Saturday watch on Market Outlook ...

I’ll prefer to stay away from equity market for next two months!

2011-01-20T12:42:00.000-08:00

Unusual technicalities, high inflation and relatively more liquid other Asian relatively less priced markets will keep the upper side in sensational index limited. Though market shows strength despite a fall last fortnight, it's more driven by liquidity. The liquidity which has largely accumulated as a confluence of the U.S. Federal Reserve and European Central Bank unprecedented debt monetization activities. Consistent high inflation and no sign of reduction in inflation expectation in near future as too much money has found safe heavens in commodities,raising substantially the cost of living to lower per capita purchasing parity, will force central banks to raise the borrowing cost strategically. In case it's not done, it will be worse for the economy in long run. Indian market has overdone its part in 2010 and I am of opinion that its time that money will flow more towards Singaporean and Vietnamese market in coming months. My personal opinion is that SENSEX will touch 17000 before the end of this quarter. Till then I will be cautiously remain invested in gold, copper, and probably take a fresh position in commodity market of natural gas and oil.

US economic growth will remain slow and US dollar will depreciate!

2010-09-29T15:36:00.001-07:00

The chief reason for the slow economic growth of US is closely related to exports and the dollar. South Korea, Russia, and other emerging markets that went through severe crises earlier usually underwent a sharp depreciation in the inflation-adjusted value of the currency, making them hypercompetitive, at least for a while. This makes it easier to replace imports with domestic goods and services and much more attractive to export.

In contrast, the global financial crisis actually strengthened the U.S. dollar as it was seen as a haven, although the dollar has fallen somewhat from its recent peak against major trading partners.

It takes time for a big economy like the U.S. to export its way back to growth; exports were only 12 percent and 13 percent of gross domestic product in 2007 and 2008, respectively, while imports were 17 percent and 18 percent of GDP.

Yet the logic of today's economy is pushing the dollar down and exports up and, in turn, aiding the businesses that compete against imports. There are three forces at work.

First, the coming stand-off between the administration and Congress rightly worries investors. The Republicans have had a weak record on fiscal responsibility over the past 30 years, while the Democrats have failed to explain even to themselves how the fiscal stimulus prevented the biggest financial shock since 1929 from becoming another Great Depression.

US have a serious issue with the budget deficit but no prospect that this will be dealt with in the foreseeable future. American politics are increasingly seen as dysfunctional by international investors.

Second, with unemployment obstinately high and fiscal policy on ice, the Federal Reserve will continue to push down long-term interest rates. Further rounds of quantitative easing will tend to weaken the dollar.

Third, emerging-market economies are already booming again and demanding the kinds of upscale goods and services that the U.S. is capable of exporting. These emerging markets would like to resist currency appreciation; they prefer to keep their current accounts in surplus, following the Chinese model. This may work for a while, but in this case they will accumulate even more foreign-exchange holdings and, given the stance of U.S. policies, these governments will surely diversify more of their reserves out of dollars.

Global savings will increasingly be parked in Europe, so the key issue is European fiscal solvency. There are some potential bumps in that road, notably Ireland. But while Europe may not boom, it probably won't default on any sovereign debt.

The dollar is, therefore, likely to depreciate against all floating currencies. If this happens, the impact on U.S. interest rates will be minimal because the Fed will continue its easing. Inflation may rise slightly but high unemployment means the impact will be small, perhaps not even to the 2 percent annual rate that modern central banks quietly prefer.

Drown in Sensex... Well you need a short break...

2008-02-07T02:05:00.001-08:00

Through the last quarter of 2007, India seemed to have “decoupled” from the US market. The mindless day to day correlation with the Dow and Nasdaq seemed to have been snapped. Sadly it wasn't an enduring decoupling as we seem to have recoupled again. We are back to the same old grind : eagerly waiting for global market cues every morning and promptly falling in line.

So is decoupling dead? Yes and no. First, even the staunchest proponents of decoupling would agree that it is wishful to expect emerging markets to not blink at all as the US economy faces up to the recession that the world has been fearing for the last one year. This is no empty debate now, nor a distant possibility : it seems to be right upon us. As the bad news gets worse, the bulls throw in the towel and hunker down for a rough patch, a last bit of capitulation always happens. While this capitulation plays out, some of the panic is bound to spill over to markets like ours. As may be happening now.

