READ THIS if you want to learn how to invest in India’s stock markets

By Sundaramurthy Vadivelu

Disclosure

The contents of this article are primarily intended for those who have no idea about stocks, Indian stock markets, technical analysis, fundamental analysis etc. These are meant to be basic guidelines only. Detailed information can be obtained from Securities and Exchange Board of India (www.sebi.gov.in), Bombay Stock Exchange (www.bseindia.com), National Stock Exchange of India (www.nseindia.com) and brokerage houses. Readers have to understand that we do not recommend any brokerage houses, web sites, etc. for their investment or trading purposes.

Stocks and Stock Exchanges:

Stock markets are obviously the talk of the town these days. Everyone wants to invest in Indian stock markets. With the advent of Internet, this has become much easier. It is now possible to invest even while travelling. Before we actually begin to invest we need to know certain basic things about stocks and stock markets.

Stock is the capital raised by a company from general public, institutions, etc. through allottment of shares. Derivatives like futures and options are contracts which may be exercised on or before an expiry date. The underlying instrument of derivatives can be stocks or indices. Futures contracts have to be necessarily exercised i.e. if a person has bought 1 lot of Nifty, it will be sold in the market on the expiry date; if a person has sold 1 lot of Nifty, it will be bought back from the market. This is called squaring off. Option contracts may or may not be exercised depending upon the profit. For a detailed description of Futures & Options, read my earlier article “India's Futures & Options Market : An outlook” and have a look at The India Street video “Selling Naked Puts - We Bare All”.

Stock exchanges (also called share market, bourse) are organizations that facilitate trading of the equity shares, derivatives etc. using their systems and terminals.

At any given point of time, many investors and traders will be present in a market for trading. They may be long term/medium term/short term investors, day traders, futures and options traders, financial institutions, foreign institutional investors, mutual funds, speculators, punters etc. They are the people who normally decide the price of a stock on a given day.

For a detailed description of short, medium and long term investing, please read my earlier article, “Psychology of investing and trading”.

The stock market, like any other financial market, is governed by the basic principles of demand and supply. Prices will go up when more people want a stock; prices will fall when people don’t want a stock. There may not be too much price fluctuation if people are not much interested in strong buying or selling.

In India, there are two major stock exchanges. The Bombay Stock Exchange (BSE) is more than 100 years old and located at Dalal Street, a very famous land mark in the business district of Mumbai. National Stock Exchange is also at Mumbai and is in existence since 1990’s. More than 3000 companies are being actively traded at BSE whereas around 1150 companies are traded at NSE. But the F & O market turnover is about 3 times that of cash market (equity share) at NSE.

Reason for investing in stocks:

People get more return for the money invested in a stock over a period of time. Usually, a fixed deposit account in India may not yield more than 10% returns in a year but in stock market, it can happen in a single trading day. Reverse is also true, it can wipe out 10% of the investment in a single day.

For example, Infosys Technologies Limited has appreciated nearly 330 times since 1994. This is just impossible with any other type of business.

Having said that, stock prices simply do not always go upwards. They do fall. Sometimes the fall can be so heavy that it erodes investor wealth by more than 5 or 10% in a session.

Investors will ideally want to buy a stock when demand is about to pick up for the stock and sell when it slowly disappears. But that has to be estimated using some analytical techniques. These are called fundamental analysis and technical analysis. Fundamental analysis focuses on company’s business model, earnings forecast, demand and supply scenario for the company’s products and services and so on. Technical analysis uses price and volume analysis for predicting future price movements.

Procedures for investing in India:

An Indian resident, a non-resident Indian or person of Indian origin (PIO) can invest or trade in Indian stock markets. The rules are slightly different for NRI’s and PIO’s.

Prior to 2001, securities were being traded in physical form i.e. paper certificates were in use. This resulted in delays, loss in transit, signature mismatch, theft etc. With the online trading system, shares are held in electronic form very much like money is held in a bank. This is called a ‘demat’ account. (Demat stands for dematerialization.) It is now compulsory for all securities to be traded under demat segment only. The IPO’s or the initial public offerings insist that the applicant needs to have a demat account.

