Inefficiency of Indian Companies !

The Net profit of Indian companies is lower 40% as compared to other MNC companies

43%. The figures were of top 100 Indian and MNC companies. This might only look like

a marginal thing. But it is important to keep in mind that the aggregate turnover of

an sample MNC company has increased 22.9% as compared to 34.5% for Indian companies.

This could be attributed to inefficiency of the Indian companies. Mainly the input

costs of the companies have gone up. For Reliance the growth in profits was limited

to only 10% dispite of a 38% increase in turnover. High crude oil price was the main

cause, the aggregate costs have risen by 42%.

Tata steel also showed similar performance with 14.5% increase in the expenditure

and only 4.4% increase in the net profits. The MNC's have fine tuned their cost

management. Their turnover has not inceased that much compared to the indian

companies. This could be signs of inefficiency of the Indian companies. The interest

liability of Indian companies has declined compared to last year.

It important to notice that Indian companies are taking more debt to finance their

activites. TATA steel for example is planning to finance its Corus deal using debt and Reliance also trying to raise money

through foriegn debt market. In future rising interest costs on borrowings would

bring down the net profit growth even more. With Sensex now at all time high and valuations on stretch it is

very important to pick companies with steady growth in future.

C

Tata, buy buy

Tata steel is continuing its buying spree after it announced its plans to buy the world’s eighth largest steel maker Corus for close to $ 8billion. We had earlier seen Lakshmi Mittal creating its steel emprire by aggressively taking over other companies. In the last two years Tata steel made its expansion plans clear by acquiring companies like Singapore’s Natsteel and Thailand’s Millinium Steel.

Tata Steel is the second largest steel company in India with production of 5 mt (million tonnes) next to SAIL (12 mt). With the asian acquisitions it nearly doubled its steel capacity. Corus is British based company with capacity of close to 18.2 mt. After the merger the combined entity would be the sixth largest steel company in the world Tata is currently 55th.

The Synergy

Tata is one of the most efficient produces of semi finished steel (a low margin player). Corus on the other hand produces higher value specialized steel mainly for auto companies; with operations mainly focused in the high margin European market. The plans are to produce semi finished steel at low cost in India and then supply it to Corus which will increase the margin of Corus.

Valuations Comparison

Tata is paying Corus close to 5.5 pound per share in cash to Corus, while the share price of Corus was around 4.80 to 3.90 range in last one year. The recent Arcelor Bid by Mittal steel valued the company at 5 times EBITDA while the valuations for Corus is around 8 times EBDITA. But on per ton production basis the valuation for Corus is $610 compared to $785 of Arcelor (20% lower). It is clear that Corus is less profitable compared to Arcelor; Tata believes profitability for the combined entity would improve.

The cash for the acquisition would be raised mainly from debt. Corus and Tata Steel have low debt to net-worth ratio of 20% and 30%. Main concern here would be repayment because Corus is only starting to be profitable; between 2000 and 2003 it made losses close to $ 4 billion. And the synergy that Tata is looking for from its new plant its Orisa and Jharkhand won’t start operation till 2010.

Sensex touching alltime high

Sensex today closed at 12,928 up 191 points after touching the lifetime high of 12,968. TCS also showing a good Q2 net profit up 14.91% at Rs. 991 crores. HCL numbers to soon hit the market.

TCS is showing volume growth of 50.5% YoY and 10.8% quarter on quarter. The operating margin of the company improved by 300 bps; mainly due to exchange rate and offshoring. TCS closed on Sensex at Rs. 1,129.70.

HCL at closed on Sensex at Rs. 548.78, the net profit at improved at Rs. 250 crores vs Rs. 233 crores revenues Rs. 1379 crores vs Rs. 1253 crores

Two of the biggest worries for the markets at this stage are the crude oil prices and the interest rates. Rate hike due to inflation of close to 5% doesn’t take into account the lowering of crude oil prices by close to 20%. This means that the rate hikes do not look very likely.

