SUNNY SENSEX DAYS: HOW FAR AWAY

Sensex is below 16K after half a year, inflation crossed past the crucial 5%, Karat and party drawing attention with pre-election gimmick, UPA is in election mood handing over soaps and above all--- the fears of recession in USA is catching up. It is mesh in American job market, there is an unexpected drop of payroll. It is now in air that the total credits related write off will be in the range of $ 1 trillion. The economy massacre is now a global phenomenon initiated in North America.

But the fall of Indian Stock Market is hardest amongst peers.

The Sensex has lost 21% in 2008, but still the average price earning multiple of Sensex stocks is still at 21.58. China ranks over us theirs at 36.03 after a fall of 13.6% in 2008. In the same time Hang Seng dropped 16.5%, Kospi by 11.6% and Japan Nikkei by 5.8%.

The technical analysts are most worried lot, both the key indices Sensex and Nifty have crossed the crucial 50 week moving averages indicating an onset of bear phase of our market.

Why we are going down faster than other markets, probably due to more inflow of FII money to India compared to other markets last year. So money will head out in tough times. The more money came to our market as it presented a better earning potential.

The robust earning potential can not go wrong as drastically and at such a short time frame as our market is now presenting before us. So probably Indian stock market is more attractive now.

So it is a buy time for small investors! ! ! !

No, with another very strong NO.

Markets are mostly driven by sentiment. Right now the sentiments of investors are abysmally low; it does not appear to me that it will improve so fast at least in India. No sensible investors will go for market till political situation of left vs. others of UPA stabilizes.

Wait till appropriate time (Do not rush), have some money in pocket then go for a short term kill.

STOCKS FOR 2008: CALLS FOR REALIGNING STRATEGY

It was interesting to note the following ten top performing stocks in 2007. Link- Time-Blog.

Inner Mongolia Yitai Coal Co. Ltd., China, 1017%
Jai Corp. Ltd., India, 877%
Reliance Natural Resources Ltd., India, 823%
Ispat Industries Ltd., India, 742%J
indal Steel & Power Ltd., India, 664%
Essar Oil Ltd., India, 570%
Shougang Concord Int'l Enterprises Co. Ltd., Hong Kong, 534%
China National Building Material Co. Ltd., China, 496%
Lanco Infratech Ltd., India, 487%
Adani Enterprises Ltd., India, 467%

Surprised? Let me quote from the same source that out of hundred top performing stocks in 2007, fortyone are from India.

We are extremely bullish in India story and the above is just another support to our bullish outlook. We are an emerging market, and we have many hidden gems whose earning potential is not yet fully exposed. Above all , we have our unique stock/financial market which has a judicious mixture of domestic and foreign earning potentials.

But still, it may not be possible to repeat this kind of extraordinary feat year after year. To sustain similar kind of growth to our portfolios, it certainly calls for realigning of strategy and to have a peek into the minds of market pundits. Some good prescriptions of stocks for the year 2008 are already doing rounds in the world of investors. These prescriptions if you look at them have their own merits. These suggestions at times go terribly wrong leaving the investors high and dry. So, small investors are to apply their own discretion.

I personally liked few suggestions and these may be used as guideline for framing strategy for next year.

Business-standard: Some picks which does not need much expertise, still should reaffirm our faith in known stocks.

Moneycontrol.com: Mainly observations from Pundits. Interesting reading, for the contradictions.

DeadPresident: The most interesting, stock selection by mortals, must read page.

Business Today (Print edition) has also published their list of companies for the year 2008.

Happy New Year.

THE GREAT INDIAN BULL RUN

It seems that I am destined to miss the excitements of stock market during any of my hiatus from the blog to attend other engagements. The Sensex remained there at tantalizingly near 20,000 when I shined off, then it slided by around 2000 points for lack of cues. It made a resounding recovery of 924 points in a biggest single day rally to be there at its very correct place near 20,000. It reconfirmed my standing (my earlier popular blog: Should we buy stock now?) that there is still some time left for Bears to set in. For now it is the “Great Indian Bull Run”.

Market pundits always maintain, “bull markets don’t just die of old age, historically only one factor has terminated bull runs: rapidly rising interest rates. Bear markets occur when earnings collapse due to an economic recession, which in turn is brought about when real intereat rates cross the threshold of pain”. (Ruchir Sharma: The Sky Isn’t Falling –Yet, November 5, 2007, Newsweek)

To go by the above referred article there are still some way to go before the Indian Stock Market enters into the “bubble” territory. History shows the bubbles peaks when average stock price reach the level of 50-60 times projected earnings for the coming year. Some examples of bigger bubbles are NASDAQ in 1989 and Hong Kong market back in 1973, when the P/E ratio peaked at 55. The bubbles were busted by respective central banks by tightening measures.

