India's Economy Expands 8.9%, Slowest Pace This Year

India's economy grew last quarter at the slowest pace since 2006, signaling the central bank may soon end three years of inflation-fighting rate increases.

Asia's third-largest economy expanded 8.9 percent in the three months to Sept. 30 from a year earlier after a 9.3 percent increase in the previous quarter, the statistics office said today in New Delhi. Analysts expected an 8.7 percent gain.

Slower growth may not deter Cisco Systems Inc., Holcim Ltd. and other companies from investing in India, still the world's second-fastest-growing economy after China. Prime Minister Manmohan Singh's government is due next week to consider plans to further relax foreign-investment rules, as part of efforts to improve the nation's congested airports and dilapidated roads.

Removing bottlenecks is central for India's growth to continue, said Maya Bhandari, an economist at Lombard Street Research Ltd. in London. India is growing at its potential, its macro fundamentals are solid and you have a situation where companies will put more money there.

The Reserve Bank of India expects growth in the year to March to ease to 8.5 percent after it raised interest rates nine times since 2004 to curb consumer-price gains. Inflation was 3.01 percent in the week ending Nov. 10.

Manufacturing gained 8.6 percent last quarter from a year earlier, easing from a previous increase of 11.9 percent. Electricity output slowed to 7.3 percent from 8.3 percent, while farming rose 3.6 percent after a 3.8 percent gain in the quarter ended June 30.

Cars, Motorbikes

Higher interest rates have curbed demand for cars and motorbikes, prompting Tata Motors Ltd. and Hero Honda Motors Ltd. to delay opening new factories and cut output. Demand for paper may wane from next year, said Gautam Thapar, chairman of Ballarpur Industries Ltd., India's biggest maker of writing and printing paper.

Still, economic expansion in this financial year almost matches the average 8.6 percent growth from 2003, the quickest pace in the Asian nation's history since independence in 1947. That's boosting profits for companies doing business in India.

South Africa's Richards Bay Coal Terminal, the world's biggest coal-export facility, expects a 30-fold surge in sales to India this year. Holcim Ltd., the world's second-largest cement maker, said this month that its third-quarter profit rose 28 percent as plants in India and China ran at full capacity.

Credit Crunch

This trend will continue because of all the work on infrastructure, said Jerome Lombardi, a business development manager at Holcim Group Support (S) Pte Ltd. in Singapore. When there is a global crisis we would rely on countries like India and China to sustain our growth.

With exports accounting for only 23 percent of India's $906 billion economy, Lehman Brothers Inc. expects the South Asian nation to be immune to a deceleration in world growth sparked by mortgage defaults in the U.S.

The International Monetary Fund last month cut its projection for global growth next year to 4.8 percent from an estimate of 5.2 percent in July and warned that even its new prediction may be too optimistic given threats posed by the sell-off in credit markets.

India's pace of growth is almost three times the economic expansion in the U.S. and countries that share the euro, and falls only behind China's 11.5 percent gain last quarter among the world's top 15 economies.

Foreign Investment

Global producers of cement, steel, aluminum, copper and other products are benefiting from an unprecedented drive by India to modernize and expand roads, ports and other infrastructure. Singh's government aims to attract $500 billion by 2012 in India's infrastructure.

The government will next week consider easing foreign investment rules in aircraft maintenance companies, petroleum marketing firms and commodity exchanges, the Economic Times reported. Since assuming office in May 2004, the government has relaxed foreign investments in telecommunications and single- brand retail outlets.

Demand in India is also being bolstered by new jobs created by companies such as Cisco Systems and Mahindra & Mahindra Ltd., which are expanding to benefit from local consumer spending.

Cisco, the world's largest maker of computer-networking equipment, plans to triple its workforce in India to 10,000 people by 2010, Chief Executive Officer John Chambers said last month. Cisco, International Business Machines Corp. and others are recruiting more in India where pay scales are a fifth of those in western economies.

Less Red Tape

Mahindra, India's biggest sport-utility vehicle maker, plans to spend about $1 billion in the next four years to double automobile production.

The Indian economy has quadrupled in size since 1991, when the Oxford-educated Singh as the finance minister, introduced free-market measures that cut red tape and allowed foreign companies to set up operations locally. That's helped double per capita income in the last eight years.

India is very committed to reforms, said Stephen Roach, chairman of Morgan Stanley Asia Ltd. I like what I see in India. The Indian economy is really performing very impressively right now.

Source - Bloomberg

Thirteen Indian companies among Asia's 100 fastest-growing

Thirteen Indian companies are among a list of Asia's 100 fastest-growing small and mid-size companies - Asia''''s Hot Growth Companies - prepared by US financial magazine BusinessWeek.

Some of the Indian companies also emerge on top in terms of sales and capital returns, the magazine said in its report.

India, with 13 companies, comes in third after Taiwan and Japan, who have been represented by 24 and 18 firms respectively.

India has a higher number of such companies than China, whose presence is limited to just eight firms.

