Weekly Outlook for Indian Stock Markets - 22nd-26th June, 2008

OK… So, the worst nightmare that the Indian stock markets had, has finally happened.

inflation numbers have touched the double-digit mark and already speculations are rife that it may touch 15% mark in the near future, especially if crude oil resumes its upward journey.

Under such gloomy environment, the million dollar question is that what should investors do? Is India shining story under threat now? Will government fail to curb the inflation? Will the stock markets go down to as low as 4 digits in the near future? And hence, as an investor, should I put my money in the stock markets at the moment or not?

Let's put out all our fears and ration them logically. Right from our childhood, we are taught to follow the paths of great men at the time of adversity. If we talk same in the context of stock markets, no one comes near to Warren Buffet who, with his unique style of investing, has able to provide rich dividends to his shareholders in all good and bad times. The primary reason, as he says, for this success is VALUE INVESTING.

Stock Markets, at every stage – be it bad or good, will continue to offer some stocks at good values. As an investor, we must learn to identify them and buy such stocks at regular intervals.

Like its past golden days, stock markets will not remain in the bad days as well forever. Soon or later, it will again start buzzing with the voices of optimism. If we look at the past, Indian stock markets are able to tide over various adversities like Harshad Mehta Scam, Ketan Parekh Scam, South East Asian crisis and IT bubble bust and yet, it managed to touch new highs. Hence, the lesson that the past teaches us is to remain optimistic. Invest in the companies that hold future and are offering at good prices.

This week edition will look into such stocks and sectors.

One of the sectors that need mentioning is the Telecom sector. The sector is bound to succeed in coming future. The telecom revolution is bound to happen under any circumstances and under any government. Even the pure Leftist-government will continue to encourage rural telephony and broadband. On the contrary, Right wing parties will pitch for telecom more aggressively than their counter-parts. Hence, a long term investor can look at the companies that are into telecom sector or offering assistance to companies belonging to this sector.

For instance, TTML is one good telecom stock, which is coming at good price (28 Rs). Slowly and Steadily, Tata Teleservices are able to snatch a good pie of customer base. Though, it is not near to Reliance, Bharti or BSNL in terms of the customer base, yet it is able to fetch good chunk of customers through its low cost services. Also, one must not forget the strong backing of Tata conglomerate, which may help TTML acquire some other telecom company much larger than itself. If that actually happens, the shareholders could get rich dividends as well.

Another sector, which is worth mentioning, is the Information Technology. The last year has been a pretty bad one for the IT companies. But with Rupee again depreciating, the companies stand to gain extra in terms of currency parity. Though, the major risk that this sector is having is the slow down in US economy, which may have a bearing on their customer base. Personally though, I believe that US economy slow down may bring more business to the Indian IT companies, since US based customers will resort to cost-cutting and low-cost services of Indian IT companies will help them get extra business from their US customers.

The front-line company that holds well in this sector is Satyam Computer Services. Unlike Infosys and Wipro, who are having major US clientele from financial sector, Satyam clientele also comprises of companies from other sectors like Telecom, Courier, etc. Hence, the company will not face the brunt of mayhem in US financial sector as deeply as some of its peers like Infosys and Wipro may face.

In mid-cap space, companies like Nucleus Software and Patni Computers stand to gain as well. Last year, the investors completely exited from these stocks. But now with re-emergence of IT, these companies may see heavy bout of buying than other IT companies.

Besides, there are few Indian companies that are doing well, despite the slowdown. Take for Instance, Karuturi Global. This Banglore-based company is the World's largest producer of Roses. The company has recently acquired land in Africa and looking to expand itself in Europe as well. The company exports largely to Europe and is insulated from Dollar-Rupee fluctuation. Karuturi stock is trading at 25 Rs (Face Value =1 Rs) and going by various research reports, the stock is poised to touch 35 in the near term (3 months).

Despite the setbacks, I would like to end this week edition with the note of Optimism.

It is good that markets have corrected in last 6 months. Events like Inflation, Oil crisis, Sub-prime will continue to come and offer long term investors some good buying opportunities into the quality stocks. Though, one must not lose "Patience" and invest after "Thorough Research".

Wish you all a very Happy and Quality Investing.