So with the good earning season more up-swing in the markets can be expected for the last quarter of the year.

f

Infosys Performs Well

Infosys touched a high of 2,024 in the intraday trading and closed at 1,980 up 73.80 or 3.87%. The net profit of the company increase by 17%. The Operating margin of the company was at 32.13% an increase of over the previous quarter due to the economy of scale. Infosys is clearly able to outperform competitors like TCS, Satyam, and Wipro. Karvy is giving a target for Infosys at 2500. Foreign investors expect 20% to 25% increase in price. For Infosys 50% of revenue comes from US and 33% Europe. Also it was able to attract more Foutune 500 clients.

The FII invested close to $ 20 million in the Indian market today compared to $ 8 million yesterday. Low oil prices were a reason for the current market rally. But today OPEC decides to cut down on oil production by 1 million barrels per day. This means that the crude oil prices may rise above the $ 60, current brent crude is trading at arround $ 58.27 per barrel.

Sensex today started up with 213 point on back of infosys numbers. At the end down by 10 point to 12,353 steel and motor stocks fell close to 3%.

Earning Season to Start

Most analys are optimistic about the Q'2 earnings after the sensex gained its grounds in the last three months (up 16% for the quarter). The sensex is very close to the May levels after the decline below 10,000. According to study by Motilal Oswal of 127 companies for the next quarter sales projected to increase by 27%, EBIT by 39% and net profit also by 39%.

This quarter's earning season will start with high expectations from Infosys. Technology sector is expected to grow at about 40%. Infosys as projected by CNBC TV 18, is supposed to increase by 7.59% and revenues by 10.53%. Over the last three months Infosys has performed well with growth in share price from Rs. 1500 level to Rs. 1860 latest closing price. With its long reputation and investor expectations infosys still remains the best buy in the IT sector. Mphasis-BFL is close to its 3 month high of 198.40 from lows of arround Rs 130 to Rs. 120.

Auto and steel still looking promising. Expect Mahindra, Maruti, Cement are still strong in terms of valuation after a good run. The FY07 EPS of sensex is supposed to grow by 31% and FY05 by 14%. With crashing crude oil prices and global stock market boom not just in emerging markets but also in developed markets (Dow Jones US at all time high) the outlook for the markets look positive.

Metal Stocks to Loose

Over the last week the metal stocks have declined by close to 6%. This is due to the bear run in the various metal commodities in the international market. The brokers believe that many hedge funds who invested in commodities are selling and this would continue for a while pulling down the metal prices further down. There is also a speculation of cooling off of the Chinese Economy which was the main consumer pulling the the commodities during the bull run.
On wednesday Hindustan Zinc lost Rs. 15 to Rs. 598.

Gold at 11 week low

Gold prices continue to be hard hit in this week. The latest spot prices is arround $ 578.60 per ounce. This is nearly a fall of over 10% in the week from the high of $640.5 per ounce. Predictions are that it might touch levels of $ 550- $500 if a quick rebound does not take place. The same was the fate of silver which fell to $10.97 per ounce from above $ 12 per ounce a week ago.

G

Sugar Party Over!

For last two years we have seen a bull market in comodities market. Sugar companies have enjoyed double digit profit growth on the back of increase in the global sugar prices. Commodities market follow a cyclical demand, where prices first go up and then the companies start investing in new facilities resulting in more supply and eventualy the prices start falling. So it could be concluded that the commodity cycle depends on the ability of companies to put up new production facilities. Refer the COPPER Article for more informaion.

The Sugar prices are falling for some time now and analysts believe that there is excess supply created in the market which will push prices down further. The prices of Sugar on London futures have fallen from a high of $490 per tonne to $384.9 on 20th August. Since August is usually depressed period for sugar prices becuase of the full swing of harvest in the centre-south Brazil(largest producer of Sugar) and Northeast Brazil harvest about to get in full gear. This means that the prices could fall by another 10% next month.

