Market is rallying: By G.S. Roongta:

Even after crossing the 12000 mark earlier and heading well over 12K mark to close at 12041.70 on 16th September’06, the BSE Sensex witnessed a lot more consolidation last week. This proves that this important psychological level needed further confirmation for the market to establish the ongoing bullish trend and whether it is strong enough to rally further. The market hit back on Tuesday, 19th September’06, to breach the well established BSE Sensex level of 12K after touching a new high of 12152.60 in intra-day trades on the same day but suffered a great setback to break the 12K level to as low as 11915.21 before closing at 11970.47 in late hour selling pressure on news of likely collapse of a US hedge fund. This triggered panic sales and the broad based slide led to off loading in frontline stocks. They fell to scale down like nine pins and suffered sizeable losses within an hour with over 237 points volatility during the day. This sudden fall broke the ongoing six weeks winning streak and created a sense of panic among marketmen and investors at large. In view of this it was taken for granted that the market will decline further the next day. The Sensex hit a low of 11833.61 within a narrow range of bouts of buying and selling on Wednesday, 20th September’06 with the Sensex sometimes in the red and sometimes in the black confused the day traders about the overall direction of the market. But the late hour sudden sharp recovery astonished everyone. With traders rushing to cover their short positions thereafter resulted in nearly 300 points gain from the intra-day low of 11833.61 and hit a high of 12128.99 before closing at 12109.14. This led enabling the BSE Sensex to close again above 12K with a comfortable margin. All pivotals stocks with the exception of a few gained smartly led by ONGC, which announced a liberal dividend of 200% on the back of bonus prospects. ONGC smartly rose from Rs.1152 to as high as Rs.1183 before closing at Rs.1175. Banking stocks were in heavy demand. Almost all private bank stocks witnessed moderate to heavy demand. HDFC rose from Rs.1348 to Rs.1374, ICICI from Rs.646 to Rs.651, Oriental Bank Rs.225 to Rs.231, Bank of India, BOB, Punjab National Bank all closed in the positive territory. Besides Bajaj Auto & Hero Honda among wheelers coupled with M&M, Maruti Udyog and Tata Motors from the 4-wheelers segment also witnessed good demand closing in positive territory. Steel and Cement however, displayed resistance to move up. Shares from the B1 & B2 categories like Bajaj Electricals, India Bulls, ANG Auto, EL Forge were the star performers. Bears who had staged a comeback on news of a US-based hedge fund collapsing learnt a very bitter lesson with the market bouncing back with a gain of 139 points the next day on 20th September, 165 points on 21st September at 12275. One may recall that I had very firmly stated in the earlier issues that the overall market trend is quite bullish and it would be a big mistake to take a short-term view when the market makes a retreat. Actually speaking, retracement and retreat is a process of adjustment as the market price of certain stocks, which had risen sharply, level out. But this does not mean that the market has turned bearish. If we look at the broad fundamentals and macro economic signals, we will see that there are strong bullish reasons each day about the economy recording staging for a robust growth. Rising crude oil prices, which was one of the biggest hurdles for the economy, has turned favourable with crude prices tumbling from the high of US $78 per barrel to hit a low of US $60 per barrel thus losing nearly 25% in a short period of 2 months. The GDP growth is heading towards an all time high of 8% with the expectation to hit 9%. Corporate Advance Tax payment is up by 30% for the second successive quarter. Industrial output is up. Tax collection for both direct & indirect taxes is up by 25% to 30%, which will help the government heave a sigh of relief. Exports are up. Corporate performance in the 2nd quarter is also forecast to be positive. So what could pose a problem to prevent the stock market from rallying further? Metals, like Aluminium, Copper and Zinc together with bullion prices are tumbling providing liquidity to the corporate and banking sectors. The US Federal Reserve, too, has kept its interest rate unchanged. Inflation is within a comfortable range at 5%. So, everything is positive. Any panic in the market for any reason, like what happened in May’06, should be taken as a boon in disguise as is the case right now. Those who braved to buy stocks then are now reaping a good harvest. Readers might be aware that a few months back I had recommended Escorts Ltd. at Rs.80-82 in the issue dated March 27–April 2, with the broad headline ‘Escorts Ltd. to hit Rs.100 mark’. The Escorts stock has not only hit the target price of Rs.100 but has also shot up as high as Rs.125 last week gaining more than 50% in just 6 months. Readers must realize that recommendations made in Money Times are watched by big operators who select a stock based on our recommendation and develop a strategy to corner large quantities at low cost. For this, they sell the stock first to bring down its price and make the stock look unworthy at the time of recommendation. Weak holders then unload the scrip and short-term traders gave it a go by, as there is no immediate appreciation. This helps these operators’ corner quantities to take a position after a few weeks. Similarly, I had recommended an unknown stock, EL Forge Ltd. in the issue dated August 14-20 at Rs.90. It was a star performer last week rising by 35% in just two sessions on 19th & 20th September and hit an upper circuit of 20% on 19th September. The pink papers have started recommending these stocks now stating that Escorts’ Tractor Division is doing extremely well while EL Forge is in the news for buying out a forging unit overseas. All this information was already provided by Money Times well ahead of the financial papers. But the fireworks were only after the stocks had already risen early. [Edited Version]