The important distinction is that this collateral damage is not necessarily economic in nature but in terms of sentiment and liquidity. On the margin, some institutions will sell stocks in all markets and raise cash. That may hurt us. This money will probably return later to chase growth in this part of the world, which is precisely when the decoupling will play out again. But that may have to wait for a bit, till our economic and corporate performance can establish that growth in India is not dependent on the US. And till the panic has subsided to the extent that global investors can think rationally and realise that they cannot take their money back to the "safety of their homes' as their home is where the fire rages.

So decoupling is not dead, merely interrupted or deferred. It's a matter of timing. If, indeed, the US has 2 or 3 quarters of negative growth, starting this quarter, my guess is that all global markets will move in a synchronised fashion for the first leg of that painful period. Then, markets like India and China (unless it starts tightening) will bottom out well before the rest and start outperforming. Decoupling, then, will be back, after a short break.

Memories tend to be too short and our greed too much!!

2008-01-22T03:21:00.000-08:00

The thing about life is that one makes mistakes. Many mistakes were made in the second half of 2007 and those sins have to be washed away by blood, such is the way of financial markets. Some participants will go down under and never be able to get back to the market again but most will survive. The pain will linger for many months, maybe years but lessons have to be learnt. Every such debacle has lessons for us and the sooner we forget them the more we suffer.

The first lesson is not to let stock price performance become the sole reason for buying, a mistake which was made in abundance in the last 3 months. What couldn't be explained by fundamentals was credited to liquidity. The present lost all relevance as people chose to focus on the distant future, perhaps simply because the present could never justify those ticker prices; only a hazy dream of the future could. Traders and investors had no time for fundamental analysts, in many cases they were labelled "cribbing fools". Chartists became the most celebrated tribe on the street as only they could see and predict the one way run to glory for many of the hot stocks even as fundamental watchers cringed at valuations....till the music stopped. Don't get me wrong, charts do work in trending markets but once stock prices veer away completely from fundamental value, people need to get careful. But they never are. Now that the blinkers are off, people should ask themselves why stocks like RNRL, Ispat, RPL, Essar oil and Nagarjuna fertilisers have lost 50-70% of their value. It is simply because their stock prices had snapped all connection with underlying business fundamentals, earnings and value. Their stock prices became the only reasons for buying them which works for a while but not forever.

The other big lesson, one which should have been driven in earlier in May 2006, is the danger of overextending oneself in the futures market. The lure of stock futures is easy to understand. Put in some margin, take a big exposure on a fast moving stock, make a killing when prices shoot up. Repeat exercise. Just that people forgot that prices may also come down and at a pace which noone can even imagine, maybe their friendly stockbrokers forgot to tell them that part of the story. The result : unbridled speculation that ran into lakhs of crores, excesses that we are paying for today. Even this fall will not cure investors of their love for futures speculation but if at least some amount of caution is injected it would have been a worthwhile learning. Futures are not toys for amateurs, they are time bombs in the hands of inexpert and inexperienced traders, it's only a matter of when the fuse runs out.

The other learning which I hope will play out in the future, as it has in the past, is that it pays to be brave in times of panic such as these. If I was allowed to invest myself , which I am not, I would have no hesitation in deploying serious money into the market today, knowing fully well that prices may fall more tomorrow. And I would be standing there tomorrow to buy more of the same, till my money ran out. India is going to be a terrific stock market story for many years to come, even an intermediate bearish patch cannot shake that conviction of mine. At best, one will have to wait a bit for the returns to follow. That's alright. You are happy to put money in a bank FD and then wait for one full year to collect that measly 8%, aren't you? Then why does the stock market need to give you 20% every month? In the last one year, I haven't seen so many good stocks trade at such mouth watering levels. Forget trading, avoid the duds which were fuelled up by operators, just go out and buy those bluechips. They will deliver, even if there is a global market meltdown for a while, and if you are a bit patient you will be rewarded. But do remember January 2008, as history will repeat itself again in the future. Just that our memories tend to be too short and our greed too much.

