IndiaStar.biz - Indian Stock Market Guide

Last Modified on 27 Jan 2010: After 5 consecutive days of market fall, we are now holding on to the support offered by 4850 on the Nifty, which is a crucial support level. It had also played a role during the Dubai crisis day on Nov 23. But the current correction is clearly bigger as the  FIIs have been net sellers every day for the last 5-6 days.

The market will hold and move up by end-Feb towards 5100, before the budget in end-Feb.

Older text: NIFTY 5400 is Our Target For Feb 2010; at that point, you should convert at least 50% of your portfolio into cash. Even currently at 5225, you should have 15-20% portfolio in cash so that any dips can be bought. Large cap stocks that can deliver good return from now to end-Feb 2010 are:  NTPC, Tata Motors, Reliance Media Works (Adlabs), Hindalco, Tata Steel, Satyam

Mid cap stocks that can deliver good return from now to end-Feb 2010 are: Peninsula Land, Lakshmi Energy & Foods, Orbit Corp, Panacea Biotech, KSK Energy, IOB (Indian Overseas Bank), Varun Shipping

Small cap stocks that can deliver good return from now to end-Feb 2010 are: Munjal Showa, Surya Phrama, Vipul

Previous Week

The Indian equity market, after three weeks of consecutive rise fell during the previous week due to weak global cues, mainly from China.

However, the week started on a positive note, after witnessing a highly choppy and range bound trading for the next couple of days, the market fell significantly during the last couple of days, losing an average of 2.5% each day.

On a week-on-week basis,

• BSE Sensex plunged 510 points or 3.25% to close at 15160.24
• Nifty ended at 4481.4, down by 155 points or 3.3%.

Better-than-expected results for most major companies across the globe so far have been supporting the market to remain strong.

During this week, however, indications that China may restrict lending, deteriorating monsoon in major parts of India, some weaker-than-expected global economic data and a very high valuation for the market attracted profit booking. This further accelerated, as both important indices breached some important levels.

Auto, Realty and Metals remained among the top losers in the previous week.

Week Ahead

After rallying significantly for the last five months with only one correction in between, the market is likely to pause for some time. We saw this during the previous week.

It would be interesting to note whether the previous week’s fall was only a breather or it has the potential to drag the market further. This would be clear only in the coming week.

The recent rally was mainly driven by better prospects of economic recovery in emerging markets, mainly China and India.

Some indication of restrictions in lending and over-valuation of some sectors, coupled with skepticism on the latest consumption of certain raw materials raised concerns over the potential of the rally. This attracted profit booking.

Though some occasional buying may emerge at lower levels, the market is likely to maintain its weaker undertone in the coming week also.

FII trading activity on NSE and BSE on Capital Market Segment

The following is combined FII trading data across NSE and BSE collated on the basis of trades executed by FIIs on 17-Dec-2009.

FII trading activity on NSE and BSE in Capital Market Segment(In Rs. Crores)
Category Date Buy Value Sell Value Net Value
FII 17-Dec-2009 2356.45 2163.63 192.82

Domestic Institutional Investors trading activity on NSE and BSE on Capital Market Segment

The following is combined Domestic Institutional Investors trading data across NSE and BSE collated on the basis of trades executed by Banks, DFIs, Insurance and MFs on 17-Dec-2009.

DII trading activity on NSE and BSE in Capital Market Segment(In Rs. Crores)
Category Date Buy Value Sell Value Net Value
DII 17-Dec-2009 1225.62 1092.34 133.28

Captioned story means a lot to one and all. At a time when global market seems to be on a bear hug – trillions have gone in the drain.

As we step into recession, blue chips are available at prices which were unthinkable about 6-8 months back. Yes, we have indeed stepped into a market where a year is an eternity. A moment of shock and awe is re-writing the support and resistance levels.

India has fallen behind its peers on account of poor IIP numbers, global slowdown, meltdown of commodity space and now Satyam’s corporate governance scandal.

The valuation of the entire Nifty fifty pack, with no exception has been re-written. PE index of Sensex and Nifty has been well and truly revised. What’s next? All experts’ say- that there is some pain still left in the market – but on the face of it, they seem to be following a herd.

Existing macroeconomic fundamentals thus suggest that the experts may be right, but gravity too takes a stone only to ground and not beneath. Speaking on an Indian context Reliance, L&T and the nifty-fifty pack is today available at throw-away prices. IT has been hammered beyond recognition – but fundamentally nothing much has changed.

Indian banking system remains resilient and domestic demand is still robust. GDP numbers have taken slight hit – but that’s understandable. Today, India still gives a window of opportunity to investors which is different from the dynamics of an US market or that of the highly export centric Asia-Pacific rim. Fundamentally, India still remains a growth story with minor aberration in form of current turmoil it is confronted with!!

While it may not be the right time to park the entire investment portfolio now – but we believe that for sure, it is the beginning time. Retail investors, who missed the ferry ride to 21K Sensex, can start booking the passes now.

Stocks like Reliance Industries (RIL), L&T, BHEL, ONGC, Tata Steel, and TCS are looking very attractive on valuation – leave alone the technical charts and other such pointers.

While, it is understandable to note that many retail investors have lost aplenty in the current bear hug (or atleast are exposed to heavy notional losses), but it is time to get the portfolio right.

There are stocks in portfolio like Hindalco for instance which has no value left in it – as it struggles to make payments towards its Novelis acquisition, there are further downside expected. Its time to take a call on such counters and get the locked cash in hand.