My Additions:

In my view please keep an eye on Cement, Construction ( only select mid and small caps only), Breweries(liquor companies), Tea, Pharmaceutical, Dyes & Chemicals, Petro-chemicals and Engineering and Capital Good sectors only. Banking could take a further momentum if the inflation goes down further.

My recent recommendation on Tilaknagar Industries Ltd and Avon Organics Ltd are surely to give good returns to the investors. Tilaknagar Industries Ltd already moved from Rs.44 to Rs.51 giving handsome gains to the investors. The stock is now consolidating and should move up further if the bull run continues.

Tilaknagar Industries Ltd:(Upadtes)

Please be informed that (For Tilaknagar Industries Ltd) scrapping a deal with an overseas entity, from a remote West Indian country for something better does not make the stock look unattractive or throw it in the drain. A MoU cannot work if one of the partners is adament and only looks for his benefits only....Tilaknagar has lot of Understanding (or u can say tie-ups) with many Indian Liquor firms and they are giving this company good support....The problem is that like Avon Organics Ltd its corporate communications cell is not able to highlights the good works done in the company...or else its price would have been at par with the price of G M Breweries, who are also in the same business. Look at the balance sheet of the company and u will understand what I am saying, though many times stock does not rise even if the fundamental of a company are strong and vice versa (Look at how Patni Computers Ltd rallied, even it posted losses in the last quarter).....According to the sources this scrapping is for the betterment of the company and its effects will be "Positive and not Negative". Also its JV with Radico Khaitan and some other liquor companies are giving them huge dividends. They have started to get the benefits of the rights issue proceeds. The company is looking at some more Joint Ventures with overseas entities and at least one of them is on the anvil. The details of this has not been thrashed out.... Further, I am awaiting their Annual Report (FY-2005-06)...My view is that the stock of a Company with such potentials should not quote below Rs.50. The operators are now selling the stock to make it look "un-attractive" and will start picking as soon as it reaches near their targeted buying price....Last time also they did the same at Rs.45--Rs.46.5, range when many sold it and are now regretting....Please remove the Stop loss from this scrip except that it goes below Rs.37, in any major crash.....

One of the noted analyst on www.valuenotes.com has put a price target of more than Rs.100. I will again put the research report on this blog and circulate to the Yahoo groups for the benefits of the readers--as many has asked for the same ( original one and not the abriged one). It is no use investing and tracking 100s of companies. It will be good if one tracks 40--50 good companies and invest in them systematically on any decline following rupee cost averaging method. Those who have done that in Chandra Prabhu International Ltd and some of my picks are now "Cash-positive" on that counter. Have long term view on any investment in the stock market and try to diversify ur portfolio---that is do not invest too much money in one counter.....

My earlier recommended Pick Hazoor Media and Power Ltd is still rocking. In the short term it could reach Rs.23. But please sell some of ur holdings and only keep some for any Unexpected move beyond Rs.23.

The Research Report on Avon Organics Ltd follows........The stock is trading much below its Book Value and should do well due to massive restruction and expansion process taking place in the company. The stock is also highly liquid and the molasses prices are expected to fall further due to Rumours that RIL which was earlier picking up Molasses from the open market (making its price surge to newer levels), is now thinking of going through Ethanol route for its di-ketene plant. This is in addition to the fall expected due to fall in sugar prices.

My another earlier recommended pick hit the buyer freeze on Friday I will mention the name on Monday morning, the name of that scrip unless the Internet plays traunt....

Best wishes,

Suman Mukherjee

India.

www.bcozindia.com