There are two depositories in India, National Securities Depository Limited (NSDL) and Central Depository Services (India) Limited (CDSL). They hold the equity shares for a fee.

All transactions in the stock exchanges are through brokerage houses only. Some of them offer internet trading facility too. The list of online brokerage firms is available here.

Demat Account:

This accounts holds the shares in electronic form. Sold shares will be debited by the Depository Participant (DP). Similarly, bought / bonus shares will be credited to this account.

To open an Indian resident demat account, one has to approach a brokerage house. The person(s) will have to:

• Fill out demat account opening form

• Provide PAN (Permanent Account Number) card issued by Income Tax department

• Provide proof of identity (such as passport, driving license etc.)

• Provide proof of residence (such as passport, telephone bill, etc.)

• Provide a working savings bank account number for credit of dividends

It may take approximately 2 to 5 working days for opening a demat account. The broker may also issue depository instruction slips which should be filled when stocks are bought or sold. Both client and broker need to have account with the same DP in order to transact. In case of online trading, no such slips are needed; in some cases, depository participant and trading member (broker) may be the same.

Trading Account:

A trading account monitors the cash transactions of the client. Based on his delivery/intraday transactions, the broker will debit/credit the amount due in his trading account. If a client wants to purchase stocks for which he needs funding from broker (also known as margin) he needs to enter a margin trading agreement with broker. The broker may allow purchase of securities depending upon the market value of clients’ holding and cash balance. In case of delivery (i.e. buying from the market and holding it for sale later) the broker needs to be paid within settlement date i.e. two working days from trade date. However, some brokers may allow a day or two extra.

The procedure for opening a trading account is similar to opening a demat account. A POA (Power of Attorney) agreement needs to be signed by the client and broker. In case the client fails to pay the margin, the broker at his descretion, may square off the transaction.

Procedures for Non Resident Indians and Persons of Indian origin:

Both NRI’s and PIO’s can invest in Indian stock markets under PIS (Portfolio Investment Scheme). They must take delivery of stocks; no intraday trading is permitted for them. Apart from this, they should have NRE account (Non Resident – External) in which foreign exchange can be credited or debited; and NRO (Non Resident – Ordinary) in which rupee can be credited or debited. NRI’s and PIO’s need to give these details, work permit or visa copy, proof of local and permanent addresses, PIS form, account opening form, photos etc. to the broker for opening the demat and trading accounts.

Brokerage, Service Tax, STT:

• “Brokerage” means a certain percent of transacted value (like 0.1%, 0.5% etc.) which is charged by the brokers for buying as well as selling. Some brokers may charge a fixed brokerage per month or minimum brokerage per month. Brokerages vary for intra day trading and delivery trading.

• “Service tax” means tax levied by Central Government on the services provided by brokers and currently it is 12.36% on brokerage amount.

• Securities Transaction Tax (STT) is the tax levied by Central Government on the total value of transaction. Currently the rates (% of turnover) are 0.125% for buy/sell delivery trades, 0.025% (only for sale) of non delivery transaction of equity shares, 0.017% (only for sale) of derivative transactions.

A client will have to pay taxes on his/her transactions as per above details.

Before investing:

• Try to gain some knowledge on stock markets by visiting web sites, reading books, etc. A visit to the stock exchange web site will be useful.

• Do your research on companies, their business profile, earnings, annual reports, etc. This will give some idea on company’s business prospects.

• Discuss investment strategies with some knowledgeable person who has stock market exposure

• The management of the company should have reasonable experience in the field that they venture into. The qualifications of key personnel may not matter much, but experience will.

• Nearly all listed companies have web sites. So its prospects, financials, business dealings can be found from those sites.

• Read some books/visit some sites on fundamental analysis and technical analysis. Though one can’t become expert in few days, it will help making good investment decisions.

• Never transact based on “hot” tips.