Courtesy: Udayan Mukharji

What's In My Portfolio

2007-10-14T15:42:00.001-07:00

Omaxe
Parsvnath Developers
Suprajit engineering Ltd.
Infosys
IDBI Bank
Yes Bank
ICICI Bank
KLG Systel
Atlanta Limited
Acrow India
UTV Software

Network 18 Fincap Ltd.

Banswara Syntex

L & T

Learn the basics: http://knowmarket.blogspot.com/

Monthly Call

2007-10-14T15:41:00.001-07:00

Currently, it's too risky to make a fresh buy for a short-term call.

Avoid all fresh buys at this level if you are not planning to hold it for long. Sell selected stocks at peak.

Learn the basics: http://knowmarket.blogspot.cm/

Six Month Call

2007-10-14T15:37:00.005-07:00

Suprajit Engineering Ltd.

CMP: 122
Target 1: 190
Target 2: 211

Current Quote of Suprajit Engineering Ltd.

Incorporated as a Private Limited Company in 1985, Suprajit started manufacturing high quality liner cables to exacting Japanese standards for the automotive industry in 1987.

Today catering to a wide spectrum of automotive and non-automotive cable requirements Suprajit has achieved a phenomenal growth, making it India's largest manufacturer of automotive cables with a capacity of over 50 million cables a year.

From an initial turnover of Rs.0.3 million in the year 1987, Suprajit is now achieved a turnover of Rs.1.00 Billion.

Its compounded annual growth of over 35 % is higher then the industry average. And it also has one of the largest manufacturing capacities for any one company in a specific country in the world

Learn the basics: http://knowmarket.blogspot.com/

Target-A-Year

2007-10-14T15:37:00.003-07:00

Sterlite Optical Technologies Ltd.

CMP: 233
Target 1: 380
Target 2: 430

Current Quote of Sterlite Optical Technologies ltd.

Sterlite is a leading global provider of Optical Fibers, Telecommunication Cables and Power Transmission Conductors. The Company is India's only integrated Optical Fiber manufacturer and is among the select few globally.

Sterlite is a Public Limited Company, listed on the Bombay Stock Exchange and National Stock Exchange in India.

Deloitte has nominated Sterlite as the 6th Fastest Growing Technology Company in India and 73rd Fastest Growing Technology Company in Asia-Pacific in 2006. The Company was also among the winners of the 'Deloitte Technology Fast 50 India & Fast 500 Asia Pacific awards for 2005.

Sterlite's experience with the varying requirements of customers in global markets has ensured continuous improvement and customer orientation of the company. Sterlite's customer list includes some of the most prominent companies in the Telecom and Energy world.

In India, Sterlite is a significant market leader. The Company currently sells its telecom and power products in over 60 countries and currently supplies 4% of the global demand for Optical Fibers.

All Sterlite's telecom products comply with ITU-T recommendations and BS EN 188000, EIA/TIA & CEI-IEC 60793 Test Standards. All Sterlite's power transmission products comply with IS, IEC, BS, ASTM, NFC, Din, AS, JIS & CSA International Specifications.

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Next IPO

2007-10-14T15:37:00.001-07:00

Public Issues (IPO) Dt.: 11-10-2007

Company Name	Open Date	Close Date	Offer Price	Issue Size	Rating	Recomm .
Rathi Bars (Fixed Price)	18-10-07	23-10-07	35.00	71,42,857 Shares (Rs. 25 Cr.)	--	--
SVPCL (Book Building)	--	25-10-07	40 to 45		--	--
Religare (Book Building)	29-10-07		170 to 190		--	--
Mudra Port & Sez (Book Building)	31-10-07	6-11-07	--	-- (Rs. 2000 Cr.)	--	--

IPO SUBSCRIBED

	Maytas Infra	Saamya Biotech
QIB	99.40	--
HNI	35.84	12.00
Retail	15.41	32.00
Average	67.86	21.00

IPO Allotment Declared

Koutons Retail: 17 Shares against application of Rs. 1,00,000

Consolidated Construction: 16 Shares against application of Rs. 1,00,000

New Listing Expected

(1) Koutons Retail 12 ^th October (Friday)

(2) CCCL 15^th October (Monday)