Another big factor is increase in production form Russia to Thailand. Russia which is the largest importer of raw sugar is harvesting a larger than expected big beet crop. And Ukraine is also expecting a larger crop this year compared to last year. Plantations arround the world have increased their sugar plantings to take advantage of the Sugar bull market. The supplies from these new plantations would hit the market soon at pull the sugar prices down.

In China the use of alternative sweetners is picking up. They have been using sweatner made from corn for a while and now they are testing sweatner from rice which is also in abundance in China. Another dampner for the demand of Sugar could be crude oil prices. In Brazil they are using their Sugar Cane crop to produce Ethanol as a substitute for gasoline (petrol). They prefer production of Ethanol over import of more expensive crude oil. All this could change in case the crude oil prices fall to levels where profitability on production of Ethanol would fall and a shift towards production of Sugar would take place.

Anyways it is very clear that the Sugar market is facing huge surplus due to higher productions. Some forecasts put ther figure between 3.1 million tonnes to 3.3 million tonnes, but some traders feel that the surplus would be even bigger.

Interest Rates Rising

US FED Reserve had been constantly hiking interest rates due to high inflation fuelled by the heating up of commditities prices. And Globaly central banks were trying to match US FED by doing the same. In India also RBI started taking a harder stance by revising the REPO and Reverse REPO rates. Last month the rates were increased by 25 basis points. This has lead to increase in the cost of borrowings of commercial banks who are passing this on to their clients by revising their lending rates.

It is quite evident that since the rate of interest goes higher it will impact the sectors of economy that are dependent on interest rates, like the housing sector. To some extent the housing real estate boom in India was related to the cheap housing loans offered by banks. Still finace minister P Chidambaram believes that the interest rate hike is very moderate and it will not affect the booming housing sector.

The government is trying to do its best to not allow the interest rates to hamper the growth of our economy. The cost of borrowings of the Indian companies has increased in recent times which might affect profitability. The govt. is trying its best to keep a balance by hiking the interest rates to control inflation (abt 5%) and at the same time trying to keep the cost of borowings down by infusing liquidity through reduction of CRR ratio to 5%.

It is very clear that the govt. supports high growth rate of GDP, and in order to maintain this they are trying to keep cost of borrowing low. They are also asking the PSU banks to not hike their PLR(Prime lending rates) in accordance with the market.

SBI Margins Improve but Q1 net falls

SBI reported a net interest margin of 3.37 percent comparede with 3.14 percent a year earlier, adjusting for one-time income. The margins improved because of the decline in the cost of deposits to 4.47 from 4.82 a year earlier and its average yield on loans rose to 8.49 percent from 7.80 percent. The Net interest income fell 8.7 percent to Rs. 38.84 bill from 42.53 bill. This is mainly due to lower income from treasury operations. The central bank is aiming to keep inflation in a 5 to 5.5 percent range and raised the short-term interest rates by 25 basis points earlier this week to 6 percent.

The central bank is projecting a growth rate of 20 percent for the year to March 2007 so bankers see more rate increases ahead if loan growth shows no sign of slowing. The SBI is more bullish by aiming for 25% loan growth for the year. SBI holds more than third of its deposits in government bonds, suffered a 20 percent fall in the treasury revenue to 36.06 billion rupees form 45.24 billion a year earlier as bond yields rose 60 basis points in the April-June quarter. The shares of SBI valued at $8.4 billion dropped by almost 25 percent in April-June, underperforming a near 6 percent fall in Sensex.

M&M up by 7 %

Mahindra is the world's fourth largest tractor maker in the world. It was formed in 1945 to make Chrysler Jeeps in India. Now Mahindra has a joint venture with China's Jiangling Motors and is looking for lucrative acquisitions in Europe after bid for Romanaia's Tractorul Brasov failed. It also had a $80 million joint venture with Navistar Inc. International Truck and Engine Corp. to make 50,000 medium and heavy weight trucks. M&M believes that it could be the largest tractor company in the world in five years. They are also in a tieup with France's Renault to make Logan sedans form next year.

