Weekly Outlook for Indian Stock Markets - 20th May-25th May, 2008

Hum kis gali jaa rahe hain, apna koi thikaana nahi

These lines from a famous song sum up the mood prevalent on the Dalal Street. The market clearly lacks direction and it is necessary that investors remain cautious and invest their money carefully.

There are several threats looming over the Indian economy. The most threatening is Inflation. The last two governments – NDA and UPA have ignored the agriculture sector and it is showing the results now. Also, Crude Oil has made the matters worst for the government and it is highly unlikely that inflation will come down to comfortable levels soon. At the same time, the high inflation forced Central Bank to raise the interest rates. This has made the funds raising expensive for the companies, and hence, slow down their growth.

This complete cycle teaches a lesson that any economy cannot prosper by giving attention to only specific sectors and ignoring the rest. Thus, till the time, government takes some serious steps in encouraging the lagging sectors like Agriculture, India cannot become a developed nation.

OK… Let’s review the last week performance of our Stock markets. Despite a series of bad news coming throughout the week, the markets have shown the resilience. The Inflation at 8% cannot be ignored at all. Industrial Production at 3% cannot be taken lightly. But still, the resilience that markets have shown is on some strong foundation or just a blip to trap the invertors, only time has the answer.

Though as an investor, one needs to look at some sectors like Information Technology, Textile processing, Retail, and Telecom with optimism. Information Technology sector was always a good sector to invest in, but off lately, the rupee appreciation has made it look vulnerable. Now, when Rupee has again depreciated to 42 Rs / US Dollars levels, the sector is poised to do well.

In Retail space, Indian consumers have found a new passion in the form of Malls and Big Shopping outlets. This has made companies like Vishal Retail, Pantaloon, Future Capital Holding, attractive for a long term perspective and can always been bought in dips.

As discussed before as well, Telecom sector has the strength to grow significantly in near future. Once this spectrum issue gets over, one will see telecom companies competing for Rural India where the majority of India’s population still resides. The company of which I am fond of is TTML. The share at 30 Rs is the most attractive Buy and could touch 60 Rs in the 1 year span.

Though, I must again reiterate that one must remain cautious. One bad news may led markets drop its resilience and can again take markets back to 4800 levels or below.

Wishing me and you a very Happy Investing!!!

Weekly Outlook for Indian Stock Markets - 05th May - 09th May, 2008

Hey!!!! Is everyone back???

Well, the most important thing about which every investor is concerned about is the re-emergence of FIIs in the stock market.

If we look closely at the FII investment data for the last few weeks, the data is not so encouraging but it is not discouraging either. The outflow of funds was severe in the months of January, February and March. But in April, the situation is somewhat good. Even if we look at Friday’s data, FIIs have been the Net Buyers in the tune of Rs 600 Crore., which indicates that they are again back on the streets hunting for good quality stocks.

The sector that has rebounded strongly after the January meltdown is the Information Technology (IT) sector. Almost all the frontline stocks like TCS, Infosys, HCL, Satyam, Wipro, have gained by almost 20-30% in the last two months. There are several reasons for it:

Dollar Appreciation
Last year, Information Technology had got a severe hit due to Rupee Appreciation. The Rupee appreciated to 39.30 / dollar in January, 2008 from around 44 Rs. /dollar in January 2007, which impacted the profitability of these companies a lot, since the revenues for these companies are in dollars.

The major cause of this appreciation was the tremendous inflow of funds into Indian stock markets, which put extra pressure on the local currency. But since January, the scenario has changed completely. The months of February, March and April have seen net FII outflow from Indian stock markets and that helped the Dollar in rebounding to somewhat higher levels. Currently, Dollar is trading around Rs. 40.50 a piece.

The temporary rise of Dollar from 39.30 levels to 40.50 levels will help IT companies in their revenues. Also, the companies will get some more time to adjust themselves in the new global conditions pertaining to currency.

Most of the IT companies now, are signing new deals either in the local currency or at the fixed currency price to save them from currency fluctuation. Many companies have also taken the route of derivatives to hedge their future revenues. In other words, IT companies are now trying to come back on track and the dollar appreciation will help them doing it.

Revival of BFI space
Sub-prime has hit the most to Banking, Finance and Investments (BFI) space and markets feared that companies in this space will resort to cost-cutting by reducing their technology bills. This factor prompted many experts to announce a bleak future outlook for the IT companies who have major clients in BFI space.

But till now, no major organization in BFI space has announced any major cut in Technology spending. And this has revived hopes among IT companies that the impact of sub-prime will not be much on them.

Support from Indian Government
Indian Government is giving its active support to the IT companies. The government has recently announced that it is extending the tax holiday for IT companies till 2010, which was earlier due to over in 2008. This announcement could be a major relief for IT companies, since the tax burden will be less for these companies and will help in earning more profits.

IT Stocks to look out for
This week, we will look at some of the stocks belonging to IT sector. One of the stocks that will definitely do well in coming days is TCS. The company has good mixture of products for various domains including BFI, telecom and retail. Also their clientele include big companies from Europe, US, Middle-east. Some of the Indian banks have also been using TCS product for their operational needs.

Also, the company has hedge its revenues to around 40 Rs/ dollar levels, which make them almost immune to currency fluctuation. Hence with such diversified range of products and clientele, the company will probably fare much better than its peers.

Also one can have a look at the companies that are working for local clients only and are doing quite well. Two such companies are Vakrangee Software and Tera Software.

Vakrangee Software works primarily in the area of digitization of records and has clients like Election Commission. It ensures safe and steady revenues from them. The company is also expanding in the telecom domains offering bill-digitization products to the companies.

Major FIIs have bought this stock around Rs 180-200. Currently, it is trading at around Rs 250 levels and has the strength to up to 400-450 levels in a years’ time.

Similarly, Tera Software offers educational products to government companies and is bound to do well in future, since the government is now actively looking to promote education in the rural areas. Kotak and other major Financial Institutions have purchased this stock around 80 Rs. It is currently trading at Rs 60.

Be the original
In the end, equities investments are always subjected to risks. It is better to listen to everybody, but follows what’s your mind says. Please do not use your heart, use your knowledge and logic before buying any stock.

A very good poem by Harivansh Rai Bachhan teaches a lot. In his poem called Madhushala, there are four lines:

Madiralaya Jaane ko Ghar Se Chalta hai peene waala,
Kiss path pe jaaoon, asmanjas mein hai who bhola-bhala
Alag Alag path batlaate sab, par main yeh batalata hun
Raah pakad tu ek chala chal, paa jaayega Madhushala

(To attain wisdom, you will be shown various paths by various people, but is better that you pick one path and follow it whole-heartedly. By doing this, you are destined to succeed because every path takes you to one destination and that is Almighty, the God)

If we mix this philosophy with investment, it can be said:
While investing, you will read various ideas, and various views, but it is better to build your own logic which your mind creates and then just follow it. In the end, you will end up with good returns from your investments. On the contrary, if you keep changing your investment style, you will end up with nothing, but only the wisdom.

Wishing you a happy investing!!!