panch-tattva talk…nifty prospect

Friends,

Reliance has posted better than expected by street ,quarterly results. It made it a point to say that 95pc of its Rs25K cr cash reserve is with banks in FDs. This is a fall out of ’satyam’ that companies have become alive to take care and report rightly. I also think that there not would be any skeletons in this companies cup-boards as it remains under critical eyes of analysts , the world over. Secondly its business is such that manipulation is difficult on a large scale. The employee stregth is small, the suppliers are few and the sales are in bulk.If any thing is possible ,it is possible in the sphere of foreign project purchases. Dealings with domestic companies like L n T will be above board in any case. So , largely it may be expected that the investors in Reliance will not be in for negative surprises. The recession talk is immaterial for Reliance at least because its business is largely immune to recession , further its new refinery has started contributing to sales.

The other large cap. company Bhartiartl has also made good showing and its business too is above what is commonly called recession. The banking companies have also did nicely on profit front as also the pharma comapnies (excepting Ranbaxy for extraordinery reasons).

The FMCG sector companies in Nifty also have done OK.

The IT companies have kept head above water . The power sector companies will be OK for the coal rates down and hydro-electric power is not dependent on fuel. Distribution of power business is also different and immune to recession.The realty stokcs have hardly any weightage at present share prices and hence have lost damaging capacity.

The auto sector is also healthy due to input costs going down and interest rate reduction.

So our concern remains mainly in the cap.goods and commodity sectors of Nifty. Here again the the prices of shares for companies in these sectors are so low as to make them almost effectless even if these move down further by a few points. Any steep fall is restricted because replacement costs will be limiting the scope.

If there is only a balanced (not so much as to threaten the survival of business) earnings drop in these sectors than we may surely make out that the Nifty’s future course only has promisse.

The Nifty stocks are trading at P/BV ratio of about 2.2. When after the close of current year the profits will get transferred to reserves this ratio will come under 2.0 and this will be historic and too safe a point to allow Nifty drifting any further.