Mahindra sold 60,495 vehicles and tractors in April-June (15% rise). The passenger vehicle market in india is forecast to nearly double to 2 million units by 2010. The demand for trucks in India is $5 billion. Material costs are going up, but we have created a margin of safety through cost management and higher productivity and we look forward to the rest of the year with confidence. Mahindra shares are valued at $4.5 billion and fell nearly 1 % compared to 11 % drop on the auto sector and 6 % decline in the sensex.

The Net sales of the company rose vy 23 % to Rs. 22.36 billion from 18.12 billion a year earlier. The operating margins of the company rose to 12.1 % form 10.65% a year earlier. The shares closed on BSE at Rs. 563.10 up by 6.6%. When the Sensex climbed by nearly 200 points. The numbers of the company is really impressive but they have to sustain the high margins when input prices goes even higher. Higher crude oil prices and high interest rates could futher dampen the demand.

Lowest in 4 weeks

Markets today hit their lowesr in four weeks due to the concern that the falling rupee might slow down the FII investment. the indian rupee hit its three-year low of 47 per dollar. The higher crude oil prices due to the tentions in the middle east was also another reason for the fall. The index is down 21% from its may peak and the FII's have trimmed their net investments to $ 2.5 billion from nearly $ 5 billion in early May.

The BSE sensex lost 219 points or 2.15% to close at 10,007 after inta-day swing of 436 points. The biggest loosing sectors were Metals (3.95%), Auto (3.6%), IT (3.06%), Capital Goods (2.8%) ,Consumer Durable (2.3%) and FMCG (2%). The worst hit stocks were Wipro (5.5%), Satyam (5.3%), TCS (4.5%), ACC (4.5%) and Tata Motors (4.4%). ONGC (1.8%) and Ranbaxy (0.6%).

With the selling presure arround the market seems to be heading towards 9,800 - 9,900 levels. The markets have been falling constantly for two three days now and the buying had disappeared even for stocks like ACC. The net profit of ACC increased in last quarter but the stock price fell to Rs. 779.95 (4.5 %). Index heavyweight Reliance Ind. Ltd. fell 5.5% to Rs. 982.10 and Infosys by 1.5% to 1,605.9 points.

Still long term fundamentals for the Indian Economy and Business stay intact. Just recently JPMorgan Asset Management concluded that China, India, and Singapore offer Asia's best stock market investment oppurtunity. The expectaion is that a stong catalyst like change in the interest rate policy by the Federal Reserve. The valuations of the Indian stock markets have actually become more attractive after the selloff.

Markets to Rally

The positive corporate earnings are one of the main reasons for the main reasons which will pull the market up in this quarter. The major negatives for the markets are the increase in the global crude oil price. The crude oil prices have now touched $ 78 from close to $ 70 some time ago. If the crude oil touches $ 70 then we might see some type of rally taking place.

In this quarter also we blessed with strong corporate results. Infosys from the IT lot increased its earnings guidance. In the next few months we are going to see a restructuring of portfolios by the global fund managers. Another major change that took place in the global market was the hike in the interest rate by the bank of Japan by .25%. This ends the 0% interest rate policy that was adopted by the Japanese government. The Japanese investor would now withdraw their money and start investing in their local market. There would be significant appreciation of Yen due to change in the interest rates. We are already seeing a selling close to $ 200 billion by the Japanese investors so far this year.

US rates hike cycle seems to be nearing its end, this is another positive for the stock markets. But on the negative side the inflation just crossed 5% and a year end figure of 6% is very likely according to estimates. Still the long term fundamentals seem intact with the economy growing at close to 8%. India is amoung the top 2 destination for investment in the emerging markets. Let us hope that we won't see serious correction for the rest of the year with sensex closing for the year end arround 9,000 to 11,000.