• Always invest/trade with the money you can afford to LOSE.

There are some licenced portfolio managers who are registered with SEBI. They are authorized to manage the clients’ portfolio as well as offer buy and sell recommendation to the clients.

Finally, investing/trading is inherently risky. Never invest or trade a stock unless you are convinced from all aspects viz. your risk profile, holding time, profit margin, etc.

Sundaramurthy Vadivelu

Suggested Reading

INDIAN STOCK MARKET – AN OUTLOOK Psychology of investing and trading REPORT: India Investment Policy - FDI

GurgaonMilleniumCity: First Global Report On Real Estate Developer-DLF IPO

GurgaonMilleniumCity: First Global Report On Real Estate Developer-DLF IPO

DLF, a leading real estate company, is open for subscription with an initial public offer, IPO of 175,000,000 equity shares of Rs 2 each through a 100% book building process.The issue would constitute 10.27% of the fully diluted post-issue capital of the Company.

An Interview with Sundaramurthy Vadivelu, Analyst for The India Street

India and the Indian stock market is on everyone's mind. From the United States, to China, Europe, and on the Internet, people are looking for more than just facts. Whether you're a devotee of CNBC or prefer your news straight from the bull's mouth, what you don't know can hurt you. There's a lot of information out there. The problem becomes interpretation, although it's sometimes concealed in terms only a financial analyst can understand. So what can investors do?

Sundaramurthy's background is Chemical Engineering. He received B.Tech. degree from Alagappa College of Technlogy, Anna University, India but he's best known for his serious financial analysis delivered in terms beginners can understand. He combines data from analysts, news wires and other sources and adds a lot of his own insight.

TheIndiaSreet: The India stock market has been on a roll for a long time. Do you think this bull market will continue?

Sundaramurthy: Yes. I always feel positive about Indian markets. As an analyst, I will certainly wait for a technical confirmation before I conclude that the bull market is over.

TheIndiaSreet: What are the key trends in India that make an unprecedented economic boom inevitable in the next decade?

Sundaramurthy: Better infrastructure, quality of education, excellent industrial growth, human resources availability and finally inflow of foreign funds towards services, direct investment and financial markets.

TheIndiaSreet: A crisis in Asia has made the U.S. market fall in the past. Do you expect it to affect the India market in the short or long term, or is it completely taken care of now?

Sundaramurthy: Well, just compare it with Indian rupee appreciating against dollar. Some people will certainly get benefitted by this whereas some others may not. In financial markets ups and downs are always going to be there, though the regulators attempt their very best to control it. But in case some abnormal movement occurs, even they can’t help investors. It is a risk. Any crisis, be it in Asia, US or wherever – is unlikely to affect the markets, but using the name ‘crisis’ few people will get benefited.

TheIndiaStreet: How do you think interest rates or margin concerns will derail growth or earnings visibility for the India real estate sector?

Sundaramurthy: I think the demand in the real estate industry will ultimately decide its future. When the interest rates were as high as 18% people were still getting loans from banks and other institutions. Now with reduced interest rates of 10% also still they apply for loans. So who bothers much about interest rates!

TheIndiaStreet: Where do you see politics in the midst of all of India’s capital markets during the next couple of years? - does it worry you?

Sundaramurthy: Sorry, I am not a politician. But from the past history I can tell you it has nothing to do with capital markets. During BJP regime markets went upto 2015 on NSE and before UPA government assumed Office, on May 17, 2004 we had the worst ever fall. The very next day the markets were up. Today the index has more than doubled. So I don’t think politics has much to do with markets. It is the false hype that is created among the public.

TheIndiaStreet: What Capital Market reforms need to take place in order to keep the bull market running?

Sundaramurthy: I think the reforms are already in place. The market regulators have kept a vigil on all activities that are happening in the market. They will surely add or amend the regulations if a need arises. One real worry is the increasing number of web sites offering investment and trading advice to public.

TheIndiaStreet: Would you be surprised if the India Stock Market Index went on to break 16,000 this year?

