more as duty when oil prices move up.

Customs duty on petrol and diesel, currently at 7.5 per cent, could also have been reduced to the same level as that of crude oil at 5 per cent.

There are no imports of petrol and diesel whatsoever and there are no revenue implications for the Government by reducing the duty. There is also no strong argument for extending protection to domestic refiners who are anyway efficient.

A dual-pricing system for cooking gas and kerosene could also have been attempted, as there is no reason why the thriving middle-class ought to enjoy subsidy on the two products.

Such a measure proposing subsidised prices only for the poor and deserving would have sent out a very strong signal on the Government's commitment to reform even as it would have reduced the subsidy burden significantly. But it was not to be.

Promoting savings

Last year, Mr Chidambaram had included bank deposits with a five-year term under Section 80C of the Income-Tax Act subject to the overall limit of Rs 1,00,000. Given the backdrop of rising inflation and the need to promote savings, he could have considered reducing the term for such deposits to three years.

As a further aggressive measure to promote savings, the Finance Minister could have considered re-introduction of Section 80 L, which used to offer a deduction of up to Rs 10,000 on interest from deposits.

Abolishing DDT for holding companies

This was a strong demand from India Inc. and in the interests of equity ought to have been considered by Mr Chidambaram.

At present, dividends suffer tax twice when they emanate from a holding company and pass on eventually to shareholders of the subsidiary or vice versa.

The holding company has to pay tax on dividend distributed by it to its shareholders, though such dividend is being paid out of its own dividend earnings from its subsidiaries which have already paid the tax.

The increase in DDT to 15 per cent would have gone down better if Mr Chidambaram had fine-tuned this aspect of holding-subsidiary company dividends.

Shareholders of a number of companies, particularly in sectors such as power where it is required to float independent subsidiaries for every project, would have benefited from this move.

Taking the sop out of ESOPs

Those of you waiting to make a quick buck on exercising your ESOPs (employee stock option plans) may have to share some of your profits with the taxman. Under the new rules proposed in the Budget, ESOPs will now be treated as fringe benefit and taxed accordingly. However, more clarity on such aspects as determination of the value of ESOPs, the rate for FBT etc. is awaited.

PAN made THE sole identification number

Be ready also with your PAN (permanent account number) card every time you invest, as the Budget proposes to make this the sole number for financial market transactions. Though various broking houses had already made PAN mandatory for trading in stocks, you can now use it for investing in mutual funds too! This essentially means that the previously proposed MIN (mutual fund identification number) is no more a must for mutual fund investments. Making PAN the sole identification number not only saves you from a lot of paper work, but would also help the government keep a close watch on your investments. With PAN becoming the most important number ever, those of you who have still not applied for a PAN, get cracking.

Tax deductions on education loans

Thanks to the new amendment introduced in the Budget, you can now get a tax deduction for educating your spouse or children! The proposed amendment allows you to deduct the amount that you pay as interest for the education loan (for your spouse or children) from your gross total income.

The facility was hitherto available only for the individual who applied for the loan. It is to be noted that the deduction would be available for eight assessment years beginning from the year in which the payment of interest on the loan begins. However, since the amendment would be effective from April 2008, you can avail yourself of the facility from the assessment year 2008-09 only.

Market View

Our view on the Indian equity market is that after the pre and post Budget fall, the market can be expected to consolidate for some time. With respect to the budget provisions, some of the affected sectors have reacted sharply to discount the implications for them. While, the near term impact of introduction of marginal taxation across the sectors could impact the short term earnings of some corporates, however, the proposed investments in the infrastructure, power and irrigation etc. should continue to buoy the economy and corporate profits in the long term. In the long term, we believe that the focus on inclusive, broad based growth touching every segment of the society is extremely important, because only this can provide a sustainable growth over an extended period of time.

Tata Mutual

The reduction in the indirect tax rates across a host of products, including the key reductions in excise for petrol & diesel, are aimed at controlling the inflation rate, which is currently ruling at multi-year highs.

The markets reacted negatively to the budget proposals, in a weak environment triggered by a global equity meltdown. The key negatives for the markets were the increase in DDT, removal of tax sops for construction companies, inclusion of IT companies under the MAT umbrella and disappointment over lack of any reduction in direct tax rates. The cement sector was impacted from the increased excise rates. The Rs.190 per bag price was considered unrealistic and a possible negative impact was expected on demand from higher prices due to higher excise duty.