Infosys Beats Expectations

Infosys on 12 th july posted yet another stellar quarter of growth well above the earning guidelines provided by the company. The revenues of the company grew by 14.9% and the profits grew by 18.9%. The only disappointment was the operating margin of below 30%. The hike in the salaries for employees and higher cost for visa were the main reasons for the decline of the operating margin by 4.6%. The depreciation of rupees helped improve the Operating margin by 2.2%.

Another main highlight of this quarter was the increase in the other incomes by 77.8% quarter over quarter. The gains from exchange rate stood at Rs. 530 millions compared against the loss of 10 million last quarter.

The future outlook of Infosys looks very good with expected revenues next year between Rs. 134-135 billion reflecting a year over year growth of 41%-42% and a EPS guidance of around Rs. 124 –Rs. 126 reflecting 38% to 40% growth.

Infosys has a EPS of Rs. 90.65 compared to Rs. 57.65 of Tata Consultancy Services. Also Infosys offers a dividend per share of around Rs. 45. vs. Rs. 13.5 of TCS. The book value of Infy around Rs. 250 is also higher compared to Rs. 140 of TCS (last year’s estimates). This makes Infosys a fundamentally strong company for long to medium term investment.

Mega Charity Fund Created

Warren Buffett just hours ago held press conference with Bill Gates and Melinda Gates pledging to donate $37 billion or 85% of his total wealth ($44 billion) to charity. Majority of this charity would go to Bill and Melinda Gates Foundation and the rest to other four foundations.

The philanthropist Buffett in his usual style commented that he is good at managing money efficiently and for charity the Gates Foundation can do a better job. This comes from the man who refused to invest in Tech Companies during the Tech Bubble of late 90's saying that, "I do not understand the business of tech companies; I understand insurance, that is why we have invested in insurance companies." The total fund of Gates foundation is doubled by the pledged charity made by Warren Buffett. The money would be raised by selling of the Berkshire Hathaway shares that Buffett owns. The Oracle of Omaha further stated that selling of shares would not affect Berkshire Hathaway negatively. Infact he believes that selling of shares would increase the liquidity of the company.

Buffet had already made it clear that after his and his wife's death all of his wealth would go to charity. During the press conference one italian reporter asked why doesn't he leave the wealth to his children. Buffet philosophically replied that, "I do not belive in creating dynastic wealth". Later he added that, "I would like my children to only have enough money so that they can do something not so much money that they do nothing."

CNN reporter acclaimed that "What difference would this money make is about to be seen, but it certainly is a lot of money."

Interesting News

A chance to dine with billionaire investor Warren Buffett drew bids as high as $455,100 US yesterday in the first hours of a charity auction run by eBay Inc.

Commodity Watch: Copper

Globally the demand for copper is increasing with its wide uses in industries. The global market for copper has recorded a growth rate of close to 4% in FY 06, in India this growth rate is near 8% and in China growth is in double digits. It is amazing to see that these rates do correspond to the GDP growth rates.

The Copper along with other base metal commodities like Aluminium and Zinc has enjoyed a long bull run. In the 90's there was a global bear market for Commodities (base metal & precious) and many copper mines did not expand their production capacities due to low demand. Now due to high demand for Copper the mines are running a full capacity and developing new capacity. But still the demand cannot be met because of long gestation period for new mines; it takes atleast 10 -15 year to explore and set up new capacity. The same is true for other metal commodities. This is the reason why we are witnessing a huge bull market for metal commodities.

Percentage change in Copper prices

One week  - 4.1%
2 month    - 11.5%
6 month    + 51.44%
One year   +100%

From above you could see that the copper eventhough still in bull (1 year) has lost a lot in last few months. On Friday the Copper was trading at $ 6,780 per tn compared to close to 8,000 few months ago. This price decline could be attributed to the 6.8% increase in the production of copper to 17.5 million tns compared to the 16.5 million tn consumption. It is to be noted that there are two ways for increase in production of copper one by minning another through recycling. According to analysts due to the cappacity bottle-neck the copper industry would expand in the other side of minning (recycling). Already close to 75% of copper production is through minning rest 25% from recycling.

