Take advantage of the Bear Phase: By G. S. Roongta

The stock markets continued to reel in the bear phase that enveloped them ever since the presentation of the Union Budget on 28th February 2007. Not only did cement stocks suffer the most as a result of the dual excise policy announced to indirectly control cement prices but also stocks from related sectors like steel, infrastructure, construction and real estate have been badly hammered down since then. The general consensus in the market is that the ruling UPA government is under great pressure for its survival after the unexpected defeat it suffered in the recent assembly elections in Punjab and Uttrakhand. Party analysts lay the blame at the door of inflation and rising prices ushered in by the liberal policies of the government. It has, therefore, no option but to check its liberal policies and adopt some popular measures, which its Left allies had been clamouring for. This is significant as UP, the largest state, is due to hold assembly elections and the Congress party, the dominant faction of the UPA government, if far from confident of winning UP with a majority. And if it fares badly in UP there is every possibility that the UPA government will be compelled to call for a general election before completing its term at the Centre. This is indeed very discomforting but cannot be overlooked, as it is the chief cause of worry in the stock markets today. Stock markets are always carried away by future events and react to future happenings much before they occur. So is the case with the present market behaviour, which has become a victim of the political environment going against the ruling alliance rather than any economic factor that justifies the current negative outlook. This great uncertainty on the political front has overshadowed the robust GDP growth of over 9%, the ever rising forex reserves, Indian exports achieving global competency levels, tax collections at a record high and industrial production, which had fallen to nearly 4% staging a smart recovery at over 12%. From this, it is fairly evident that the hard work of the nation as reflected in the economic indicators is totally overshadowed by a cloud of political gloom. The recent rise in inflation rate to 6% and the sharp credit off-take despite rising interest rates together with the mortgage failures in the US economy are the worrisome economic factors that have now surfaced after underlying political factors took center stage. Previously, the markets used to shiver on rise in crude oil prices but now it is inflation, which is the bugbear. However, these are bubbles, which come and go and investors should not miss the opportunity to pick up fundamentally good stocks, which they could not earlier due to the runaway share prices and had regretted missing them. The stock market keeps on providing opportunities both for buying cheap and selling dear but only those can take advantage who do not indulge in excesses on either side. Otherwise they will keep on waiting for prices to drop further and fail to buy a stock or wait for it to go even higher and lose a good opportunity to book profit. The greed and fear can neutralize all rational thinking and kill great opportunities of money making. One should, therefore, not give into greed or fear and have the courage to take position in a market based on one’s convictions and fundamental study. Stocks that have already lost more than 20% on an average and beyond 30%-40% in some specific cases are the best stocks to re-enter as the worst seems to have discounted in them. Cement, steel, automobiles, shipping, engineering, capital goods, power, paper and infrastructure are some sectors that will continue to keep their growth pace in tact. Investors must do their exercise to select stocks from these sectors that have been badly beaten down but have fundamentally qualifies to bounce back. In the cement sector, market leader, ACC has nosedived from a high of Rs.1192 to Rs.730 i.e. over 460 points and provides an excellent opportunity for growth with a minimum 5%-10% risk of a further downward slide. Thus while the risk is marginal the rewards in this stock are very promising. So is the case with other cement stocks including India Cement, Shree Cements, JK Lakshmi Cement etc., which have been hammered down to their lowest levels and any further fall looks quite unlikely or marginal at the most. Textile stocks, too, have suffered despite the dual benefit of reduction in custom duty on imported raw materials and lowering of excise duty on finished products such a yarn, fabrics and garments. Stocks like Arvind Mills, Alok Inds., Raymonds, Shri Dinesh Mills, which come under the integrated textile stocks are the best picks while stocks like JBF Inds., Banswara Synthetics, Priyadarshini Spg. Mills and Suryalata Spg. are a few yarn spinners available much below the price that their stocks deserve. The textile industry is far too big and widely spread out with backward and forward processes among thousands of small and medium textile processes. The steel sector, which was also the victim of government policies two years back after it reduced customs duty on imported steel and withdrew other concessions like in the present case of cement, is also a promising sector having overcome all hurdles. Tata Steel, SAIL, Essar Steel, Ispat Inds., Modern Steels, Raipur Alloys are some of the steel stocks that appear highly underpriced looking at their respective size and growth potential. Again, since steel companies comprise of hundreds of units, investors must investigate and pick up good stocks of their choice. My preference for the above steel stocks has been enumerated over several articles and I prefer Modern Steels, which paid 25% dividend and has an EPS of Rs.25. its future earnings and growth is discounted by less then 2 times by its current market price of Rs.52. Similar picks can be found in the other sectors identified above and readers must refer to my earlier articles or pick stocks, which have recently suffered without any loss in their working efficiencies. The present market scenario is such that all stocks have been beaten by the same stick despite their differing strengths and potential – a case where quality and quantity is measured as equals! It is not doubt sad for me to go through the long list of stock which have hit their 52-weeks low and in some cases even below it while the rest are discounted between 20%-50% of their peak prices in a matter of just 12 trading sessions since the presentation of the budget. It is difficult to say precisely whether the weakening sentiment is due to the budget proposals or the political environment. Both are rapidly changing and would continue to do so and one must not confuse the corrective phase than the underlying long-term bullish sentiment that continues.

