Market Mantra…..

Friends,

I am back after a long pause. I am sorry; I was not answering your queries from last few months as I was busy in some personal engagements.

We have seen a high volatility session in market in last few months. Equities all over the world have gone up significantly since 9th March 2009. There has been a lot of volatility and correction in the recent months. But still I would say that markets are not crashing like anything, they are holding up.

Question of a million is -> Have the Global Equity Markets bottomed out or is there another crash coming which will lead to re-test of lows for all major markets? The Truth is NOBODY knows it. But prediction is that a final slowdown is still remaining.

The global economy has shown some signs of recovery post March 2009 and the markets have responded accordingly.

In my opinion, under normal circumstances, stock markets behavior depends upon:
• Fundamentals of the Economy
• Fundamentals and Growth of Companies (closely linked with fundamentals of economy)
• Government and Other Political Factors
• Liquidity in the system

The global financial system has been flooded with liquidity post the Lehmann Brothers collapse. The world economies are not strong enough to absorb so much of liquidity. So all the excess liquidity is being absorbed by asset markets. In my views Gold is set to explode again. We may see a Level of INR 18500 per 10 grams in Indian market in December 2009.

I am not giving any levels OR target to achieve in this type of market. What I can tell you best is build a portfolio and then nourish it, churn it.

Suppose you want to invest Rs 10000 in a particular stock then invest Rs 4000 now and then Rs 4000 again and then Rs 2000. So invest INR 10000 in three shots. This will give a opportunity to buy at different levels based on your sentiments with market.

Hindustan Construction Company – A Sleeping Gaint

HCC is an integrated group spanning Construction, Real Estate and Infrastructure development. The HCC Group of companies comprises of HCC Construction, HCC Infrastructure, HCC Real Estate (HREL) and Lavasa Corporation. The group specializes in technically complex, new-age construction in infrastructure projects, as well as EPC, BOT, Integrated projects and townships. HCC has made an unmatched contribution to civil engineering landmarks, having executed over 321 Bridges, 43 Dams and Barrages, 15 Hydel Power Plants and 11 Nuclear Reactors, 160 kms of Tunneling and 2,227 kms of Roads and Expressways. Its Wholly Owned Real Estate Subsidiary, HREL, is developing LEED certified, state-of-the-art, 1.8 million sq ft multi-tenanted IT Park located at Vikhroli, Mumbai’s emerging IT hub. HREL is also developing free India’s largest Hill Station, Lavasa, spread across a picturesque landscape of 12,500 acres, located 45 minutes away from Pune.


HCC won the coveted Golden Peacock Award for Excellence in Corporate Governance for the year 2007

HCC has been executing some of the most exciting and challenging projectsin Indian history. The major engineering landmarks include the world’s longest barrage at Farakka in West Bengal, India’s first underground metro at Kolkata and the second one in New Delhi, the Mumbai-Pune Expressway – India’s first six-lane expressway, the unique double curvature arch dam at Idukki in Kerala and one of Asia’s largest breakwaters at Ennore Port in Tamil Nadu.

Huge Order Book
The order book of HCC has grown at a CAGR of 20 % since 2002 and currently stands at over Rs. 16000 crores in 2008-2009, which is much much higher then its previour years turn over.
HCC Order Book up 35% in Q3 2008-09

Major Orders:
January 2009
Hindustan Construction Company Ltd (HCC) has informed BSE that the Company has bagged the prestigious order for Package MC3 of 1200 MW Punatsangchhu-I Hydro Electric Project in Bhutan from Punatsangchhu-I Hydro Electric Project Authority. The value of the contract awarded is Rs 688.06 crore and the project will be completed in 66 months.
HCC - Halcrow Consortium comprising of Hindustan Construction Company Ltd (HCC) and Halcrow Group Ltd. U.K. (Halcrow) has bagged the prestigious and challenging 330 MW
HCC bags Rs 2726.49 cr Kishanganga hydel project in Jammu & Kashmir"
Kishanganga Hydro-Electric Project from the National Hydroelectric Power Corporation Ltd.
Hindustan Construction Company Ltd has a Press Release dated January 21, 2009 titled "Lavasa to host SpaceWorld, Asia's first space edutainment centre at Rs 400 crore investment"
HCC bags Rs 1415 crore BOT project of NHAI

Feb 2009
HCC awarded Rs 296.90 cr Kashang HEPP in Himachal Pradesh



Investment in Lavasa
Hindustan Construction Company Ltd has invested Rs 81.25 Crore in Lavasa Corporation Ltd (LAVASA), a subsidiary of the HCC (Hindustan Construction Company Ltd) in the form of convertible warrants. Based on the above investment, the equity valuation of LAVASA gets reconfirmed at Rs 10,000 Crore. (Axis Bank Ltd, Bank of India and Allahabad Bank had also invested Rs 250 Crore, Rs 150 Crore and Rs 50 Crore respectively) at the same valuation.