Sundaramurthy: No, certainly not. When 4000 can become 14000, why not another 2000?

TheIndiaStreet: Which India industry sectors do you like the most for investing today?

Sundaramurthy: First choice would be real estate. Given the amount of scope for the growth, we can ideally invest in real estate sector in case the stocks get corrected. Others would be construction, textile and metal stocks since technically some are underpriced and others have more upward targets. The time is probably not right to enter sugar stocks. But it is wise to be stock specific rather than sector specific.

Indian Realty to Pave Way for REIT

Source: Indiarealtynews.com

Global credit rating firm Moody’s has asked the Indian government to draft a regulatory and taxation framework for the market to introduce real estate investment trusts (REITs). A higher transparency makes REIT an easier and convenient way to make investments. They stand for core characteristics of modern economies. And, India is a country with a fast flourishing economy which should introduce them, says John Kriz, managing director of real estate finance.

Recent initial public offerings (IPOs) of Indian real estate companies had brought forward the vibrancy and potential of sub continent’s property sector. However, the decision lies with the Indian government whether it wants to go further with the suggestions. Kriz overlooks the poor reforming record of the present and previous governments, although Moody’s acknowledged great improvement and transparency in store for Indian real estate, says the data showcased in a press statement.

India’s continued economic growth and future prospects largely depend on the property infrastructure, adds Kriz.

The economy requires a boost in the growth of industries, hospitality sector, and retail segment in order to develop. It is actually the question of how the system can be arranged, says Kriz further highlighting the trends of Indian real estate.

REITs are unlikely to bring any major changes in the trend to date for foreign direct investors who focus their attention on major cities. It is only local investors targeting secondary and other emerging cities.

Top value stocks in Indian markets

By Sundaramurthy Vadivelu The India Street

Important Disclosure

The views expressed below are the opinions of the author based on fundamental analysis. The views are unbiased and informative in nature. These do not constitute an offer to buy or sell stocks. Every effort has been made by the author to ensure correctness of the information presented. The author cannot be held responsible for omissions, mistakes etc. Investing or trading in stock markets is a high risk activity. Those who cannot afford to risk their money should refrain from dealing in stocks. The author has no vested interest in any of the stocks mentioned. He and/or his close associates may or may not be having positions at the time of preparing this document. The reader needs to understand that this article is purely for informative purposes only and all transactions, if entered into by him will be solely at his risk. Source for the price and financial data displayed in tables: National Stock Exchange of India Limited, Mumbai, India (http://www.nseindia.com).