Through analysis of Copper we could se that the commodity bull cycle (usually 10 year long) that started 5 years ago would continue. But in short term it is very difficult for copper prices to breach the 52 week highs set few months ago.

Market Recovers

Today the markets opened lower and were down till noon because of the fear of the interest rate hike due to the inflationary preassure. Later towards the close of the day there was a turnaround with Sensex and Nifty both gaining above one percent.

The stock market was greatly affected by the increase in the inflation from 4.72% to 5.24% with a week. For more information go to economy-india.blogspot.com.The lowest for the sensex today was 10,075 and it closed at 10,401 up 125 from the openning price. The Nifty also showed similar gains with 48 point rally and a closing of 3,042. The 6 month outlook for the markets still looks bearish and we would end the year below the 52 week highs. But still there are many value stocks available with good potential and limitied risks.

Midcap Picks

I have two midcap value picks: Tata Elxsi and Surya Lakshmi Cotton.

Tata Elxsi
It is a company with diverse business in electronics and graphics. Also the business is managed in good hands and the dirt cheap valuations makes it a good investment with 2 year horizon.
Surya Lakshmi Cotton
It is textile company with a very good expansion plan. Investing in Denim capacity would be very fruitful and would reflect in the balance sheet within 2 years. This will also make it the 3rd largest Denim manufacturer in India.

Keep reading this space and expect more value picks and analysis of market in these volatile times.

Sensex on Year's Lowest

The stock markets openned low on Monday this was another day of selling with no buyers having courage to hold on to their investments. The Sensex was hit by close to 420 points and the Nifty by 120 points. This Mid-cap and the small caps were the worst hit in todays markets, with many companies falling close to 10% and falling to their 6 month lows. This selling preasure is said to be created by the selling of the Mutual Funds by investors (both HNI
's and retail) who entered the market late or were slow at booking their profits at 12,000 levels. When they saw a fall of close to 20-30% in their investment they started to liquidate.

Global Fall

Globally the stock markets have all gone down in the past one month in both emerging as well as global markets. In the developed markets like USA markets have had a 10% correction compared to gains made during the bull run this is very substantial. Markets like Japan have also fallen heavly, with Nikkei falling close to 4%. In other asian markets like Korea Foriegn investor have net sold as much as $ 1 billion.In India last few trading sessions shows that they are net buyers in the indian share markets the FII have been the net buyers. And the Mutual Funds the Net sellers.

Selling Preasure

(A) The main selling is comming from the Mutual Fund companys that are heavily invested in the Mid-Cap sector. Because of redemption of MF's by HNI's and Retail investors the Fund is trying its best to sell off its shares. The problem is that the Mid-Caps are very illiquid and because of that they have ot selloff their core investments.

(B) The investors who followed the principle of buying into cheap low price shares afters doing value research are also the culprits. These investors who follow share markets analysts like Mr. Rakesh Jhunjhunwala purchase heavily in companies that undervalued through margin trade. Now they face the problem of meeting the settlement of their accounts. So, the Brokers are selling off the collateral shares or selling the share held by the investors in liew of the cash obligations.

Let us hope that the markets do not plunge further and the bull rally of the indian economy would continue.

Down on Monday

The markets plunged further on Monday, with all sectoral indexes falling sharply. The Sensex was down 2.28% (237.9) at 10,213.4 and the NSE Nifty down 2.4% (74.7) at 3061.6 at the close of the trading hours.

Quick Look at Market

	Percentage Decline
BSE Metal Index	style="text-align: right">3.68 %
Oil $ Gas	style="text-align: right">2.68 %
FMCG	style="text-align: right">2.5 %
Hindustan Zinc	style="text-align: right">7.68 %
Sterlite	style="text-align: right">5.6 %
Tisco	style="text-align: right">4.32 %

It is clear the markets are still in the phase of deep correction that started with the fall in May. It seems that the markets will continue their bad run for a while, and the month of June will be either rage bound or the makets may further correct to the levels of 9,000 - 10,000.