OptiMix

The markets have been under pressure in recent times due various factors and the weakness in the global markets had a greater impact on sentiment rather than the budgetary proposals. Indices have fallen across the board due to selling in certain sectors after the Union budget.

The technology sector has been under pressure due to move to include income under MAT and bringing ESOPs under Fringe Benefit Tax. Other sectors to come under pressure after the budget include cement, iron ore exporters and construction. The permission to allow mutual funds to launch dedicated infrastructure funds should help in directing more flows into the crucial sector.

The recent fall in the Indian markets has come about after a strong rally, and in that sense, it was to be expected. The sector-specific measures in the budget could result in downgrading of earnings for those sectors and near term sentiment is likely to remain bearish. Given the strong economic fundamentals, we believe that the medium to long- term outlook remains positive and investors can consider these levels as an entry point into the markets.

Trader's Corner

Many of us would be familiar to the situation in which a stock that has been pushed to the back of our minds and it starts zooming up suddenly. We do not want to see all the profit whittle away again. At the same time, we want to avoid the ignominy of an early exit.

The way to solve this quandary is by using trailing stop losses. Trailing stop loss is nothing but another form of a stop loss order. Assuming that a share has been bought and the trade has moved in to profit, the trailing stop loss order is calculated using a certain percentage from the most recent high. As the price moves up, the trailing stop loss too moves higher. But when the price moves lower, the trailing stop does not move lower and so gets triggered when the trend reverses.

The reverse is true in a short selling. The trailing stop loss would be a fixed percentage from the most recent low. It will move lower as the price moves lower. But if the trend reverses and the price moves higher, the trailing stop would not move and so the trade would get stopped out.

Let us explain this concept with an example. If 100 shares of Reliance were purchased at Rs 1,000 and a 2 per cent trailing stop loss is decided upon. If the price moves to Rs 1,050, the trailing stop would be at Rs 1,029. If the price moves to Rs 1,075, the trailing stop would be at Rs 1,053. If the price moves to Rs 1,200, the trailing stop would be shifted to Rs 1,176. If the price reverses from Rs 1,200 and falls to Rs 1,070, the trailing stop at Rs 1,076 would get triggered and a profit of Rs 76 would be booked.

The moot question is what the trailing stop loss percentage should be. It would depend upon, the trading style adopted. Day traders would keep a trailing stop of half a per cent or 1 per cent. While a swing traders might keep a 2 per cent trailing stop. Investors with a shorter time frame can ideally keep a 5 to 7 per cent trailing stop if their stock starts zooming up in an unexpected fashion.

The second factor that would determine the percentage of the trailing stop loss limit would be the volatility of the stock that has been purchased. A sedate stock that does not see too great an intra day movement would require a lower trailing stop whereas a volatile stock would require a larger trailing stop percentage

Finance Bill 2007 and personal taxation

What changes are proposed relating to the rates of taxation?

While the rates of income-tax are not proposed to be changed, there is a new levy, the secondary and higher education cess, which would be 1 per cent of the tax and surcharge.

This cess will be computed only on the tax and surcharge and will not include the additional surcharge, which 2 per cent now. This will apply to all assessees. In the case of individuals and HUFs (Hindu undivided family) the basic exemption has been raised by Rs10,000. The tax rates for various slabs will be as in the table.

It is also proposed to amend the provisions of Section 115O to provide for a tax on distributed profits at 15 per cent against 12.5 per cent now. It is proposed to amend Section 115R to provide for tax on distributed income on mutual funds to be computed as follows:

25 per cent on income distributed by a money market mutual fund or liquid fund

12.5 per cent on income distributed by a fund other than a money market mutual fund or liquid fund if the distribution is to an individual or HUF.

20 per cent on income distributed by a fund other than a money market mutual fund or liquid fund if the distribution is to any other person.

The term money market mutual fund is proposed to be defined to mean a money market mutual fund as defined in Section 2(p) of the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 and a liquid fund is proposed to be defined to mean a scheme or plan of a mutual fund which is classified by SEBI as a liquid fund in accordance by the guidelines issued by it in this behalf under the SEBI Act, 1992 or the regulations made there under.