Dhanush Techno

Latest Position of subscription

*Category*	*Previous* *Position*	*After withdrawal* *Position*
QIB	36.17	13.96
HNI	26.73	24.06
Retail	18.63	14.77
Average	28.47	14.77

Offer price fixed at Rs. 295.00

Allotment around 8^thOctober,

Refund Date: 9^thOctober

Listing expected: 15 / 16 October

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Grey Market Premium

2007-10-14T15:36:00.005-07:00

Company Name	Offer Price (Rs.)	Premium (Rs.)
Reliance Power	--	39 to 40
Reliance Power	--	1,00,000 Kostak Rs. 4000
Dhanush Tech.	295	70 to 75
Koutons Retail	415	75 to 80
Consolidated Construction	510	200 to 205
Supreme Infra	108	60 to 65
Saamya Biotech (I) Ltd.	10	6 to 8
MAYTAS Infra	320 to 370	135 to 140
Circuit Systems ( India ) Ltd.	35	3 to 3.5

Learn the basics: http://knowmarket.blogspot.com/

Recent Happenings

2007-10-14T15:36:00.003-07:00

Sensex rules 18000-mark in a fashionable show.
Infosys declares quarterly numbers, disappoints.
Exports rise by 18.91% in Aug'07 despite Rupee-appreciation.
SEBI bars dealers suspected of front-running in Ballarpur stock.
Crude oil basket for Indian refiners hit all-time high of $78.46.
Advance-Tax payment up 17% for ONGC, up 22% for SBI.
Rupee hits a fresh 9-year high against Dollar.
Bihar shows highest growth in corporate tax collections.
Securities Transaction Tax (STT) collection up by 45% in the first 6 months.

Learn the basics: http://knowmarket.blogspot.com/

What is CRR?

2007-10-14T15:36:00.001-07:00

In short, Indian banks are required to hold a certain proportion of their deposits as cash. In reality they don't hold these as cash with themselves, but with Reserve Bank of India (RBI), which is as good as holding cash. This ratio (what part of the total deposits is to be held as cash) is stipulated by the RBI and is known as the CRR, the cash reserve ratio. When a bank's deposits increase by Rs100, and if the cash reserve ratio is 10, banks will hold Rs10 with the RBI and lend Rs 90. The higher this ratio, the lower is the amount that banks can lend out. This makes the CRR an instrument in the hands of a central bank through which it can control the amount by which banks lend.

So a hike in CRR is a way that RBI uses to reduce the liquidity without increasing actual interest rates.

Lean more basics at: http://knowmarket.blogspot.com

What's In My Portfolio

2007-10-07T23:06:00.005-07:00

HDIL
Omaxe
Parsvnath Developers
Infosys
IDBI Bank
Yes Bank
ICICI Bank
KLG Systel
Atlanta Limited
Acrow India
UTV Software
Pantaloon Retail
Network 18 Fincap Ltd.
Banswara Syntex
L & T

Learn the basics: http://knowmarket.blogspot.com/

Monthly Call

2007-10-07T23:06:00.003-07:00

Andhra Bank

CMP: 92
Target 1: 111
Target 2: 116

Current Quote of Andhra Bank

Andhra Bank is a mid-sized PSU bank with strong presence in southern India and a network of 1,930 distribution channels giving it an asset size of Rs 49,000 crore. The bank reported net interest margin (NIM) of 3.47% for Q1FY08, a slight decline due to pressure on cost of funds. The bank continues to sustain strong credit growth at 26% for the March 07 quarter and 27% for the June 08 quarter, and is expected to grow at 25% in FY08 with margins expected to be maintained. Its Q1FY08 net profit grew 21% y-o-y to Rs 141 crore on account of lower provision expenses. The bank's cost-to-income ratio has improved from 55% in FY06 to 50% in FY07. With net NPAs at 0.17% and robust credit growth, we believe the stock is available at attractive valuation of 1.2x its FY09E ABV and 7.1x its FY09E EPS.

