The STATE OF THE MARKETS POST SATYAM

Mr.Raju came out on Wednesday and shocked the corporate world with his admissions.I still remember the day couple of quarters ago when Satyam had come out with the results which was supposed to be very good and the markets reacted negatively on the stock.When asked by the media about the market reaction to the results Mr.Raju was very upset with the market.so why was he upset?The market in its wisdom was battering a stock for reasons well know to it.

There is no way every single investor would be able to go personally to the company he has invested to verify the accounts.They believe in the management and the auditors to their job with a degree of sincerity.

Does it surprise investors that two corporate scams have happened in the last few years-Global Trust bank and Satyam-both out of Hyderabad.So what is it with Hyderabad and Corporate scams?Nothing special except the greed to outdo the market and the brethren in Delhi and Mumbai.Most of the entrepreuners coming out of these regions are first generation entrepreuners who want to make it big in the corporate world-bigger and faster-no time to waste.So another big name in Corporate India goes into the dustbin.

State of the market:

So the turmoil continues.The real economy is taking a beating.Confidence is down.People have lost jobs,lost money in the markets but the bills remain to be paid at the begining of every month.

My take is the real economy would slowly start recovering from the begining of the first quarter of next year(Financial year) and it would take more than 2 years (if we are lucky with the global situation) to get anywhere near the 8-9% GDP growth rates.If the proposed Obama package starts really working from the second quarter of the calender year(remember the US package will (if) start showing effect earlier since it contains income tax cuts etc which will put more money in the hands of the US citizens faster then the stock markets should start recovering six months earlier.

I dont buy the theory of Shankar sharmas of the world that India's bulls market cannot happen in isolation.Since he was right about the markets in 2008 doesnt mean he would be right all the time.If that was the case he would be 'GOD'.

The markets may make a new low in Jan-Feb,but the possibility is only 50%.If you go buy the theory that markets discount the future and not the past then the bad results are already factored in the market.The results of Axis bank which came out today had some interesting features.The NPA figures have not shot up up.So the corporate are not in that bad a shape as it seems.I also think in this downturn the corporates have taken quick steps to reduce the running costs to limit the damage of the slowdown.Factories have been closed wherever possible to limit the loss.

If the Nifty were to slide down to 1800-2000 one should start buying the nifty futures with a medium term horizon.The simple logic here is that every bull markets will have its own favourites so identifying one will become very difficult.Still my guess is that capital goods will be a big winner.

GLOBAL MARKETS and INDIA

The pain in US continues with the death of marquee investment banks.Who would have thought a few months back Meryll Lynch,Lehman Brothers would no longer be in the World financial landscape.However the world moves on.The players have got fewer and the only question one is forced to ask is whether they will learn from past mistakes.History says they will not.So in future also bubbles will get created whatever be the regulations and will get burst.That is the nature of law.Human Greed will always rear its head every few years. Human fear will also happen after every bubble is burst.

So the situation in India is today of fear.Fear of everything-Failure of companies,growth rates,forex losses etc.These fears has also created a opportunities to the long term investor to start building a portfolio with a three year plus outlook to generate far greater returns than is possible with any other instrument available in the markets.For the risk averse look at blue chips or the large cap variety-Reliance,HDFC,HDFC bank etc. For the higher risk-higher reward investor blue chip mid caps are available on a discount sale in the dalal street.

Conviction in self is the key to creating wealth.

Is the worst over for Indian Stock Markets?

This is the question that is uppermost in most investors mind.While the macros are still unclear there are clear indications that the US Macros are getting worse by the day.The drop in Oil prices is a clear indication that the growth is slackening in the largest consumer market.While the drop in Crude Oil prices is good for economies like India how the slowdown in the developed markets will affect the emerging markets is still unclear.I think the India growth story will re-emerge in the second half of the next calender year as Commodities cool off taking pressure of Inflation and thereby bringing the interest rates down in India.Also coming off a low base of growth in the financial year 2008-09 the second half of 2009-10 will definetly be better for Indian corporates.

My advise to retail investors is if direct equity investments is difficult to make because of various reason start SIP now with a outlook of 5-10 years and reap the benefits of long term compounding.Equity investments will definetly generate returns of over 15% compounded over the long term -this will be better than any other return available over various asset classes.

STOCK PICKS -LONG TERM

Equity as an asset class has taken quite a beating over the past 2 quarters.FII's have withdrawn over $5 billion USD over the last six months and the selling has not abated.So the question is whether India will see its first net withdrawal in the calender year 2008 after the FII investments were opened up over 15 years ago.There have been various theories floating around saying that India is the most expensive market among the emerging market economies. The point that needs to be understood is that after the first phase of the bull market starting 2003 India has been basically a bottom up market rather than a top down market. Among the 6000 odd companies that are listed in our exchanges there are hundreds of companies which are being traded around 10 times their current year earnings with clear visibility for earnings for the next 2-3 years and a growth rate of over 25%.