Any tightening measure will result in slowing of overall economics of our country which the government will very reluctantly opt for, in all possibilities.

There are some theories floating around like “look beyond the index stocks”. This is a dangerous proposition to small investors as most of the small investors only look at the stock price movement, not beyond that. Some penny stocks are good bait for those unsuspecting small investors by those big great white sharks lurking in the deep blues of uncertainties. They should always value the fundamentals rather than unwanted tips from those uncertain sources.

A few issues back Outlook Money (15th October, 07) came up with nine good mid cap infrastructure stocks which seem to fit the bill for small investors. For small investors these stocks may be kept in their radar for picking up when the stock price and market allows picking (refer my earlier very popular blog: Waiting forever to be discovered by world). For our benefit let me note them down below:

Bharat Bijlee: Good order book and earning visibility.
Bharati Shipyard: Cost competitiveness results in better standings.
Era Infra Engg: Good project execution.
Hercules Hoists: Diverse Product Range in a modern manufacturing facility.
India Cement: Biggest cement manufacturer in South India.
Indo Tech Transformer: Impressive growth potential.
International combustion: Niche product range.
Paramount communication: May be the growth story to come next.
Voltamp Transformers: Should ride the infrastructure growth story.

In the mean time let us bask in the glory of Sensex Sun and as old adage says: make hey while the sun shines.

INTROSPECTION ON INFOSYS RESULT

Ultimately the tension is over, Infosys result is out. though the result is not bad enough, but the concern is about the guidance for the next quarter. The guidance is based on the present rupee valuation and any appreciation of rupee may hamper its earnings. Many market observers are really upset by it and the stock reacted by going down by almost 4% at 2:15 PM today and pulled the entire IT pack with it. The major downward puller of Sensex today is Infosys.

Infosys management squarely put the blame on appreciating rupee and came out as: “This is an extraordinary quarter as the rupee moved by 7%. We assumed a guidance of 43.10 earlier, now the rupee average for the first quarter is 46.6. We have lost around Rs 287 crore in revenues for the first quarter. For the whole year, from the guidance we would have lost around Rs 1,000 crore. So, it has been an extraordinary quarter and that’s why we have revised the rupee guidance for the full year” V Balakrishnan, Chief Financial Officer, Infosys .

Market is certainly not happy with the explanation, and probably trying to put the money in different sector where more than 20% growth is possible in the next quarter. Pundits are not writing the stock off, and have enough confidence in it, as it was exhibited in past. JP Sinha of Ambit said "The fundamentals are still intact and the entire fall is led by the rupee, which has appreciated by almost 6.5%. I am not willing to write it off and it is a good time to buy."

Now it is introspection time for small investors. To put more money or come out of the IT pack I consider there are still many milestones to achieve by the Indian IT Industry. To identify I started to look at the earning estimated put up by Broker Houses for my stock HCL Technology . The findings are below from indiaearnings.com

ABN AMRO : net profit is seen down 11.2% at Rs 267.5 crore (Rs 2675 million), QoQ. During the same quarters its revenues are seen up 0.9% at Rs 1590.8 crore (Rs 15908 million).

M Oswal :net profit is seen up 1.4% at Rs 336.5 crore (Rs 3365 million) YoY. During the same quarters its net sales are seen up 2.2% at Rs 1611.2 crore (Rs 16112 million) in the corresponding quarter previous year

JP Morgan: net profit is seen up11.3% at Rs 347.4crore (Rs 3474million), QoQ. During the same quarter its net sales are seen up 0.9% at Rs 1590.8crore (Rs 15908million) QoQ. net profit is seen up 24.9% at Rs 376.1 crore (Rs 3761 million) versus Rs 301.2 crore (Rs 3,012 million) QoQ. During the same quarters its revenues are seen up 2.2% at Rs 1611.3 crore (Rs 16,113 million) versus Rs 1577.1 crore (Rs 15,771 million) in the previous quarter.

I was about to leave the IT scene today then suddenly I saw this.

There is a major accumulation of HCL Technology today. Lets wait till the result of HCL Technology is out, risk taking appetite is neccessary in Stock Market. I'll keep a stop loss at around Rs. 330/-.