Learn the basics: http://knowmarket.blogspot.cm/

Six Month Call

2007-10-07T23:06:00.001-07:00

JK Cement

CMP: 172
Target 1: 225
Target 2: 244

Current Quote of JK Cement

JK Cement reported a 59% rise in net profit to Rs 52.5 crore for the quarter ended June 30, 2007 , against Rs 33 crore during the corresponding quarter last year. Turnover increased by 17% to Rs 326.4 crore (Rs 279.5 crore). The company, which currently has a capacity of 4.4 million tonnes, is expanding capacity at two locations – the green-field plant at Muddapur in Karnataka with a capacity of 3.5 million tonnes and Nihon Nirman in Rajasthan near Gotan (0.4 million tonnes). With the two plants, the company's capacity will increase to over 8 million tonnes by March 2009. The company has begun trial run of 20 MW pet coke-based captive thermal power plant. Waste heat recovery power plant is likely to be commissioned in Q3FY08. The company expects saving in power cost of Rs 175-200 per tonne after completion of all projects.

Learn the basics: http://knowmarket.blogspot.com/

Target-A-Year

2007-10-07T23:05:00.003-07:00

Bartronics India

CMP: 218
Target 1: 311
Target 2: 338

Current Quote of Bartronics India

Bartronics India (BIL), one of the first Automatic Identification and Data Capture (AIDC) solutions company, is leveraging its existing client base and expertise to move up the value chain and emerge as the largest end-to-end AIDC solutions provider in the country. It is investing more than Rs 270 crore into a new 80-million smart cards manufacturing facility, that would make it one of the biggest players in South Asia and enable revenue growth by 130% CAGR over FY07-09E. The stock is currently trading at 10.32x FY09E earnings and 6.23x FY09E EV/EBIDTA, which looks very attractive considering the sharp earnings growth.

􀂃

AIDC segment – First mover advantage

BIL is one of the first organized players to provide end-to-end AIDC solutions in India with more than 1,600 clients and five international distribution centers. Strong technical know-how has helped the company move up the value chain from bar code to RFID solutions and increase realization per client. The company has also diversified into the retail space considering the low penetration of organized retail, a sector that is clocking at 30% CAGR growth.

􀂃

Changing gears with smartcards

Smart cards are expected to take the company into fifth gear with the South Asia's largest manufacturing facility. Having an order book for more than 100 million smart cards over next two years is expected to generate 3.5x FY07 revenues from this segment alone.

􀂃

Strong earnings growth - Outperformer

The stock is trading at 10.32x earnings and 6.23x EV/EBIDTA for FY09. We believe the valuations are attractive considering the changing business model, robust 73.2% earnings CAGR over FY07-09E, strong bargaining position in the smart cards segment and its ability to scale up AIDC segment. The stock is outperformer with a target price of Rs 338, an upside of 44%.

Learn the basics: http://knowmarket.blogspot.com/

Next IPO

2007-10-07T23:05:00.001-07:00

None at the moment!

Market is too volatile to predict for IPO currently. Though Reliance power looks okay.

Learn the basics: http://knowmarket.blogspot.com/

Grey Market Premium

2007-10-07T23:04:00.003-07:00

Reliance Power 32 to 34
Dhanus Tech. 280 to 295 60 to 70
Koutons Retail 370 to 415 75 to 80
Consolidated Construction 510 170 to 180
Supreme Infra 95 to 108 55 to 58
Saamya Biotech 10 5 to 6
MAYTAS Infra 320 to 370 130 to 135
Circuit Systems (India) Ltd. 35 5 to 6

Learn the basics: http://knowmarket.blogspot.com/

Recent Happenings

2007-10-07T23:04:00.001-07:00

Sensex does a 2000-point jaunt again, hits a new high at 17361.
Rupee scales a new 9-year high peak against Dollar.
HDFC cuts floating rates on Housing loans by 50 basis points.
RBI eases overseas investment and loan repayment norms.
Slowing credit growth makes SBI drop its rights issue.
Mukesh Ambani set to become richest Indian.
Inflation drops to 5-year low of 3.23%.
India wins Twenty20 cricket cup in a dramatic finish.

