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Demand, Supply - Rhythm, Rhyme, Results

Fortune 2007 Index : Analysis

Two Fortune India Index was created by using two different methods. One was by using equal weights for all the 39 companies that were selected. Click here to read more about the original Index. The second method gave weights equal to the market cap of each individual share on the particular day. In other words the second portfolio was assumed to be dynamically adjusted to have weights depending upon the market cap of the shares.




The returns calculated was the log return for the entire period starting from beginning of year to end of October. Similarly Beta was calculated by using the daily log returns.

It was found that the returns were as high as 80% in case of equal weights compared to only 23% and 26% for Sensex and Nifty. At the same time what was more interesting was that the Beta of the Index was very low around 0.82. If Beta is taken as the measure of risk (CAPM) then the alpha, or the excess return created for the level of risk taken (beta) would be very high.

Divali Investor

Towards Divali of every year investors expect the market to do well. It is one of those end year phenomenon which cannot be easily explained by common rationality. In fact from 1998 every single year market has gone up during Divali.

During this Divali the Investment Pundits in India have become very cautious. Ever optimistic star investor Rakesh Jhunjhunwala could be easily quoted on CNBC that the inevitable correction in the market is near. He still believes in the long term future of the Indian market, saying that we are still in the initial phase of the long term India Growth story.

The markets are showing signs of being overheated. This is clearly evident from the stocks that are doubling in very short period of time.

We have seen many level wise correction in the market in the past one year or so. That is every time the market touches a particular psychological landmark level it goes for a correction. But we are yet to see good time-wise correction, which is not necessarily level dependent. For example a correction with a bear phase that lasts for many months to a year.

The long term market gurus say that these bear phases are not something to worry about. The markets may decline to levels that might be painful for people who rely on stock markets for their income. But this would provide the investors an opportunity to purchase the shares of companies at even better valuations.

Fortune India 2007: Index

Fortune India 2007

Indian stock market has gone up by close to 30% from the beginning of the year. This upswing in the market has resulted in almost all sectors doing phenomenally well. The growth story is not just applicable to the Large caps but also to the mid caps and the small caps. In this kind of a market picking a portfolio that makes more money than the Fixed deposit rates (close to 10% per an) is not at all difficult, but beating the indexes like Nifty and Sensex would be the thing that fund managers look forward to.

Picking a basket of shares like the Sensex (top 30 shares by market cap) or Nifty (top 50 by market cap) would be the ideal thing to do. But recently I found that that in Prowess database there is a group of companies called to Fortune India list. This list has selected companies as per the fortune rankings. I thought this would be a very good method to pick the top companies in the country and as long as the stock market is doing well this index must also perform better. The companies in the list are as following:



Watchout this space for more analysis to see how sucessful is it to invest in such index.

Mkts Wait for i-rates

It is going to be another busy week for traders and analysts, because of the central banks of key economies are about to unveil their policies related to interest rates. US Federal Reserve Chairman Ben Bernanke is expected to release its comments on Wednesday. The Bank of England and the European Central Bank will also come up with its view on interest rates. Widely it is expected that the Bank of England will raise its interest rates by 25 basis points to curb the inflation. On the other hand US and the ECB is expected to keep its rates untouched.

The next two three days are going to be very exciting. In case if the things don’t go as expected then the markets make take a big hit. Already the Dow is at new all time highs and so are the indexes at other countries like the French CAC.

Indian markets are also showing a similar trend. The Nifty is still hovering above 4000 points. In this market global markets are going to have a significant impact. Keep watching this space for more articles on Interest rate policies and its affect on markets.

Dow to beat S&P

The Dow is touching new highs and so is S&P.In this rising market it is important to know if the blue chip companies are going to be better or the Mid-caps. In my opinion exports and foriegn operations of compaies is now going to matter. Given the economic conditions where dollar is constantly depreciating companies with higher proportions of income from abroad are going to benefit. Traditionally companies in the Dow make a lot of money outside the country because of their multinational operations.Historically large caps have outperformed S&P by close to 15%. But in the last few years small caps were getting more attractive. This trend is now goin to change with MNC companies of DOW reporting higher earnings from abroad incomes.So in my opinion the Dow should confrotabily beat the S&P, in future at least in earinings.

Now lets get back to Indian Stock Markets.

The heavyweight companies in india are very much dependent on exports. So with current appreciating rupee it is logical to think that their performance will get worse compared to the Mid Caps. But in Indian context, my opinion is that the large caps will outperform the Mid Caps. The reason is that Large caps like TCS which rely heavily on exports are better prepared with hedge positions to protect themselves from adverse currency movements. Majority midcaps which are also into exports don't have highly hedged positions. This means that in the end the Large Caps basically comprising of Nifty (top 50) and Sensex (top 30), could still outperform the Mid caps and Small caps.

The first part of the article was written as comment on "US Market Watch"

Nifty loosing early gains

Markets falling lower after opening close to 1% high. This is after the Nifty touching breaking the 4200 barrier (touching 4212 points) in the morning with ease. It seems like a technical reaction to the levels that are broken. If all goes well market seems to close higher that 4200 today. This would be a very optimistic rally for the markets.

Japanese Interest Rates

Japan for long was a low interest market, serving as a source for low interest loans for Japanese funds. These huge funds kept on using "carry in" trade strategy where they borrowed funds at low rates and then invested it overseas in markets where the return is high (Emerging markets). About a month ago when the Japanese increased the interest rates, it was expected that the Yen would start appreciating and most probably accompanied by flight of funds from the Emerging markets.

In the past few weeks close to $4-5 billion was taken out by the top Japanese funds. Out of this more than $1 billion was sold off from the Indian market. And about $5 billion from Emerging market excluding Asia (Brazil, Russia etc.)

Morgan Stanley had earlier predicted that there would be a huge flight of foreign funds from the Indian markets. It is clear that Indian markets are having the most impact from the global market. But long term optimism is still there; few days ago one of the Japanese Bank announced close to $1 billion for Indian dedicated fund. This clearly shows that long term optimism is still intact for the Indian markets.

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.