Important News:

09/03/2007-->Alfa Transformers to open new unit near Nasik Alfa Transformers' members have approved setting up an another unit at Dindori, near Nasik, Maharashtra.The new unit will manufacture single phase distribution transformers. 12/03/2007-->Flawless Diamond bags order worth Rs 32 crore Flawless Diamond India has received repeat order from Diva Diam Hong Kong worth Rs 17 crore and from Malay Impex Hong Kong worth Rs 15 crore for its AUM Jewellery Collection.Recently, company launched its own exclusive outlets in Mumbai. This is the part of company's first phase expansion plan of opening up 25 outlets. 14/03/2007-->Dabur to set up arm for retail Consumer goods company Dabur India today announced plans to enter the fast growing organised retail sector in India. The company will set up a wholly owned subsidiary H&B Stores through which it will execute its retail plans. According to a notice sent to the Bombay Stock Exchange, Dabur will invest Rs 140 crore by 2010 into its retail venture. These will be a chain of health & beauty stores and the company plans to roll out 350 outlets over the first five years. V C Burman, chairman, Dabur India said, 'Retail is the next big focus area for Dabur India. H&B Stores plans to set up 350 retail stores across India in 5 years and expand it to over 1,000 stores by its 10th year of operation.' The stores will range from 1,500 sq ft to 6,000 sq ft in size and will be modelled along international formats. The company has rolled in three senior professionals for its new venture. It said that the expatriates have retail experience of more than 25 years each in fields like merchandising, store design and sourcing. The company already runs a chain of ayurvedic stores Dabur Ayurvedic Centres. The Board of Directors today also announced an interim dividend of 75 per cent for 2006-07 on the enhanced capital (post-Bonus issue). The total dividend for 2006-07 on the pre-bonus capital is 213 per cent. 14/03/2007-->Hotel Leela venture declares 15% dividend Hotel Leela venture's board at the meeting held on 14 March 2007, declared an interim dividend of 15%.Further, the board approved the proposal to raise $ 110 million by issuing securities, including foreign currency convertible bonds. 15/03/2007--->Banswara Syntex bags an export order On 15 March 2007, Banswara Syntex received an export order worth Rs 20 crore to be executed in three months. 15/03/2007-->Gujarat Borosil to set up glass project Gujarat Borosil's board will meet on 16 March 2007, to consider setting up of a figured glass project at Govali, Gujarat.This project will be located adjacent to the existing sheet glass plant of the company. 15/03/2007-->Nicco Corporation Ltd. Nicco Corporation Ltd has informed BSE that a meeting of the Committee of Directors (CoD) of the Company will be held on March 21, 2007 to consider Preferential Allotment of 4,54,54,545 Equity Shares of Rs 2/- each at par, to six strategic Investors in accordance with the Scheme of Arrangement for Re-Organisation of the Share Capital of the Company as approved by the Hon'ble High Court at Calcutta under the provisions of sections 391 and 394 of the Companies Act, 1956 vide Order dated August 02, 2006 by way of conversion of Optionally Convertible Cumulative Preference Shares (OCCPs) of Rs 22/- each into Equity Shares of the Company. 16/03/2007-->Garnet Construction to raise $ 60 million On 12 March 2007, Garnet Construction's members approved to increase the authorised share capital to 5.80 crore.Further, the members approved to raised $ 60 million by way of issuing various securities through different modes available to the company. 16/03/2007-->Morepen Labs to issue equity shares, warrants On 15 March 2007, Morepen Laboratories' board approved to allot equity share worth Rs 150 crore to Avenue Asia Fund and to raise Rs 100 crore by way of debt from an international bank (new investors).Accordingly, the board approved to issue convertible warrants to new investors. Meanwhile, the board also approved issue of equity shares worth Rs 17 crore to existing banks/financial institutions as part of settlement package.Further, the board accorded to issue 0.01% optionally convertible preference shares worth Rs 90 crore to banks/financial institutions/existing shareholders as part of settlement package. The above arrangements were considered for settling debts, capital expenditure and working capital of the company. 17/03/2007-->PBA Infra bags contract worth Rs 28 crore PBA Infrastructure has bagged two contracts from Brihanmumbai Mahanagarpalika, Mumbai.The first contract is for repairing side strips of the roads and allied works in M/west ward. The contract is worth Rs 8.45 crore.The second contract is for repairing roads in S and T ward. The contract is worth Rs 20,08,30,000.