Are there any new assets which will be charged to capital gains on transfer?

To bring within the ambit of capital gains certain personal effects, an amendment is proposed to Section 2(47) to exclude from the definition of the term personal assets, archaeological collections, drawings, paintings, sculptures or any work of art, which would mean that the transfer of these assets would be chargeable to capital gains.

What are the changes proposed with regard to making investments in bonds for claiming exemption in respect of long-term capital gains?

Section 54EC of the Income-Tax Act, 1961 provides tax exemption on capital gains arising from the transfer of a long-term capital asset to the extent such capital gains are invested in `long-term specified assets' within six months from the date of such transfer. The Finance Act, 2006 amended the definition of long-term specified assets so as to mean any bond redeemable after three years and issued on or after April 1, 2006 by the National Highways Authority of India and Rural Electrification Corporation Limited. Such bonds had to be notified by the Central Government in the Official Gazette.

It is proposed to amend the said Section, by substituting the existing clause (b) of explanation, so as to provide that the Central Government, while notifying such bonds in the Official Gazette may lay down in the notification such conditions, including for providing a limit on the amount of investment by an assessee in such bonds, as it thinks fit. This amendment will take effect retrospectively from April 1, 2006. The proposed amendment seeks to regularise the condition stipulated in Notification S.O.2146(E) December 22, 2006, where it was provided that the investment cannot exceed a sum of Rs50 lakh.

It is also proposed to amend the section so as to provide for a ceiling on investment by an assessee in such long-term specified assets.

Investments in such specified assets to get exemption under Section 54EC, on or after April 1, 2007 cannot exceed Rs 50 lakh in a financial year.

What are the changes proposed on allowing deduction for health insurance premium? Will the deduction be allowed if the payment is made by credit card?

Section 80D provides that in computing the total income of an assessee, being an individual or a HUF, the sum paid by cheque to effect or to keep in force an insurance on the health of the assessee or on the health of any member of the family shall be allowed as a deduction.

The maximum amount allowed as deduction is Rs 10,000. In the case of senior citizens, the deduction allowed is Rs 15,000. Similarly, Section 36(1)(ib) provides for a deduction of the amount of any premium paid by cheque by the assessee, as an employer, to effect or to keep in force an insurance on the health of his employees under a scheme framed by General Insurance Corporation formed under Section 9 of the General Insurance Business (Nationalisation) Act, 1972 and approved by the Central Government or by any other insurer and approved by the Insurance Regulatory and Development Authority established under Section 3(1) of the Insurance Regulatory and Development Authority Act, 1999.

To allow deduction for payments made through electronic mode, credit card, etc., it is proposed to amend the provisions of Section 80D and Section 36(1)(ib) so as to provide that the payment of premium made by any mode other than cash, shall be eligible for deduction under these sections. It is also proposed to increase the maximum amount allowable under Section 80D, from Rs 10,000 to Rs 15,000. In the case of senior citizens, it is proposed to increase the limit from Rs 15,000 to Rs 20,000.

Can interest on loan taken for the benefit of relatives education be claimed as deduction?

Section 80E provides for a deduction, from the gross total income of an individual, of the amount paid by him by way of interest on loan taken from any financial institution or approved charitable institution for the purpose of pursuing higher education.

The deduction is available for eight assessment years beginning from the assessment year in which the payment of interest on the loan begins and is available only when the loan is taken for the higher education of the individual.

It is proposed to amend Section 80E so as to allow the deduction of interest on loan taken by an individual for higher education of the individual, the spouse and children.

Is there a proposal to increase the threshold limit for tax deduction at source in respect of interest?

The existing Section 194A(3)(i) provides that deduction of income-tax at source shall not be made in a case where the amount of income by way of interest other than "Interest on securities" does not exceed Rs 5,000.

The amendment proposes that the limit for deduction of tax at source under the aforesaid Section shall be Rs 10,000 where the payer is a banking company or a co-operative society engaged in carrying on the business of banking or a post-office in respect of notified schemes. In other cases, the threshold limit is to be retained at Rs 5,000.

These amendments are proposed to be effective from June 1, 2007.