Learn the basics: http://knowmarket.blogspot.com/

Prominent Healthcare stocks for Investment

2007-10-07T23:03:00.001-07:00

1. Cipla : a-b-c corrective testing 61.8% correction level to previous rally
2. Ranbaxy : Red resistance lines crossed, now testing major resistance at the Green neckline
3. Aurobindo Pharma : Suspected Irregular "c" failure corrective holding 61.8% correction level
4. Biocon : Good once breaks strongly above the Green line
5. Dr.Reddy : a-b-c corrective testing 50% correction level to previous rally

Learn the basics: http://knowmarket.blogspot.com/

What's In My Portfolio

2007-09-29T21:35:00.001-07:00

HDIL
Omaxe
Parsvnath Developers
Infosys
IDBI Bank
Yes Bank
ICICI Bank
KLG Systel
Atlanta Limited
Acrow India
UTV Software
Reliance Capital
Zee News
Pantaloon Retail
Network 18 Fincap Ltd.
Bihar Tubes
Banswara Syntex
L & T

Learn the basics: http://knowmarket.blogspot.com/

The bitter truth about Sugar

2007-09-29T21:34:00.003-07:00

The new sugar season begins on Monday. From all evidence, one can only approach it with trepidation. However, sugar shares got a sudden adrenaline when food minister Sharad Pawar said mills would be allowed to make ethanol directly from cane. I have only one question to put before that enthusiastic crowd: Have you done the maths?

Back-of-the-envelope calculations show that with cane in Uttar Pradesh priced at Rs 13, if a mill only makes ethanol, it would cost about Rs 26/l. Without any sugar or other by-products to share the cost of manufacture, the same ethanol becomes more expensive. But the most that oil marketing companies are willing to pay for it is just Rs 21.50/l.

So any local mill which decides to only make ethanol from cane is obviously headed for further financial disaster. Brazil, on the other hand, can do it is because with cheaper cane, the cost of its ethanol is only around Rs 16/l.

Now it's not the minister's job to do these calculations while making politically correct announcements. Neither is he investing his own cash. But surely investors need to delve a bit deeper.

Ethanol is important because it can help offset losses from sugar on a company's balance sheet. But not every company has large ethanol capacity. In fact, the share of ethanol in the total revenue stream of even the largest companies is not sufficient to make a significant dent.

In Bajaj Hindusthan, India's largest sugar company, for instance, the share of ethanol, co-gen and other by-products together is unlikely to exceed 15% of total revenue in fiscal 2008.

This means more than 80 paise out of every rupee earned by the company would still come from sugar. In Balrampur Chini, ethanol and the rest add up to 25% of total revenue. That may be better but with 75 paisa of every rupee depending on sugar, it is kind of tough to get overjoyed over ethanol. Ethanol has its uses. But in a market with limited demand, monopolistic buyers and government-negotiated prices, the upside is severely limited, at least for the foreseeable future.

Industry watchers also went dizzy with delight at news of interest-free loans to sugar mills. While that sounds good, I'm not sure people are yet aware of the enormity of the problem. The numbers are crazy. At the end of this sugar year, the total debt of the industry may touch Rs 230-250 billion. By next year it would need to borrow about Rs 350-400 billion.

This debt includes money mills need to carry unsold sugar, pay for cane, and expand capacity. Just paying the interest on these loans may well be enough to bring the average factory down to its knees. But it is still too early to tell how far the government will go to provide succour.

To an industry with a net worth of about Rs 100 billion, banks have already lent Rs 230-250 billion, which is enough to give any CFO sleepless nights. So lenders may become extremely reluctant to double that figure in the new season. In such a scenario, mills would have only one option. Cut down on their single biggest cost, namely purchasing cane.

In all likelihood, 10% of the new season's cane could be left standing forlornly in the fields with no takers. That means 30 million tonnes of cane, worth Rs 27 billion, may be burnt in the fields. That is a genuinely scary number because it hides within it the enormity of the humanitarian crisis that could swathe cane fields across the country. Can you imagine the repercussions if polls are announced as well?

Meanwhile, the government's desperate attempt to keep the industry afloat may well fan the fire. Cane arrears are estimated to touch around Rs 150 bn by the end of the 2008 season. If the government provides support, it will be stepping into a bigger financial trap than it can handle.

Of course, the fate of individual companies would wary considerably depending on the health and life-sustaining capability of their balance sheets. But that is even more reason to be cautious of the sector as a whole. You need to carefully pick out the cherries from the lemons in the basket.