Most analysts belive that this current phase is temporary and the long term prespective of the markets is still very much intact. Some even predict at the end of the year we may end up at 15,000 for the Sensex! So let us just keep our fingers crossed and hope that the FII's would understand this and bring their money back to our markets.

FII Outlook of Indian Markets

Everyone knows that the FII are quick at selling off their position in the indian stock markets. Up till now everone only had anecdotal evidence of this. Now we have the latest report on FII movements of the Japaneese Fund Managers in the Indian stock market.

Reports of 31st May shows that the Japanesse investors sold net $ 200 mill to $ 300 mill. The major FII seller were Nomura Capital, HSBC Japan and Meryll Lynch Emerging markets fund. When asked the reason for this selling they said that the Fund is reducing its positions and holding cash for a while. This could be induced by the Global correction witnessed arround the globe from Latin America, Europe to Asia.

Markets: Remain Bearish

The Markets had yet another turbulent day where the indeces went up and down with huge amount of buying and selling. After yesterdays recovery everone was expecting furthur upswing in the markets. Today the Benchmark BSE Sensex closed 249.63 points lower at 10,573 (-2.31%) and the NSE closed at 3,115.53 with 83.80 point (2.62%) decline. The advance decline ratio at the NSE was 437 advances and 471 declines.

Automobile shares like Mahindra& Mahindra and Maruti decline by 6% and 5.1% to 557.

Steel manufacturers like Tata Steel and SAIL declined by 5.6% and 3.8% to Rs. 483 and Rs. 74.

Other big losers in todays market were heavyweights like ONGC (5.89%) and RIL (3.5%). ONGC closed the day at Rs. 1,164.

Textile stocks also declined with Century Textiles and Bombay Dyieng falling by 6% to Rs. 405 and Rs. 704.

The market sentiments seem deeply shaken after the volatility and breadth of fall seen today. Tomorrow we may see even more action because of the settlement day. We may see more margin preassures like we saw on Monday which could take the markets lower. Makny FII who entered the markets at 9,000 - 10,000 level could be seeing their stocks touch the stop loss mark.

Selling preassure is likely to continue which will test nerves of investors for many days. As I have mentioned before the investors must remain calm and look ahead for long term gains.

Global Comparison of Corrections

Indian stock markets have seen huge corrections in past few trading days. This is no reason to panic because in the last five trading days the Global especially the emerging markets have seen sharp corrections. The Indian Stock market just saw close to 2000 point correction. According to Investment Guru's like Mark Faber the recent uptrend in the commodities market an the Emerging markets was hype driven and would soon see a big correction. For Indian stock markets his outlook was positive in long term but in short term a correction of 20% to 30% was inevitable.

Within a week the markets showed huge correction. In the comodities market the gold slipped from 26 year high of above $730 per ounce to $640 per ounce. The silver from $14 per ounce to $12 per ounce. The Aluminium and Copper markets also followed, falling from $3,000+ per tonne to $2,700 per tonne and copper from $8,000+ per tn to $7,600 per tn.

The Indian stock markets has seen huge declined is past few days with almost every single share declining in the major indexes. Take a look at how other emerging markets have also declined confirming a global downtrend.

Russia 12%
India 11%
Brazil 7.3%
Japan 4%
Korea 5%
Taipei 5%

It is very clear that the downtrend seen in the Indian stock market is in line with what we are seeing arround the world. The long term value investors should have nothing to fear. The best thing to do in this type of market is to keep cool and stick to the stategy of long term value building of portfolio. Panic selling will only result in further losses.

Sensex Biggest Ever Fall

The Sensex fell 1,111 points in the intraday trading today. This is the biggest ever fall, after the 826 point drop of thursday. The biggest reason for this fall is the open interest position that was created by the brokers. After a decline of arround 500 points 11:30 the market plunged to 9,829 at 11:55 crossing the 10% circuit breaker. The trading was stopped for one hour and the investors & brokers kept on speculating that the next circuit breaker of 15% would be hit very soon. Panic started to creep into the minds of investors as they watched their hard earned money disapear. The SEBI charimar Damodaran came in and told everyone that there is no Liquidity problem.