- - - - - - X - - - - - - X - - - - - - X - - - - - -

Introduction: Before investing in any particular stock, one needs to know about the company, its business, key areas of strength, possible risks, top management, financial performance like book value, earnings per share, dividend yield etc. This is called ‘fundamental analysis’ and focuses only on the company fundamentals. It simply ignores the stock market conditions during that period. This is in complete contrast with technical analysis, which discounts all the factors while the market price is determined. In other words, the technical analyst believes that the company performance, business forecast etc. are always discounted by the market participants while trading the stock. It is ultimately a personal choice. For an investor who can’t sit in front of a computer for hours to analyze the market and find the right stock to invest, be it short term or long term, fundamental analysis could be useful. Several financial newspapers publish the important data such as book value, earnings per share etc. along with stock quotes. This can be used for fundamental analysis. Earnings of a company are very important to an investor. Once the company’s operations are stabilized and starts earning, it is reported to the stock exchanges. The audited results may also be published in popular newspapers. Good earnings are an indication of company performance and capital appreciation. Earnings per share is a term that is used to reflect the earnings of the company for each outstanding share. ‘Outstanding’ means the shares that can be traded in the stock market anytime. This is arrived after deducting promotors’ shareholding, locked in shares, etc. from total number of shares. EPS is calculating by adding the total earnings for the previous 4 quarters and then dividing it by the total number of outstanding shares. P/E ratio is another term that can tell the investor how much the market is willing to pay for the company’s earnings. It is simply the market price divided by the EPS. The book value of a company is the company's net worth, as measured by its total assets minus its total liabilities. This indicates how much the company would have left over in assets if it went out of business immediately. As with EPS, book value per share is arrived at after dividing the book value as per last balance sheet by the total number of outstanding shares. Price to book value (PBV) is the ratio between stock price and book value per share. These two parameters can help an investor to identify “growth” and “value” stocks in the market. Growth stocks usually have high P/E and PBV ratios, which means that these stocks are relatively high-priced in comparison with the companies’ net asset values. In contrast, value stocks have relatively low P/E and PBV ratios. Most growth investors are willing to pay a fairly high price for a stock whose earnings they expect to go up higher. They aren't completely insensitive to price, but the question of whether a stock is cheap or expensive isn't the real question for them. Value investors view cheapness as a major factor. They focus on stocks that are cheap. Just as growth investors are not totally insensitive to price, they are not completely indifferent to earnings progress. However, they are willing to sacrifice some earnings growth for the sake of cheapness. The following tables give us “growth” and “value” stocks in Indian stock market. Table 1: Companies with high P/E ratio Some of these companies, such as Aban Offshore, Educomp Solutions, Glenmark Pharma and UTV Software have gone up by more than 300% in the last 1 year. Table 2: Companies with high PBV ratio We can once again see Aban Offshore, GMR Infrastructure, Educomp Solutions and Glenmark pharma in this list. Table 3 : Companies with low P/E ratio: While choosing a stock the investor needs to be aware of the current business conditions in the industry it belongs to. Table 4: Companies with low PBV ratio: Conclusion: The debate between growth and value investing has been going on for years. Both styles have their positives and negatives and need different requirements on investment research. A truly diversified portfolio will have both growth and value stocks. In value investing, correct stock valuation as well as the right time of entry is very critical whereas in growth investing, it is essential to identify businesses that face little or no threat of erosion so that earnings growth of those companies is not affected.

Weekly review of Indian stock market - June 8, 2007

Important Disclosure

The views expressed below are the opinions of the author based on the principles of technical analysis, a science that has been tested and proven for more than hundred years. The views are unbiased and informative in nature. These do not constitute an offer to buy or sell stocks. Every effort has been made by the author to ensure correctness of the information presented. The author cannot be held responsible for omissions, mistakes etc.

Investing or trading in stock markets is a high risk activity. Those who cannot afford to risk their money should refrain from dealing in stocks.

The author has no vested interest in any of the stocks mentioned. He and/or his close associates may or may not be having positions at the time of writing this article.

It is to be understood clearly that this article has been written purely for informative purposes only and the author cannot take any responsbility whatsoever for transactions, if any, entered into by the reader. The author does not guarantee that the projected targets will be achieved within the stipulated time frame.

Source for the price data displayed in graphics and tables:

National Stock Exchange of India Limited, Mumbai, India

http://www.nseindia.com/

Charts have been created with FCharts Pro, © Spacejock Software, Australia

http://www.spacejock.com/

Index this week:

In the last week’s review, I had mentioned:

“The engulfing pattern seen at the top of the trend on 31.05.07 is not a healthy sign. It was further confirmed by the sell off next day, with a very long upper shadow. We can anticipate a correction now upto 4039 or 3902.”

The nifty closed at 4145, losing 152.05 points on weekly basis or about 3.54%.

As such, there were no reversal signs last week but we got a confirmation of the short term trend reversal now. The nifty is bearish now and we can expect the nifty to hit its support at 3902.

Watch the bearish engulfing pattern followed by a red candle and lower close (also known as three outside down pattern), a highly reliable 3 candlestick pattern in the daily chart of nifty shown below.

The nifty has already broken and closed below its first support at 4218. The upward movment from 3617 to 4218 had very minor corrective declines; if we consider the next high it would be 4039. After that it is 3902. These two levels should act as supports.

Going by the theory of “an ideal bull market” usually 50% retracement should be a good support. This level is 3990. So, anywhere between 3990 and 4039 nifty may be able to bounce back.