Hong Kong-based Ajisen Holdings ranks at the top, followed by Raffles Education of Singapore.

Hong Kong, too, has 13 such firms while Korea has seven, Malaysia four, Singapore nine and Thailand two. The lone Pakistani firm Packages Limited, a manufacturer of paper products, ranks 84th.

Among the Indian firms, Lakshmi Machine Works is ranked 17, followed by Kirloskar Brothers (18) and Godrej Consumer Products (23).

Other Indian companies named in the list are Marico (40), Colgate-Palmolive India (45), Hexaware Technologies (53), GlaxoSmithkline Pharmaceuticals (60) Panacea Biotec (68), Bajaj Hindustan (72), Motherson Sumi Systems (79), Cummins India (83), I-flex Solutions (93) and Titan Industries (98).

Three Indian firms - Cummins India, Titan Industries and I-flex Solutions - are ranked first, second and third, respectively in terms of highest sales in 2006.

18% rollover of open positions seen on Nifty futures

On a volatile trading day, the Nifty futures swung wildly around the Nifty spot.

The Nifty future witnessed a sharp turnaround on account of heavy short covering particularly during fag end of the trading.

Directional call

The Nifty November future closed at 5536.20, a premium of about 16.85 points with respect to the spot close.

Rollover of open interest position to December series was just 18 per cent, indicating that investors are not willing to take a directional call on the market.

However, the premium was better at 20.45 points for Nifty December futures and saw an addition of about 27 per cent in open interest positions.

The top five contracts based on open interest positions are Reliance Petroleum, IFCI, RNRL, Tata Teleservices (M) and PowerGrid Corporation. Among stocks futures, Reliance Capital, GMR Infra and SBI were star performers as they gained 7.8 per cent, 4.7 per cent and 4 per cent respectively.

While Reliance Capital and GMR Infra witnessed accumulation of open interest positions, SBI saw a sharp drop of 10 per cent in open interest positions.

FIIs selling

After pumping out Rs 4,200 crore on Tuesday, they sold another Rs 2,138 crore on Wednesday.

They mainly offloaded index futures. They hold Rs 16,985 crore of index futures against Tuesday’s figure of Rs 15,801 crore. This indicates they added lot of short positions on index futures.

Securities ban

The NSE has banned derivative contracts of NIIT Technologies, IFCI, Adlabs Films and Reliance Petroleum as open interest positions have crossed the 95 per cent of the market wide position limit.

Source - Hindu Business Line

Investors pull out $2.1 bn from BRIC funds

Stock market volatility forced investors across the world to pull out $5 billion from emerging market equity funds last week, including over $2 billion from funds focused on four BRIC markets.

China accounted for more than half of the total outflow from BRIC funds, while India, Russia and Brazil together shared the remainder, according to international fund tracking firm EPFR Global.

With sub-prime and global credit fears being fuelled by almost daily news of fresh write-downs in the financial sector and evidence mounting that the US economy will slow going into next year, investors retreated from equity funds during the second week of November and shifted to the relative safety of money market funds, EPFR said in its weekly report.

During the second week of November, emerging market equity funds reported a net outflow of $5.58 billion, while those focused on developed markets saw an outflow of $5.07 billion.

Nearly all the outflow from the developed and emerging markets appears to have been absorbed by the money market funds. According to EPFR, the money market funds recorded a net inflow of $10.1 billion during the week, taking their total inflow since the beginning of August to $100 billion.

Money market funds currently offer two things that investors like. They are very liquid, which allows investors to move rapidly back into markets where they see value, and most of them come with an implicit guarantee that you wont lose any money something that's very attractive in the current investment climate, EPFR Global Analyst Cameron Brandt said.

Source - PTI

Short Term Tips - Buy Indian Oil Corp (IOC)

Buy Indian Oil Corp at CMP of Rs. 503/-

Target of 540/-
Stoploss at Rs. 490/-

Duration - 30 days

The stock is currently trading above it's all short term and Long term EMA. The stock is currently exhibiting a strong bullish pattern.

Short Term Tips - Buy Vijaya Bank

Buy Vijaya Bank at CMP of Rs. 63

Short Term Target of 68
Stoploss at 61

Duration - 15 days

The stock is currently trading above it's 30 Day EMA. The short term average is well above it's long term average and the stock seems to exhibit a long term bullishness. The current rise in stock is also being currently supported by an huge spurt in volume. Investor can expect a decent return of 8 to 10% in 2 weeks time frame.

Reliance Petroleum Limited (RPL) - A Speculators Den

Recently I came across an article published in "Hindu Business Line" dated Nov 1st' 2007 with title "Reliance Petro beats M-Cap of all refiners put together" (www.thehindubusinessline.com/ 2007/11/01/ stories/2007110152540100.htm). The article actually surprised me and prompted me to look at the reasons for Investors (rather Speculators) giving such huge valuation to an company which is about to be operational in mid of 2008.