Warren Buffet's Letter to Berkshire Hathaway Shareholders

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Emkay - Weekly Technicals

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Budget 2007 - Rate Card

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Religare - Technicals & Futures

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Sharekhan Daring Derivatives for March 05, 2007

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Weekly Close: Global woes and Budget lows leave investors stranded !

It could have been worse. We started the week in anticipation of a Budget which would soothe sentiments but the selloff in China had global markets scrambling to take cash off the table. Monday was negative momentum of Friday carrying forth. However the markets recovered in hopes for the budget to do something. However Tuesday was a selloff with the Congress getting a drubbing in state elections in two states i.e. Punjab and Uttarakhand and the loss was terrible. It was under this backdrop that the budget was presented with global markets plumetting on fears of selloff as seen in China and also the US markets which its biggest fall in 5 years. Markets were hoping that the FM would pull out a rabit from the hat and change the ratio of market gains (3 out of 10 previous budgets).. but that was not to be. It turned out to be a missed opportunity. FM was conservative in approach with agriculture and education given big focus. However there was nothing for the middle class, nothing to stimulate growth or encourage demand. Thursday saw some recovery hopes but they were smashed. The worries are from winding up of the yen carry trades. Japanese money has been used as cheap source for funding investment across the globe. With increasing interest rate there and an appreciating currency the money is being withdrawn. Its all a game of money flow and we see that in the Indian Markets as well as FII numbers tend to be negative.

There were many fallen angels and of this the big losses were made by the cement stocks and the IT Stocks which were on the receiving end of the stick this budget.

ABB - 4% ACC -6%; Bajaj Auto -11%; BPCL - 5%; Bharti -7%; BHEL -9%; Cipla -7%; Grasim -9%; Ambuja -10%; HCLT -5%; HDFC -6%; HLL -4%; HPCL -5%; ICICI -6%; Infosys -6%; Jet - 7%; Larsen -9%; Mah -9%; Nalco -4%; ONGC -4%; Oriental Bank - 13%; Reliance -7%; Reliance Energy -6%; Satyam -4%; SBI -5%; Steel Authority -6%; Tata Motors -5%; Tata Power -7%; TCS -5%; VSNL -10%; wipro -9%; Zee Tele -11%. There were only two of the Nifty 50 stocks which ended the week positive but extremely marginally. These were ITC and Suzlon. ITC had the negatives already priced in ahead of the budget and no talk of VAT had the stock up. Suzlons open offer for Repower opened this week and that was the reason for strength.

The Finance Minister in his budget speech talked about 10% growth targets and 4-5% inflation growth. Largely this is an ideal level. However these targets dont seem to get reflected in the numbers. The Tax revenues growth at 17% is not bouyant and prices in caution to an extent. Corporate Tax is assumed to grow at 15% and thats a worry. This in a scenario where there is a 1% education surcharge which has been added. Income tax growth is expected to be more bouyant at 19%. Is this the effect of a wider base. Service tax is expected to be extremely bouyant. The revenue account expenditure growth is high and thats the cost of running the Government which does not seem to be in control. The plan expenditure growth is only 9% in a scenario where revenues growth is taken at 10% (excluding the SBI buyout from RBI). Fiscal consolidation with revenue deficit at 1.5% of GDP and fiscal deficit at 3.3%. seem to be on targets. Really not much to take away from here as India sits at a critical point where interest rates have sharply run up. How the economy reacts to that brings in this uncertainty. Government spend is not too high to stimulate the economy and the impetus to private sector investment into capacity is missing. It of course will do if consumption goes on at a high pace but the Budget also does not provide impetus for consumption as well.

All in all its insipid with some talk of higher education and some focus on Agriculture. Increasingly the budget has become a non event, just that it becomes an opportunity for the FM to showcase himself to the world in terms of some big steps. This trend started with Dr Manmohan Singh who became famous only on the back of his path breaking budget which started reforms. This was an opportunity missed. This was the first time an FM who had to present had such strong backing in terms of bouyant revenues, bulging forex reserves and an economy which is vibrant. What was lacking was conducive political climate and inflation worries which bogged him down. A Missed opportunity clearly. Next year will be no different as it would be the last one ahead of general elections and populism will be the name of the game.