Remember that these levels are only indicative and actual levels may significantly vary from the numbers given above.

In the weekly chart also, one may find the “bearish engulfing pattern” formation as shown below. However we need a confirmation on a weekly closing basis to decide on the medium term trend reversal.

Status of index stocks in daily/weekly charts:

The following table illustrates the movement of index stocks in daily and weekly charts (bullish/bearish/sideways)

Scrip	Status (Daily)	Status (Weekly)	Weekly Gain %	Remarks
ABB	Bearish	Bullish	(3.57)	"Dark cloud cover pattern" in weekly chart needs confirmation next week
ACC	Bearish	Bearish	(10.00)
BAJAJAUTO	Bearish	Bearish	(5.59)
BHARTIARTL	Bearish	Bullish	(3.07)
BHEL	Sideways	Bullish	(7.60)	"Bearish engulfing pattern" in weekly chart needs confirmation next week
BPCL	Bearish	Bearish	(8.23)
CIPLA	Sideways	Bearish	(5.74)
DABUR	Sideways	Sideways	0.82
DRREDDY	Bearish	Bearish	(2.71)
GAIL	Sideways	Bullish	(7.32)	"Bearish engulfing pattern" in weekly chart needs confirmation next week
GLAXO	Bullish	Bullish	(1.18)
Scrip	Status (Daily)	Status (Weekly)	Weekly Gain %	Remarks
GRASIM	Bearish	Bearish	(5.14)
GUJAMBCEM	Bearish	Bearish	(4.75)
HCLTECH	Sideways	Bullish	1.19
HDFC	Sideways	Bullish	(6.11)	"Bearish engulfing pattern" in weekly chart needs confirmation next week
HDFCBANK	Sideways	Bullish	(5.42)	"Bearish engulfing pattern" in weekly chart needs confirmation next week
HEROHONDA	Sideways	Bearish	(4.47)	"Bearish harami pattern" in weekly chart needs confirmation next week
HINDALC0	Bullish	Sideways	11.95
HINDLEVER	Bearish	Bearish	(6.25)
HINDPETRO	Bearish	Bearish	(11.73)
ICICIBANK	Sideways	Sideways	(2.90)
INFOSYSTCH	Bearish	Bearish	0.63
IPCL	Sideways	Bullish	(4.16)	"Bearish engulfing pattern" in weekly chart needs confirmation next week
ITC	Bearish	Bearish	(6.49)
LT	Sideways	Bullish	(5.77)
M&M	Sideways	Bearish	(5.82)
MARUTI	Bearish	Bearish	(9.08)
MTNL	Sideways	Sideways	(4.71)	"Dark cloud cover pattern" in weekly chart needs confirmation next week
NATIONALUM	Sideways	Bullish	2.40
ONGC	Bearish	Sideways	(5.11)
PNB	Bearish	Sideways	(6.92)	"Bearish engulfing pattern" in weekly chart needs confirmation next week
RANBAXY	Bearish	Sideways	(5.62)	"Bearish engulfing pattern" in weekly chart needs confirmation next week
RCOM	Bullish	Bullish	1.61
REL	Sideways	Sideways	(3.93)
RELIANCE	Sideways	Bullish	(5.38)	"Bearish engulfing pattern" in weekly chart needs confirmation next week
RPL	Sideways	Bullish	(1.46)	Near resistance zone
SAIL	Bearish	Sideways	(10.06)
SATYAMCOMP	Bullish	Bullish	3.16
SBIN	Bearish	Bullish	(1.62)	"Bearish three outside down" pattern in daily chart
SIEMENS	Sideways	Bullish	(1.59)	"Dark cloud cover pattern" in weekly chart needs confirmation next week
STER	Sideways	Sideways	(2.59)
SUNPHARMA	Sideways	Bullish	(3.33)	"Bearish engulfing pattern" in weekly chart needs confirmation next week
SUZLON	Bullish	Bullish	4.14
TATAMOTORS	Bearish	Bearish	(12.80)
TATAPOWER	Sideways	Bearish	(1.97)	"Dark cloud cover pattern" in weekly chart confirmed this week
TATASTEEL	Sideways	Bullish	(7.79)
TCS	Sideways	Sideways	0.11
VSNL	Sideways	Bearish	(0.86)	"Dark cloud cover pattern" in weekly chart confirmed this week
WIPRO	Sideways	Bearish	0.62
ZEEL	Bearish	Sideways	(7.06)

