The sub prime mortgage crisis and subsequent US Federal Reserve’s 0.5 per cent cut in interest rates saw a mad rush of FII buying in Indian bourses which enabled the Sensex to record its fastest-ever journey from 16,000 to 19,000 in just around a month’s time. Such was the action that the domestic mutual funds got little time to react and most of them remained in selling mode. However, the gains in the Sensex have mainly been due to some large cap (high market capitalization) stocks which have been fancied by the FIIs in both cash and F&O segments. Most of the $6 billion (Rs 23,880 crore) inflows from FIIs between September 18 and October 16 have gone into such stocks, mainly comprising Reliance Energy, Reliance Natura.Resources, Tata Power and so on.
The Nifty also crossed the 5,000 landmark, based mainly on the belief that the Indian markets are relatively safe amongst the emerging markets. The growth here is believed to be more sustainable with inflation well under control and advance tax data suggesting that the Q2 results are likely to be robust in general. The general view that the valuations are already overstretched, and soaring oil prices as also the likely slowdown in corporate earnings did not deter those bent upon taking positions in Indian equities. Some analysts at this stage have been pointing out that the stage has been set for the bubble to burst anyday, awaiting a trigger.
What you buy becomes
more important than when
you buy. For the time being,
a wait and watch policy is
advised till the markets
stabilize. However, small
investors are advised to
stay invested
And SEBI finally provided the trigger on October 16 when the market regulator released a report in the evening proposing certain curbs on participatory notes (PNs) with the main purpose of regulating and controlling huge and anonymous inflows of foreign money into the country’s stock mar kets. On October 17, within a minute of the markets opening, the index touched the lower circuit, prompting the regulators to suspend trading for an hour. Since then, the sensex has shed over 1,500 points mainly due to heavy selling resorted to by FIIs who were net sellers to the tune of $1.63 billion (Rs 6,438.5 crore) in cash and future seg ments on October 17 and another $1 billion the following day. Domestic buying could not prop up the markets, for the estimated investment through the PN route is nearly Rs 3.53 lakh crore. However, there is a lot of money waiting to come, though now a good deal depends upon SEBI’s willingness to allow it to enter.
One thing is for sure – in case the report gets accepted in toto, and there is no reason to believe it will not be, the markets are in for some churning. The only comfort appears to be the 18-month period allowed to phase out PNs. The investors may see excessive volatility in the mar kets as has been witnessed in the recent past. This is the time appropri ate for portfolio churning and adjustments. What you buy becomes more important than when you buy. For the time being, a wait and watch policy is advised till the mar kets stabilize. However, small investors are advised to stay invested since fundamen tals remain strong and money, like water flowing down, will certainly find its way into Indian markets no matter what.
However, an interesting thing in the recent past is that investors, especially small ones, have undergone a transforma tion of mindset. Earlier, whenever a correc tion happened, they would sell in panic and a herd mentality was evident. Now, they are holding and not panicking whenever they see the markets taking a plunge.
PBA Infrastructure
(CMP Rs 82)
INCORPORATED as Prakash Building Associates in 1974, the company’s name was changed to PBA Infrastructure Limited in 2001. It is mainly engaged in construction of highways, dams, runways and heavy RCC structures. The company has shown consistent improve ment in its financials on a Q on Q basis for the last quarters with the sales going past Rs 100 crore in the June quarter and operat ing profits at Rs 12.41 crore. The net profits showed a quantum jump to Rs 4.64 crore as compared to the preceding quarter. The company is likely to maintain its good show with an order book of about Rs 750-800 crore. The stock, available at a P/E of less than 8 based on EPS of trailing 12 months, is going dirt cheap when compared to the valuations that other infrastructure stocks command today. Investors can accumulate the stock to get amazing returns.
Mangalam Timber
(CMPRs 26)
The BK Birla Group company has recently turned around and been brought out of the BIFR ambit. The firm’s USP has been extensive captive plantation spread over thousands of acres in Orissa, Chhattisgarh and Andhra Pradesh which gives it the cost advantage over other players. The company makes Medium Density Fibre Boards – both plain and pre-laminated– of interior and exterior grades used for furniture, partition panels, cupboard shutters, false ceilings, cavity flooring, school desks, blackboards, diesel engine cab interior panelling, speaker boxes, packing boxes, shoe heels, photo lamination bases, engineering drawing boards, wall clock cabinets, handicrafts and so on. The company also produces formaldehyde and has come out with excellent Q2 results – a net profit of Rs 2.36 crore and EPS of Rs 1.29 as against Q1 profits of Rs 0.46 crore and EPS of Re 0.25. Invest with a time span of one to two years to get decent returns.
