Weekly Outlook on Indian Stock Markets - 30th June to 4th July, 2008

Sometimes, I wonder whether one should really be listening to the stock experts, brokers and economists who just keep murmur the new targets that stock markets will touch in the near future.The reason for such doubt is the pace with which these experts change their views on the channels.

Whilst the markets were bullish last year, these experts set new targets of 25000-30000 for the Sensex in 2008-09, sighting Asia-decoupling, strong FII inflows, etc as the reasons. And now when markets are looking bearish, the same stock experts are narrating stories about new lows, possibly in 4 digits,which markets could touch by end of this year, giving rising crude, inflation, etc as the excuses.

Sometimes, I doubt that these experts are paid well for creating such an atmosphere. Because, the inflation and the crude started giving ominous signs in the latter half of last year. Yet these experts came on the channels and talked bullish about the markets. Hence, I am slowly, but surely, starting having my own view point about the stock markets and economy than listening to the experts'advices and I am sure that many of you all would be having the same views about them.

Come let's have a rational discussion on the future of the Indian economy and the stock market. My view is that USA is artificially passing the inflation to the other economies, especially the Asianeconomies and Europe. On one side, the central banks all across the world have raised the interest rates, while on the other side, US cut its rates, hence increasing the money supply in the world, and giving further air to the inflation. The US policy makers want to curb the growth of the emerging countries through rising crude and ensure these countries do not emerge as the counter-part to USA.

There is no denying that the US economy is in dire straits at the moment. The fiscal deficit is at all time high and there is serious threat to the dollar reputation. Though, at the moment, dollar is gaining strength, but one thing is for sure that the moment interest rates go up in USA, the dollar will go down very quickly. The US cannot keep the interest rates low for long since, the inflation has gone out of comfort zone there as well and Bernanke would not like slow rate of growth and high inflation to persist in the financial system.

Hence, my long-term view for India and other emerging economies look strong. There are some very good companies in India that have made their mark in International arena. Information Technology is one such sector where Indian companies have offered the best services at low cost. Indian IT companies will stand to gain, if the companies world-wide resort to cost cutting, because this cost-cutting is done in areas like Customer Care and other back-office departments and various IT companies offer products in these domains only. Hence, any investor who is eager to invest can look at Indian IT companies for longer term perspective.

Another sector where Indian companies can do well is the Telecom and Media sectors. Telecom sector will definitely grow under any government - Left, Right or Straight. Hence, one can safely put in his money in this sector for longer term. Indian Media has emerged out as another upcoming sector in the last year and half. Many investors world-wide have increased their stake in this sector. Even in the current meltdown, the foreign stake in these companies has not decreased much, which indicates the bullishness in this sector.

Some of the stocks that can be purchased in the coming week are Vakrangee Software, TTML, Karutu Global, NDTV and Deccan Chronicle (DCHL). Vakrangee Software is the Banglore based IT company with domestic clients (CMP – 190). The company's major client is Election Commission. With elections in last one year, the company's hands will be full of projects from Election Commission.

Tata Teleservices Maharashtra (TTML) is another telecom company, which is offering good valuation (CMP - 25 Rs). The stock can be purchased with minimum target of Rs 35 in next 3-4 months.

Karutu Global has emerged as very few companies where FIIs have shown interest during this meltdown. The company is growing rapidly in the florocist industry. The stock is trading at Rs 25 Rs. and can touch 50 in next one year or so.

NDTV and DCHL belong to media industry. These companies hold good reputation in the media industry in terms of content provider. Foreign Investors and Global media conglomerates have shown interests in these companies. Recently, New York Times has bought some stake in DCHL. In the end, just want to conclude with a reminder that equities will again emerge, in an year or so. It's just the time to stay cautious and increase your investment perspective from 3-4 months to at least 1 year or so.

Wishing you a great Investing!

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.

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!!!