My Rational
Friends, I am putting a buy call on HCC,… The company has strong overall fundamentals,,,Just Accumulate this Sleeping Gaint…HCC currently has a large order book which provides next few years earnings visibility. The infrastructure sector companies in India are expected to suffer because of the slowdown in the near term and HCC is no exception. But this might be one of the best times to accumulate in small quantities shares like HCC, which are sure to be multibaggers in the long run…
The Other factor we should not ignore is the Indo-US nuclear deal. It is also expected to benefit HCC in the long run. The company is already into Nuclear projects and this deal will help it bag more projects in the future.

The Mystry of OIL...Continues...

As oil dropded below $50, the sense of relief is palpable for most consumers as they see sub $4 gas at the pump. Media headlines have also done an abrupt about turn, with headlines changing from "When will crude hit $200..." to "How fast can prices come down...”. Due to the fall in previous months many people have came out and said that the worst is behind us and that we are out the high gas/oil spiral. Some are even taking the rapid drop as a sign that high prices were caused by speculators and a much undervalued US dollar (which has also rallied more than 10% recently).

Oil's certainly not cheap by historical standards, but the $145 and change record of early July begins to resemble an anomaly as it recedes in the rear-view mirror. After all, it has been a quick, jarring ride.

The current fall in prices is due to various short term factors. Consumers are drained amid credit and housing woes, and crushing gasoline prices have compelled them to conserve. India, one of the Asian tiger economies and a big consumer of oil, seems to be slowing much faster than expected. A rapidly strengthening dollar is dulling commodities' allure for traders and speculators.

However, we are not out of the woods by any stretch and my view is that high gas prices will return. Why you may ask?

Factors that will contribute to the higher long term energy prices:
- The planet remains in a state of energy stress. Asian countries are adding an estimated 50,000 new cars per day to their roads. Adding this growth plus that from other oil based consumables, will provide a huge demand side effect. With supply limited and growing very slowly, this will lead to a steep rise in prices.

- If China's oil demand growth rate continues at its current pace of 6% to 7% per year, China will use 20 million barrels a day by 2020 - about the same as what the U.S. uses today. And by 2030, China would be up to 40 million barrels per day - twice what America uses now.

- Tensions between Iran and the U.S. and other Middle east countries don't look like abating in the longer term despite recent diplomatic efforts and a lull in tensions.

- We'll drive more, fly more and waste more. As prices fall, the alliance of environmentalists and consumers, brought together by pain at the pump, is already coming apart. When has is below $4, people will think of it as a relief and unfortunately most will go back to their old habits.
Holidays that were put off in the summer due to high gas prices, will now be back on the Agenda.

- Renewable energy is still a long way from being a viable alternative to oil in terms of widespread usage.
The world economy cannot and will not quickly convert from an oil-based consumer to a blend of other energy options such as natural gas, solar, wind and so on," said Neal Ryan, a manager at Ryan Oil & Gas Partners. "Until we do, I certainly expect oil prices to remain at these elevated levels over $100 a barrel and eventually challenge their all-time highs again -- and then surpass them in the coming year."

- The recent pull back is an expected market correction. The price can go back up as fast as it fell, particularly if the US dollar (in which the global oil trade is conducted) weakens again on bad credit or economic news. Speculators will come back during any periods of uncertainty or weakness and once again become a factor in high oil prices.

I don't think oil prices will go anywhere near $200 by year end or that gas prices will get to $5. My view is that oil and gas prices will finish the year around $130 and about $4 respectively. However, unlike the 70s energy crisis that went away after a few years, I think the current factors behind high oil prices are more permanent which means we will see $200 oil by the end of this decade. The best way to deal with this is for people to continue gas conservation techniques and habits when $5 gas was expected, rather than forget the lessons learned. The government especially should learn from the recent experience and focus on developing a long term sustainable energy policy that will reduce India's dependence on oil, and hopefully one day eliminate it. That is the only way we will be rid of high energy prices and its adverse impacts.

In Summary in want to emphasis the use of alternative fuels......

Satyam – Should we believe the story?

Satyam – Should we believe the story?