One hour later when everyone was expecting further blood on the street the market took a spledid change. Within few minutes the market started trading above the 10,000 mark and at the end of the day things settled at 10,481 point or a fall of 460 point. This correction was very much expected by everyone but no one could have imagined that it would happen in such dramatic manner.

IPO Watch: Reliance Petro IPO

RPL has attracted many investors who are willing to invest for long term in the company. The Stock Holding Corporation of India (SHCL) has said that many small investors have opened a demat account only to subscribe to the issue. According to Dr. Kislay Kishore, head of business development at SHCL close to 50,000 new demat accounts were opened during the last few months and around 25% would be due to the RPL issue.

The IPO's grand success could be measured by the number of applications that it recieved. The IPO of NTPC held the previous record of 14.2 lakh applications. The RPL IPO is over subscribed by 51.47 times and got the largest ever application of 21.3 lakh. The book size of the IPO is 1,43,500 crore, which is double of the previous highest book size of ONGC at Rs. 72,000 crore.

Sector Watch: IT

The IT sector has underperformed the Sensex in FY06. But hopefully this is set to change next year.

In the past three years the Sensex has given a return of 295% in comparison to the 297% return of the BSE IT index. But in FY06 the IT industry was only able to give a meager return of 51.9 % compared to a spectacular 82% by the BSE Sensex. This underperformance of the IT sector was due to the lower profit margin and overall expectation of sub-par performace.

Major results for this year have come out and the numbers do their own talking. TCS showed 36% sales growth to Rs. 13,252 crores with profit growth of 50% to Rs. 2,956 crore. Infosys posted a sales growth of 33.5 % to Rs. 9,521 crore and profit growth of 30% to Rs 2,458 crore. Wipro registered 30% sales growth to Rs. 10,603 crore and profit growth of 27% to 2,309 crore.

The topline growth next year would certainly be higher than the FY06 figures. TCS and Infosys have given guidance with strong margins. Eventhough there are some concerns over the impact of rising salary costs over the margins. But strong demand for the IT industry would continue next year and IT could very well be the hottest sector in FY07.

BSE Sensex at 10,000 !

At last the share market has crossed the 10,000 barier, sending a sense of euphoria amoung brokers and investors accross India. No one could have predicted that the markets are going to hit the 10,000 mark so early in this year. This pre-budget rally is notable because of the strong fundamentals of the Indian Business and Economy. We have seen many bull markets in the last two decades. The bull phases of past are scarred with broker manipulations, corporate or invesator greed, promoter broker nexus etc. There was a lack of transperency in both the Corporate India and in the stock exchanges. This lead to times of extravagant valuations that only lasted for brief periods.

But this time it is Different ! The sensex has crossed many marks before. This time crossing of the 10,000 mark did not happen in a sudden spur but in keeping with a resonable rate of progression. Therefore, the Sensex now reflects the true state of Indian economy. The uplifting sure of confidence in the India Story, and the expectations of future performance is the real hero of the rally this time arround.

The FII (Foreign Institutional Investors) interest in India is due to the strong macroeconomic treands forecated by outsiders. The investors are now confident of the regulatory framework of the stock exchanges and regulatory body like the SEBI (Securities Exchange Board of India). The market risks are now minimised by the expanding of the depth - marked by more than 100 large cap stocks, emergence of new sectors, and wider mid-cap stocks. The small caps of yeasterday are becomming the midcaps of today and similarly the mid-caps becoming the large caps.

The Corporate India will face a tough task of meeting the market expectations for at least next few years. We have seen a strong bull market for the last few years with the markets growing a few folds. Now the investors must prepare for moderate to heavy corrections expected after such long runs. We must not lose hope during such corrections and stick to the long term investment phillosphy taught by investment gurus like Warren Buffet, Peter Lynch and George Soros.