One of the best times to invest is when others are selling without any rational.Fear has taken over the market players of all classes.Even given that there are macro issues like Oil prices,increasing fiscal deficit etc these are not issues which are going to last long term.Oil prices are going up inspite of the fact that global economy are slowing down which means that demand for oil has started dropping.There is also the news going that there are hundreds of tankers filled up with crude oil lined up outside the persian gulf and Netherlands dock with no takers for physical oil at the current prices.Various market experts have already opined that the Oil market resembles the earlier bubble like the technology dotcom one in 2000.If one factors in the fact that the fastest growing economies like China and India have already slowing down there is no way that Oil prices can remain at the current level for long.It may spike up in the short term as the bulls make one last attempt but rest assured that there will be lots of investors holding paper at the end of the oil game.

Also factor in the effect of Reliance gas starting supply in second half of the current financial year the energy picture of the country in a drastic manner.

Investors with a outlook of 2 years and above should start picking up quality stocks like Reliance,L & T,HDFC,HDFC bank,SBI etc.

Update on HEG:
The company has posted a net profit of Rs.143 crores and a eps of Rs.35 for the year 2008.
At a price of Rs.302 it continues to be a value buy.The company is expanding its capacities to 80000 tonnes and the expansion will be completed in last quarter of 2009.Expect EPS of Rs.45 for the current year and over Rs.55 for 2010.The value unlocking of Bhilwara energy will happen in the next 2 quarters giving a further boost.

THE INVESTOR DILEMA

The Stock markets across the world has been seeing turmoil over the past few weeks and the Indian Markets have shaved off 30% from the peaks it reached in Jan 08. The damage has been worse in the broader markets where individual stocks have seen erosion in market caps to the extent of 50% or more.The question in everybody's mind is where do we do from here?What should the long term investors do?

The answer is pretty simple.If one is looking at a time period of 3-5 years then this is the biggest opportunity that has come since the bull run began in 2003.Companies which have a visible earnings profile over the next two years have come to a price multiple of less than 10 and if this correction goes the way it has done in the past few months attractive dividend yields will start emerging in many quality stocks.The pain in the US Economy will continue for some more time but my belief is that over the next 2 quarters the deleveraging will happen which should put the system in a better place.Also one has to remember that the elections in US are scheduled to be held in Nov of this year and the state of the economy is going to be the key talking point.So the republicans will do all that it is possible to keep a semblance of normality in the economy to have even a feeble chance of coming back in power.What is spoiling the party is the state of US dollar and its consequent effect on the commodities.This has resulted in the cost push inflationary pressures on all economies of the world.
I expect India to come out stronger after this mess is cleared and the same investors who are not putting in the money today will come and buy the Indian market at a premium.The correction in the Indian markets have come about in a shallow market scenario where feeble volumes have contributed to the drastic fall.This definetly calls for a contrarian long term domestic Instituion with a longer term outlook to play major role in the capital markets.Time for the Govt to wake up.

Final advice to the long term investor-Remain invested in good quality stocks,buy the stocks you like with a 3 year perspective and you will be rewarded handsomely.

UPDATES ON TELEDATA

Post the listing of Teledata informatics the prices have come down to Rs.20.The listing of the other two companies will happen in the next 10-15 days. The interim dividend for all the three companies will be announced in the first week of April 2008. I Still reiterate that the combined entity will give good returns for the investors.

The basic premise is that the fundamentals of the company are good and there are doomsday predictions about the company. I do agree that the past does not give any comfort to the investors but majority is not always right.The recent correction in the stock markets is a glaring example of the same. Every analyst was talking about the sensex touching 25,000 etc in the first week of Jan 08 and the same analyst are talking of a bear market.

BUY-Reiterated

Subsequent to the sharp dip in the stock markets it is strongly recommended to buy the following shares from a long term perspective:

1.NTPC
2.ITC
3.HEG
4.ISMT

All the above shares have corrected reasonably and offers significant value at current levels-CMP of current date:25th feb 2008. All the above mentioned shares will give a minimum return of over 25% over a 12-18 month period.

TELEDATA INFORMATICS LTD-BUY

This stock has been discussed threadbare in various message boards in the past.The recommendation to buy comes from basically the following pointers:

1.The dilution in the promoter stakes has been due to the aggresive accquisition strategy adopted by the company in the past.The dilution has also been higher due to the low price prevelant for the stock in th past.

2.The demerger of the company into three parts will give better focus in its operations-will also unlock value for the shareholders of the merged entity.



3.The increase in the bandwith of the management-The entry of professional managers in the form of Vikas goel and others will ensure that the company is looked at differently by the investment fratenity.

4.The company has a near monopoly in the marine products division in the Asia region.

5.Price comfort-The share is trading at Rs.64 which is less than 2 times its annualised earnings for the year ended March 08.


I think the worst is over the company and long term investors can buy with a target of Rs.250(post demerger)consolidated price.