India is poised to become the largest sugar producer in the world. The International Sugar Organisation has now pegged India's output in the new season at 33.2 mn tonnes. That should be enough to make us pause. Those pinning their hopes on crude oil prices going on overdrive and Brazil pumping more ethanol to end sugar's troubles forget one important fact.

Between 1999 and 2006, Brazil's cane acreage has increased by 16%, cane output by 31%, ethanol output by 31% and mark this one, sugar output by 47%. With cane acreage of around 6 mn hectares, Brazil will start producing sugar the minute prices become attractive. That means India has no option but to remain a price taker for a long while to come.

The corporate suffering is pretty much global. Shares in Tate & Lyle slumped to a three-year low on Friday as the sugar and sweetener multinational forecast among other things, a half-year loss for its sugar trading business after a previous profit of 15 million pounds.
Truth is that the sugar sector's agony is unlikely to abate before 2009, when lower cane output, lower sugar production and lower inventories may provide a modicum of relief. Any celebration before that is certain to be short-lived. Irving Berlin in his song Let's Face the Music and Dance says:

"There may be trouble ahead... Soon/ we'll be without the moon/ humming a diff'rent tune/ and then There may be teardrops to shed". It may well be the theme song of India's new sugar season.

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Its time to develop a new risk paradigm

2007-09-29T21:34:00.001-07:00

It's time developing countries stopped seeing themselves through the eyes of the developed ones. The gathering subprime storm over the US is enough of a trigger for the major emerging economies to stop being passive victims of somebody else's folly.

The subprime crisis started with lenders in the US pushing home loans to people who just didn't have the capacity to service them.

These unviable loans do not stay on the books of the lenders for long. They are securitised and sold off to other investors in various esoteric combinations. How risky these instruments were, the investors didn't have a clue — they chose to swallow the triple A rating the credit rating agencies gave them and bought them up by the tonne anyway.

When interest rates went up, as the Fed raised rates to combat inflation, default on these loans began. Worse, fears of large-scale default began to mount. And defaults on loans lead to mortgage foreclosures, bringing houses on to the market.

House prices have not just stopped soaring in the US, but also started declining, as more and more houses come up for sale. The drop in house prices makes the outstanding loans riskier still — the loan-to-house-value ratio goes up. If the loan against a house is larger than the market price of the house, even foreclosure will not prevent loss. So, the closer the value of the loan approaches the value of the house, the riskier the loan.

When this perception of risk goes up, lending freezes up, throwing sand into the economy's machinery. Further, funds undertake a manoeuvre called flight to safety. This is where developing economies like India get hurt. India, and such economies classified as emerging markets, are still seen by developed country fund managers as risky propositions. So the flight to safety will see some funds pull out of countries like India. This could lead to a stock markets slide in these economies, loss of confidence and slowdown of the real economy. This is one source of disruption.

The other source of disruption is construction-led slowdown in the US. This could hit developing economies that export a lot to the US. Around 40% of Chinese exports, for example, go to the US. About 22%of Indian goods exports go to the US and a significantly larger share of India's service exports.

Why should we crib about such disruptions? If the Indian economy is growing at 9% plus rates thanks to globalisation, and we celebrate that, we should also be able to absorb some shocks arising from the same globalisation process; shouldn't we? Wouldn't it make more sense to be a little philosophical about it? Even if the Indian economy is fundamentally strong, and even if the domestic stock market is well governed, Tsunamis from the global economy could still batter us.

Fatalism would be completely the wrong response to the present sort of crisis. It is important to see that developing countries are part of the problem and that they can do something constructive as well.

The original sin in the subprime crisis, apart from the greed of the American loan-pushers, is the surplus liquidity sloshing around in the US. A large contributor to this surplus liquidity is the group of developing economies with trillions of dollars in combined forex reserves. Instead of investing the bulk of their reserves in US treasuries, these economies should invest them in other economies, including themselves. This calls for breaking the paradigm of risk set up by the developed economies and blindly followed by India and the rest.

The crux of the new perspective would be faith in the growth potential of the developing countries. A flight to safety for developing economies should mean investing in themselves, rather than investing in the developed economies.