Eventually, I was not able to figure out the reason, for a stock which can be currently either Operated by the promoter itself or driven high by a broker under the influence of the promoter. I really don't have anything against the promoters, infact I respect their business model to a great extent and really value what reliance has added in fueling the Indian Economy.

The company has been given a valuation almost around 2.5 times (at the time of writing this article) to that of India's largest refinery Indian Oil Corporation (IOC). Is this Justified?. Let me further compare both IOC and RPL fundamentally and see if such huge valuation of RPL is justified

1) RPL is going to be operational with 29 million metric tonne per anum (MMTPA) during mid of 2008 as compared to IOC's existing refining capacity along with it's group companies of 60.2 MMTPA (47.35 MMTPA on a standalone basis).

2) IOC as a company is involved in manufacturing of well established Oil products like Lubricants, LPG, Industrial Fuels etc as compared to none of RPL to date.

3) RPL's earning visibility is a black box until operational as against IOC's sales turnover of US $5.1 billion.

Who's Buying RPL?

Based, on the latest shareholding pattern of Sept' 07 the mutual fund's were net sellers on RPL (Compared to Jun'07). Their holding decreased to 28.1 million shares from 44.4 million shares.

FII's pared exposure to RPL shares. Their holding was reduced from 137 million shares to 102 million shares.

Similar is the case with Financial Institution, which currently holds around 132 million shares as compared to 162 million previous quarter.

Insurance companies shed around 8 million shares from it's portfolio.

Having all Institutions being net sellers, I examined the details further on who actually is making RPL stock to touch higher levels every alternate day..

There were 400 shareholders added to those holding greater than one lakh in share capital. Their holding increased from 32.3 million shares to 49.4 million shares. Now surely this additional 400 investors are either brokers or HNI's manipulating the prices of RPL. Say at a average price of Rs. 150/- per stock the Investor has to invest atleast 1.5 million rupees to buy excess of one lakh in share capital which surely cannot be a retail investor.

What's in it for reliance?

This is purely my imaginary guess that the company may be planing to sell some shares to Institutions and want better valuation to pocket.. Or maybe brokers want to make huge profit. who knows?. Indian markets in many cases have been a black box and it is the insider's who gets benefited from these stocks. It is very late before the news reaches the retail investor.

Maybe the stock may hit new highs in the days to come and can even be another Unitech or Jai Corp in place, but my advise to retail investors is to invest with caution. Invest only if you are an Investor with high risk profile.

To finish, RPL's current valuation is almost 4 times it's total project cost without even a single penny generated. Who will get such a high valuation?

What to do this Diwali?

From past market performance it is evident that Market tends to rise around Diwali time. Investors have a unshakable faith in this tradition as it also marks a new year according to Samvat calendar.

No doubt this diwali also we can see the market moving up as it usually happens, but, what after diwali. Offlate it seems Indian markets are not taking into consideration the global happenings. The US markets have been in standstill for almost a quarter now. The financial sector in US is worst hit by the ongoing subprime crisis and large financial houses like Merrill Lynch, Citibank etc have written off billions of dollar eroding shareholders wealth.

Even though the direct effects of subprime, on the Indian markets, are pretty limited. Any slowdown in US can dampen the earnings visibility of Indian companies. Around 80% of India's total exports are targeted to US continents.

Not only the subprime crisis, adding to it the US housing data is also slipping into negative territory. August reported New housing Construction dropping 20% on a yearly basis. The US housing prices is continuing to fall with a drop of 4.4% in august alone. The housing market in US have not found bottom yet and is expected to fall further as the housing inventory is currently massively over supplied.

How US housing effects India?. The major concern is that falling house prices will hurt consumer spending, which accounts for two-thirds of the US economy. This in turn will trigger the US consumers to lodge money in the bank, rather than going for a shopping spree. As we know India is a large supplier of home products ranging from textiles, wood to cookware to US, the exports of this will come to a stall and in turn put a question on the earnings visibility of these companies. Already these sectors are paring losses into their profits due to rupee appreciation. Textile being India's largest employment house can make many lose jobs.

Coming back to subprime, the trouble starts when large-sized funds (with exposure to highly leveraged sub prime markets) start liquidating their holdings in emerging markets to make good their losses in a sinking sub prime market. In the case of Chinese market, FIIs are not allowed to pull out money at their whims and fancies; there is a lock-in period for staying invested in that market. So evidently since India is receiving a huge inflow of FII's money into the stock market the risk of fear led fall in Indian markets is high.

What should Indian investors do after diwali?

1) Investors must use the diwali pre-market rally to book partial profits and sit on cash.
2) Invest only in fundamentally strong stocks which targets domestic consumption and are less dependent on US Economy. Stock in Power, Infrastructure would be a good bet to invest.
3) Monitor global cues at a regular basis before taking a long position in stock market.

Always remember "Cash is King". Cash in hand is worth a fortune rather it getting struck in a bear market.

Happy Deepavali.. Happy Investing