From the above table, we can see clear trend in both daily and weekly charts in few stocks whereas in others some indecision exists. Dabur, HCL Tech, Hindalco, Infosys, Nationalum, RCOM, Satyamcomp, Suzlon, TCS and Wipro have gained this week where as the rest are losers. Glaxo, RCOM, Satyamcomp and Sulzon are bullish and ACC, BAJAJAUTO, BPCL, DRREDDY, GRASIM, GUJAMBCEM, HINDLEVER, HINDPETRO, INFOSYSTCH, ITC, MARUTI and TATAMOTORS are bearish. Interesting to note the bearish candlestick pattern formations in the weekly chart – many need confirmation next week! This makes an interesting week ahead.

Advance Decline Ratio:

Date	Traded	Advanced	% Adv	Declined	% Dec	Unchanged	% Unch
04/06/07	1101	404	36.69	665	60.4	32	2.91
05/06/07	1103	534	48.41	527	47.78	42	3.81
06/06/07	1105	228	20.63	852	77.1	25	2.26
07/06/07	1103	388	35.18	672	60.92	43	3.9
08/06/07	1101	350	31.79	723	65.67	28	2.54
Totals	5513	1904	34.54	3439	62.38	170	3.08

This means that the bears have dominated during the week.

Following table gives the list of top 5 gainers and losers among cash stocks:

Scrip	% Gain	Scrip	% Loss
BLBLIMITED	41.31	VAIBHAVGEM	16.60
PARAL	32.84	TVSELECT	15.94
KERNEX	29.94	SGL	16.38
TIMESGTY	28.22	IILTD	15.67
RUBYMILLS	27.64	HILTON	16.17

Conclusion:

As anticipated last week, a corrective decline happened in the market. We need to wait for further confirmation this week. Let us expect that the index and stocks bounce back this week!!

SUNDARAMURTHY VADIVELU

The India Street

Investors with short-term view and high-risk appetite should apply for DLF issue

By Asit C Mehta The analysts at Asit C Mehta recommended investors with short-term investment horizon and high-risk appetite to subscribe for the DLF issue. Incorporated in the year 1946, DLF is promoted by K P Singh. Development of residential, commercial and retail properties constitute its primary business. The company is largest real estate development company in India in terms of the area of completed residential and commercial properties. DLF has land reserves in various regions across India admeasuring 10,255 acres with an estimated developable area of 574 million sq. ft. The company is also diversifying into more potential sectors related to real estate like infrastructure, SEZs and hotel businesses. DLF has huge land reserves spread across various regions of India, admeasuring 10,255 acres, of which 51% stake is from NCR (which includes Delhi and adjacent areas like Gurgoan) and 23% from Kolkata. The company is acquiring land for many years. The rate at which it acquired has increased in last three years. The analysts at Asit C Mehta say that if the company develops 30 acres of saleable land every year with current land reserves, then they are sufficient for the planned development of the company for next 10 years. DLF`s revenues increased at CAGR of 25.73% from Rs 6,610 million in FY04 to Rs 39,672 million in FY07. Whereas net profit has grown at CAGR of 24.80% from Rs 460 million in FY04 to Rs 19,413 million in FY07. Its operating margin and net profit margin for FY07 were 57.18% and 74.23%, respectively. The profit for FY07 has seen a huge jump, due to sale of the commercial property (Rs 22,071 million) to DLF Assets, which is a promoter group company. At the lower band P/E is 43.90x and at the upper band P/E is 48.29x for EPS of Rs. 11.39 (post equity) for FY07 as compared with construction industry P/E of 57.5 (average), the analysts recommend to `SUBSCRIBE` to the issue.