Inventory is a bad word, but Inventory turnover is a good word. It is all about the resource one has and how one uses it. A resource tied to a stock which has no near time upside is locked in inventory. If the same resource is turned 4-5 times a year in various portfolios it is serious money. So take out the locked funds and move into a running stock – say an RPL for instance. Turn the fund twice over the next six months and there would be sizable return in the taking. Yes, this is a “trading approach”.

A portion of the fund can also be apportioned in momentum stocks like JP Associates, Nagarjuna Fertilizers, Power Grid, TTML, Idea and RNRL to make the inventory roll-over fast.

Lots of news is expected in the current and next quarter. Obama’s gift check, an Indian election summer, a populist budget, a hawkish audit regime and a tired bear. These are the news a momentum stock would love and dance according to the tune.

As an investment advisory portal our aim is to give value to our readers and clients in making positive gains. We used to advise investors on specific stocks and its holding periods- 6 months, a year or sometime even more. While this advisory service is not available at the moment, we want to use this blog post to suggest the inventory turnover approach, where an investor begins by say a Rs 50k ticket and in the first 3 months targets a 10% returns and then compounds the proceeds to another 10% in the next 3 months to get a 21.10%, six monthly return. It will require plenty of smart work – but we sincerely believe that it’s achievable and therefore we are approaching the time to bring cash in hand to counters.

The golden rule remains- invest when the market appears dead, make money like a trader on a dead cat bounce and exit just before the euphoria becomes too good to be true.

In wake of what happened at Satyam, it is imperative to state what is corporate governance for investors.Jargons apart this in my opinion is “Truth”- 100% and nothing else. Reporting the facts as they stand (loss or profit).

Investors save in their fortune in blue chips because they have faith in the professionals who run the show. They believe that they can handle their money better than the investor themselves.However when these messiah act in any in-appropaite way as they do - it is not mere a trust or a bond which is broken but is much beyond that – “a monumental loss”. For someone who has invested his fortune in them - believing a words for a word might collapse under shear weight of the loss.

Satyam killed India Inc to say the least if not at least took it to  the intensive care  unit.  How the company will rebound is minsicule as compared to the big question of how - India corporate governance recovers from this lockjam.

What is disturbing in the present case is that this inflated number and non-existant numbers were being reported for years in a line - this points towards malafide intention at its origin. A company which probably was created to siffon out funds for those who run it. It sometime may happen that someone who has a bad time - does something unethical to get out of it, but this was not the case with Mr. Raju. He has been doing it for years and during the best of Satyam times as well.

Mr. Raju has resigned after his confession (read ’suicide note’) because of the way he has taken all by himself and dis-associating his family and friend from the fiasco — by leaving virtually no option for company to recover. A bad book, zero liquidity, non-existant board, no-suitors, a million law suits and more importantly a total erosion of goodwill. No one wants to touch this tainted company- as exemplified through recent utterances by NRN and who will - because anyone who shows interest doesn’t get just the asset side of Balance Sheet but also the liability side - which is an unpacked horror.

The only asset which the company has is its skilled but suffering workforce - who apart from  diligently doing their job are exposed to a lagging job market with unsurety where their next pay check will come from. They remain prey to market predators at this torrid global downturn time. One can only pray for 53k  Satyam employees and their dependents who have to support and pay loans - and eat food as well. Any replies Mr. Raju?

It is sad to learn that this tainted man represented NASSCOM as its chief - fail to understand how can one accept certain dignified position with guilt imbibed within - also how can one accept the Global corporate governance award when your conscience knows what actually is corporate governance!! These are disturbing questions which probably do not have a ready answers - but hard soul searching.

Who is to blame?- Mr. Raju alone? NO WAY!!!!!. Such scams of mega propostion cannot be a play of one man alone - independent BOD cannot disassociate from their roles, nor the market regulator nor the stock exchanges and for sure not the auditors. As a simple investor too - why a question was never put forward to the company as to why such huge cash is showing in current account for years could have been put forwards?

The whole machinery has failed and better it responds loud and clear sooner the better.

Indian Stock Market Analysts like us can spend hours and days together - statistically analysing the numbers which we take as gospel truth and think that we are taking informed decisions -but what if the numbers themseleves are not right? What if I am the last one to know about cooked books after all the big guys have made their money and exited? 

Investor confidence in the Indian Stock Market Governance is badly damaged… ours surely is.

If SEBI can’t smell foul play in a large-cap industry leader (and constituent of Sensex), do you think it can spot fraud in a mid-cap or a small-cap stock — No Way!!!!

For now, it is time when the Indian legal system responds and not that we would like to see US regulator solving the Satyam fiasco sooner and India following suit. India has to wake up beyond “a bad apple” and respond in the most professional way - disparaging all political contacts of the who’s and who and the normal delays which prevails in Indian judicial system.

And for God’s sake, please no committees and sub-committees to be set up accounting standards - because if the US GAAP can fail all such standards can fail as well.

However bad the scam can be - it has a silver lining.

It throws into light the general health of IT industry. There are some difficult questions. Forget the hiding of numbers etc by Satyam. If the new numbers as per the confession letter are even partially true - then 3% margin over a 2000K crores of revenue is a “SHOCK”. This sector is believed to be working at a 30% gross and around 20-25% net. A 3% gross would mean an under water net. Is the IT honeymoon finally over? Is the golden duck killed? Or is it another gospel lie by the outgoing chairman - whoes any utterances including his confession will be taken with a pinch of salt. May be the delta of a 3% gross and 30% gross is already pocketed by him and his henchmen.

At Indiastar.biz we will continue to analyze the numbers with thorough belief in the India growth story - just that our analysis will be beyond numbers. This is our take from the ASATYAM SAGA.

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