SKF bearings was one of the stocks which was strong this week . The performance has been exemplary and the company is set to grow well. Outsourcing is what its intentions are manufacturing bearings for the global needs given the low cost manufacturing here in India. The stock has been a super performer in the adverse conditions. We believe there is more to it. Do read our research on that this week. There is also a note on FAG Bearings as well where we are excited. We had a wow call here and thats only partly booked in profits.

Technically speaking: 12800 seems to be a support level of sorts. This is likely to be tested next week. Technically the two most important levels are 12710 - 13300 which is a range of 600 points. If the markets break through 12710 then markets are headed for deep trouble as the selloff could be extensive. So next week is crucial really.

The market selloff in the last one hour came in with rumours of Mauritus FIIs being taxed etc but really thats more of an excuse in a market which has become heavy with no positive triggers and great expectations. The best performing sectors have been biting the dust. First it was the sugar sector and Banking. Then it was the construction and real estate stories which are biting the dust with no takers. This budget followed it up with Cement and IT . Its only Telecom which seems to be hanging in there. May be that will go to..

Strategically speaking: Inflation is the worry. The number at 6% does not leave much hope but we that to cool off given the base effect wearing off. We believe that with lack of positive triggers missing for the next couple of weeks markets will be directionless and lacklustre. Driving the markets will be FII numbers and more driven by global sentiment. For now the mood and sentiment is down. One could get many mid caps at attractive levels. These of course one has to get ready to see at much lower levels as the large caps will correct to more reasonable valuations than they are right now.

The Sensex Rise and Fall - Jay Dubashi

The day before the good old Sensex crashed 400 points last month, not once but twice in a row, a brave soul predicted that it (Sensex) would more than double to 30,000 in six years. I am always wary of economic pundits, but this one sounded near the bone.

After all, if the Sensex can double in the past six years, why shouldn't it repeat its performance in the coming six years? History does repeat itself, though first as a tragedy and then as a farce. Is it possible that the sequence might be reversed this time? This means that Infosys will be quoted at around Rs 5,000, maybe 10,000; Reliance Industries at 3,000; Larsen & Toubro also at 3,000, and believe it not, ABB at 8,000. Almost anybody who has a few shares up his sleeve will then be a millionaire five or 10 times over, while he sit hunched before his laptop, munching caviar and guzzling champagne as the screen explodes before his eyes.

But you can't be too sure. If things can go up, they can also go down, and almost always do. The other day I was going over my old diary - about 50 years old - listing some shares that used to be quite active at the time. Many of them have just vanished into thin air. Where is Metal Box now, or, for that matter, a company called Guest, Keen Williams? I had purchased most of these scrips for 10 rupees apiece. At that price, you can't buy even a hundredth of Infosys now.

I am not saying that Infosys will disappear six years from now, or Larsen & Toubro will break up, but who would have thought that a company like DCM would not only split up but nearly collapse? These oldies have been overtaken by companies like Reliance and Wipro, which did not even exist 50 years ago and Dhirubhai Ambani was manning petrol pumps in east Africa.

Fifty years ago, there was no Sensex. There were no pink financial papers either. Most newspapers devoted less than a page to financial news and the share market occupied a couple of columns. If a share went up from 10.50 to 10.75, we used to celebrate. Beer was cheap. I had a broker who lived in Bombay (as it was then called) and I worked in Calcutta, and since there was no STD and I had no telephone at home, we never spoke to each other. I would write long letters and he would reply in his squirrelly hand, telling me about his grandchildren and occasionally about some bluechips.

There were no sharp ups and downs, except maybe during Budget time, which came only once a year. Incidentally, there was no TV, no computers and, of course, no e-mails, since the economy was virtually closed, and so were most economies elsewhere. In fact, we didn't bother much about the market, or, for that matter, anything else. The politicians and their faithful servants, the babus, managed the economy for us, and since we had no idea about what was happening elsewhere in the world, we were or pretended to be a contented lot. Nobody had any dollars or pounds, and only bureaucrats and businessman traveled abroad. Even businessmen had to beg for foreign exchange, including people like Ghanashyam Das Birla, who once refused to visit Moscow on a delegation because Morarji Desai wouldn't to give him enough dollars.

It is the markets which now rule the roost, not the government but most people are still whistling in the dark. The Sensex may indeed touch 30,000 in six years but it may also sink to 3,000.

God help us if it does.