Friends,
The following was posted on 7th July 2007 and on going through it you would notice that the bull run beyond 07/07/2008 itself was suspect even before it too and hence the crossing of Sensex 15000 level was not on sound footing and the recent melt down is no wonder. However it would be an equally surprising thing if the recent lows are breached. There seems to be no room for this as per the fundamental strength of market. The following is the reproduction of 7th July 2007 post:
“Red letter day appeared on 6 July 2007 in the Indian stock market history book. The Sensex went past 15000 mark and settled at 14964 points at close. It’s last 1000 points journey took 146 days and happens to be the longest in the last five 1000 point rests past 10000 mark. The FII investment crossed $55 b and total market cap for Indian stocks is well past the $ one trillion level. The opinion about the future course is divided. There is definitely method there if not the madness. The Sensex PE has crossed 21, which by the way is not sustained mostly during the last few years.
Let have some look at the news of relevance over last week.
The first quarter is expected to post the net profit surge in excess of 25% (ex-oil), mainly contributed by telecom, cement and cap goods sector if not by all. This also worries me that these sectors have only smaller bases and have to eventually follow the broader scene.
L&T Chairmen A M Naik informs that this 70 old company would be setting up seven subsidiaries for different lines of businesses. This may be due to difficulty in fixing remunerations for the skilled workers of different ilks on a common basis and in my opinion is bearish news for the scrip but it has been taken well by the street.
BPO sector in China grew by 18.7% to $7.7 b while India’s grew by 33% to $31.4 b in the year 06-07. India’s domestic market grew by 23% to garner $8.2 b. India’s edge in BPO sector would enable it to sustain the overall growth while China would find it difficult to keep up the overall growth rate basing it solely on commodities and manufacture which have taken a great toll of its environment. The World Bank’s unpublished report says that some 750000 people die early in China due to high pollution levels in big cities. Sixteen of the world twenty most polluted cities are in China.
BEL, a govt enterprise, would give raise to its engineers to stem the attrition rate. This bespeaks of the generally faced problem in all industries. This should be taken as a dampener for the stock market.
Tata Power is increasing the capacity by 2323 MW to 7500 MW at substantial outlay; the Moody’s have down graded the rating to Ba3 from Ba1 on account of this. In fact, this too has to taken a short-term bearish factor for the stock but the market has defied it. We know it that whenever large investments have been made by power companies the returns have taken some extra time to catch up.
In the aviation field, all the 117 airports would be provided the night landing facility, which presently is being enjoyed, by just 37 airports.
Delhi -Mumbai Industrial corridor is being planned with Private Public Partnership for which Japan is taking the initiative. It will involve some Rs 3.60 lac crores of investment. There will be about 10 nodal points all along the route and each industrial cluster would cover between 100 sq km to 200 km.
Public issues have mopped up a record Rs 22503 crs in June 07.
Banks lending to sensitive sectors like the real estate and capita markets has increased by 42% and stands at Rs 3.44 lac crs. It was just Rs 1.42 lac crs in 04-05. Of the total, nearly 93% is shared by the real estate sector. The lending to sensitive sector account for 20% of total against 14% in 04-05. Here the noticeable fact is that private sector banks have more exposure than their public sector counterparts.
K P Singh of DLF has claimed fourth slot amongst the richest Indians post-public issue and listing of its shares.
MFs have pruned their IT exposure by 12% and would be making the stage ready for a jump in prices if the results are normal.
Hero Honda is delaying commissioning of its third plant due to demand slump. I expect the two-wheeler sector to perform poorly in light of the development in mass transportation and the small car availability at low cost unless innovations like covered scooters etc take place.
M&M now owns 64% of Punjab Tractors and this should have bullish impact on M&M share price.
Baja Auto’s Rahul says sales have slowed down for the five straight months. Two wheeler sales dropped 11% y-o-y for the three top producers in Jun 07 to 549941 units.
Mr. Jagdish Khattar of Maruti is on record saying that the growth of 06-07 may not be maintained in 07-08.
Crude oil prices go up to $70 per barrel for the first time in 10 months.
Re closes week at 40.43 to a dollar.
Non-Food credit by banks go down to Rs 1817955 crs (-30532 crs) during April June 07. It is for the first time over 24 quarters that a shrink is seen. In contrast, the growth of deposits is over Rs one lac crs during Apr-Jun 07.
We can clearly see that the news is not particularly helpful for maintaining the bullish stance. Needless to say that reverse happens when some bearish positions are taken up rather too early which enables the bulls to exploit the market in the short run but eventually greater dent is seen in the market when the reality of economic situation catches up. The inflation numbers have given some stability to interest rates, which have started to come down, and this is responsible for the emboldened attitude of the bulls. We should keep the fingers crossed and not bet too heavily on either side. The hedge funds in the worlds markets may precipitate some unwarranted outcomes for which not only the big institutions and govts. be careful about, the individuals also should have greater recourse to contingency funds in hour of need.”
Now, those who are scared at Sensex level 13450 (last fridays closing) should have secon thoughts . There have been many rights issues in the mean time and also the profits for the whole year added to net worths of companies. The expansion plans also have completed or are going to be complete in near future. With slight change in mood of the market on account of crude stopping to move up further, inflation not going further out of hand, the interest rate maintained , political situation improving and FIIs looking at India back with investment plans and the results maintaining positive bias , I am sure the reverse of what has happened over last month and half will be enacted.
Hari Om,
krsnaKhandelwal
Tags: conditions an year back, perception and fundamentals, what may drive market up