Biggest ever acquisition involving the transfer of RBI’s 59.7% stake in SBI-

By Vipin Agnihotri

The Indian government is all set to promulgate an ordinance to close the biggest ever acquisition involving the transfer of Reserve Bank of India's 59.7% stake in State Bank of India (SBI) to the Centre in a deal worth nearly Rs 40,000 crore.

Sources have told The India Street that the finance ministry was expected to seek the Cabinet's approval over the next couple of weeks to ensure that the Centre hands over the cheque to RBI on June 29. It is worth mentioning in this regard that the RBI had offered to sell its stake in all banks and financial institutions to the Centre in a bid to avoid conflict of interest in its role as a regulator as well as owner of some entities.

”Though the Cabinet had approved the proposal in February, the government needs to wait for an amendment to the SBI Act to carry forward the transaction,” pointed out Hiten Tejwani, noted economist. Theoretically speaking, a bill to amend the law is pending with a parliamentary standing committee and the finance ministry intended to insert a clause enabling it to purchase RBI's stake when it came back to the House. But in the absence of the standing committee report, the finance ministry is pushing for an ordinance to close the transaction.

According to experts, the government will value the 31.43 crore SBI shares, which have a face value of Rs 100 each, held by RBI at the average closing price for six months. "It is essentially cash management for 40-45 days since the amount that the government pays to RBI will come back to it as surplus. The transaction has already been factored in the borrowing programme," said a government official while talking to The India Street.

In addition, the government had frontloaded few of its borrowing routine and what is also assisting the Centre is the fact that there are no big payments that are due in July or early August that could have put pressure on Centre's liquidity position. But the chances of some bills raised by other government agencies are also not being ruled out since the government would want to have sufficient cash with itself.

Fact remains that it was earlier toying with the idea of issuing bonds to RBI, which would have been redeemed over 15-20 years. The proposal was, though, junked as it was felt that the exercise might be cumbersome.

If one takes into account the stake purchase plan that has been finalized, the government will issue a cheque on June 29, 2007-a day before RBI closes its annual books of accounts. Normally, RBI transfers the surplus at the end of the financial year (June 30 in its case) during the first half of August and the amount that it received from the government for selling its stake in SBI will come back to the Centre's kitty.

India’s inflation rate expected to drop: IEG

By Avadh Singh

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It has come into the notice of The India Street that the India's inflation rate based on wholesale prices, the commonly used benchmark to track price levels, is expected to drop even further after hovering around Reserve Bank of India's (RBI) targeted level of 5 per cent for the next three months. If the Institute of Economic Growth (IEG) is to be believed, industrial growth will also slow down. The institute's monthly report on the economy for May says industrial growth, which was 12.9 per cent in March over the same month a year ago, powered by manufacturing, capital and consumer non-durable industries, could have been helped by high expectations in industry, but will come down in the coming months. The IEG has forecast an average growth of 9 per cent in industrial growth over the next three months. It says the increased interest rates, a decline in exports and a slow-down in consumer durables and construction activity would constrain industrial growth. It says it expects a deceleration in money supply following a drop in demand for credit by the commercial sector. It expects prime lending rates and the foreign exchange rate to be stable over the next quarter. It is worth mentioning in this regard that the inflation rate fell to 5.09 per cent in the week ended May 19 from 6.09 per cent a month earlier. IEG is of the opinion that retail prices for consumers will soften from the current levels. "The moderation in IEG view is mainly due to the recent monetary policy stance that controlled demand-side inflation," pointed out Rehmat Ali, renowned Indian economist. But fact remains that the rise in the prices of food and primary articles show that there are still supply side constraints. The report says inflation will decline further in coming months as the full impact of a squeeze on money supply takes some time to be revealed, while the forthcoming monsoon rains will influence commodity prices. Rising global oil prices are also a matter of concern.

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