If Mexican telecom can make Carlos Slim the richest man in the world, isn't Mexican telecom a safe bet for India, China, Brazil and South Africa? Why can't Indian Information Technology, in which firms have routinely been growing at 30% and more a year, be seen as an oasis of safety for the deployment of Russian and Middle Eastern oil surpluses? Why can't South African coal-to-gas-to-liquid technologies and Brazilian aircraft manufacture be seen as feeding and feeding off the robust growth of the developing economies and thus fairly well insulated from risk?

All this, of course, is complete heresy from a traditional standpoint of risk assessment. How can foreign exchange reserves, worth cumulative trillions in the hands of the developing economies, be deployed in anything but the most gilt-edged of developed country debt? But let us appreciate that the government of Singapore has been investing, and investing very profitably, in emerging market companies for quite some time. And even India has turned its back on traditional assessment of political risk while buying into oil blocks in Africa.

Time was when 'developing' was a euphemism for basket cases. The times, they're a-changing — except in official policy

Courtesy : Economic times

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Monthly Call

2007-09-29T21:30:00.001-07:00

Omaxe Limited

CMP: 333
Target 1: 358
Target 2: 370

Current Quote of Omaxe Limited

The company was originally set up as Omaxe Builders Private limited in 1989, promoted by Shri. Rohtas Goel , the founder, to undertake construction & contracting business. The company further changed its constitution to a limited company known as Omaxe Construction Ltd., in 1999. The name of the company has now changed to OMAXE LTD from 2006. The company began life as a civil construction and contracting company, has Successfully executed more than 120 prestigious Industrial, Institutional, Commercial, Residential and Hospital construction projects.

The company entered the Real Estate Development business in 2001 and in now amongst the large Real Estate Development companies in India

The company has executed construction contracts for a number of prestigious Indian private, public sector and Multinational's clients.

Omaxe was founded by Shri. Rohtas Goel , a first generation entrepreneur, a civil engineer by qualification and a visionary having more than two decades of experience in Construction and Real Estate Development. Mr. Goel, as the Chairman & Managing Director of Omaxe has been at the forefront, a man with a mission of building globally comparable quality Residential & Commercial projects, his moto "Turning Dreams Into Realty "
Omaxe has received a number of awards from the industry, recognition of its continued efforts towards achieving excellence and quality. The company became the first Construction Company of northern India to receive an ISO 9001:2000 Certification.

The company which was founded as a civil construction and contracting organization in1989 and subsequently diversified its business to focus on Real Estate Development from the year 2001, to capture the opportunity offered by the growing Real Estate markets in India , is today among the large Real Estate Development companies in India.

The company in a short span of 5 years has completed and delivered 10 projects consisting of 8 residential and 2 commercial covering approx 5.13 million sq. ft of area, with all "on time deliveries". The company currently has 52 projects under development. These include 21 group housing projects,16 integrated townships,14 shopping malls and commercial complexes and 1 hotel. The company is at present developing over 140 million sq ft of saleable area across 30 towns in 9 states in Northern and Central India..

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Six Month Call

2007-09-29T21:29:00.001-07:00

UTV Software

CMP: 635
Target 1: 832
Target 2: 870

Current Quote of UTV Software

Strong movie production, co-production and distribution pipeline for the next three years with more than 122 films slated for release in 2007-08 (Apr-Mar), 15 films in 2008-09 and 18 in 2009-10 make UTV an attractive stock.

The company recently re-engineered its business model into three verticals: content (movies and television), interactive (animation and gaming), and broadcasting. This augurs well for the company as the Rs 43,700-crore entertainment and media industry is seen growing at an compounded annual rate of 18 per cent over the next five years.

UTV's $11-million animation projects are to be delivered over the next 24 months. The company plans to produce four animation films including one in collaboration with Will Smith's Overbrook Entertainment.

It recently entered the high-growth gaming segment by acquiring 70 per cent in Ignition Entertainment of UK and 59 per cent in India Games.

The company's broadcasting business is expected to deliver long-term growth with nine television channels planned by June 2008.

Concerns

Movie production and distribution is exposed to fair amount of financial risk, arising from uncertainty regarding the success of films.

Broadcasting is a risky venture with a long gestation period, although the returns can be significant in the long run.

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