First time I am posting something on the satyam fraud case. My only concern in post is the willingness of the peoples to believe a liar’s confession blindly. In my opinion the fact that a person admits to have been lying for several years is reason to suspect that what is put forward as the new truth might just be a new lie. What makes me more suspicious is that the “confession” actually paints the most benign picture possible. What the Satyam Chairman is saying that he never siphoned any money from the company. While many people suspected that Satyam profits were diverted to group companies, the former chairman is saying that the profits were never there. He is also trying to paint the Maytas deal as a last ditch attempt to save Satyam instead of the other way around.

My question is why we should believe all this. How credible is the claim that an IT business with a blue chip client list was not profitable? How credible is the attempt to exonerate everybody else? Should we consider the possibility that the problems were in other group companies of the promoters and that Satyam lost everything while trying to bail them out?


Raju has alleged that none of the board members past or present were aware of the real situation
against the book of accounts. What has left me astounded is how could the elite independent directors be caught unawares of the scam being going around for the last several years? Were they mere spectators obliging to Raju? Doesn’t it seem like a white lie?

In summary:
1) Today, Satyam has a vacuum at the top. The promoters are gone; and the independent directors who would normally take charge in a situation like this have no credibility left.

2) Satyam is a large company with global visibility and global clients. These clients would expect that they would continue to be serviced.

3) Even if Satyam is to be sold, somebody has to run the sale.
In the next few days, if nothing is done, both clients and employees would leave in droves and there would be nothing to sell.


I think that now satyam require government intervention to investigate the case

Still few questions are revolving into my mind:
At least one skeleton is out of the cupboard. But what about others companies whose books of accounts have been "nicely" prepared and "beautifully" presented by the "esteemed" auditors? What about those who spruce up valuations before IPOs? And what’s the culpability of the auditors who are hands in glove with the corporate who play truant with respect to corporate governance principles?

Friends,

The three Ace Points to be noted down are:

• Shares cheap on historical basis, but selling pressure remains
• Recent quarterly results indicate a significant slowdown in corporate profits
• EPS estimates are down substantially, but downside risk persists
  
  As market capitalization has dropped, the leverage of the market (debt to market value of equity) has increased, and this increase in leverage has caused an increase in volatility that is unlikely to decline until the market recovers. Improvement in global sentiment and interest rate cuts and other policy actions in India and in other countries have led to a bear market rally. This rally may last a while, but will certainly end by the time investor start focusing on next quarter’s results (i.e. until mid-December) or if economic data released in interim disappoints
  
  However, domestically, interest rate cuts have helped. However, despite the RBI taking multiple measures, financial markets remain somewhat clogged. While overnight inter-bank rates have declined significantly, longer term rates remain elevated; the 3-month inter-bank rate is 11%, well above the 7.5% policy rate of the central bank. However, the 3-month rate has declined by about 110bp.
  
  
  But this time could set records
  It is thus tempting to say that the recent lows indicate a market bottom, but risk aversion remains strong, and fund outflows may drive the market even lower. Although risk aversion has been extremely high, it is unlikely to get much worse. Thus, the downside risks from the lows of October are limited, but an index decline below 8500 cannot be ruled out completely. Still, we do not think it would fall much lower.
  However, there are no triggers for the markets to rally from here. Valuations may be favourable, but that in itself is not a trigger for markets to head higher. In fact, the stock market may not recover until earnings growth recovers, which is likely in 2H09.
  In the past month, the earnings yield of the Sensex has remained higher then G-Sec yields, indicating attractive valuations. Another indication of value is the distribution of PE multiples: currently 276 companies are trading at single-digit multiples.
  
  Risk
  The main risk to stock market is of the sharp selling-off on account of investor panic. FIIs have been the heavy sellers, and holdings of FIIs have decreased from 15.5% of the market at the end of December 2007 to 13% at the end of September 2008. After selling in October 2008, FIIs holding dropped to ~12.5%. So in summary FIIs has sold out 22.5% of their holdings. Now the Main query is “UPTO WHAT EXTENT CAN FIIs Holding can drop”. Here is the answer Key number is 9.5% , level of foreign holdings at the beginning of the bull run in March 2003. The nightmare scenario is for foreign holdings to fall to zero. This scenario is unlikely. While a number of existing players may exit and new one will step in. However the possibility of FIIs holdings falling to 9.5% is very real. The implications of this for the index are serious; index may fall significantly from current levels.
  
  Still I think that more bad news are waiting to come and will drag market to lower levels. One should wait for some time for some lower levels may be around 8500 or even lower. Please remember this is a bear market rally and may not sustain, however this rally is a gold mine for short term/day traders but that involves a great amount of risk.
  Once again I will emphasis on gas and industrial sectors to buy in. I will publish the list of stocks that are my favorites in next post.