WINNING STROKES: THINK DIFFERENT:

Crude Oil as mentioned yesterday crashes below $120 per barrel, which sparks a rally in the Indian Bourses. The Crude is gradually inching towards my target of $110 per barrel set a couple of months back: That South Indian Construction company whose name I mentioned yesterday in this blog, hit the buyer freeze today. An interesting fact is that, I today got information from the sources that it has huge order book position (the name has been disclosed to the Paid Groups) and is slated to cross Rs.100 in the next few months: The Paid Members would know about the order book position by next Sunday: Another construction company, Unitech Ltd also rose to dizzy heithts: Southern Online Bio Technologies Ltd came out with wonderful set of numbers which pushed the scrip to the circuit price: Sahyadri Industries Ltd hit the third consecutive buyer freeze: My recommended Crest Animation Studios Ltd (Which is into 3D Animation and having worldwide distributorship) hit the buyer freeze. The company has highly sophisticated studios for making animation films. The company has tied up with a US Firm to produce 3 (three) top class animation films within the next couple of years. The company has also restructured its opertions in the last few months. The Work on the first feature film in Co-production with Lions Gate titled “Alpha & Omega” is on schedule and is progressing smoothly. The Company has shifted its focus of operations to cater primarily to the subsidiary’s feature film production and other co-production opportunities. Consequently, future cash flows will mainly be determined by film production contracts of the subsidiary. Presently there are Multiple contracts at various stages ofnegotiations: My Refnol and Resins Ltd which came out with wonderful set of numbers in FY08 nearly hit the second buyer freeze before cooling down: Kamanwala Housing and Construction Ltd hit the second consecutive buyer freeze: Sathavhana Ispat Ltd and UB Engineering Ltd tanked sell calls were given to the Paid members: Ennore Coke Ltd moved ahead in the initial trade on the news of completion of the work of 1st push rail project. The steam turbines for the Co-generation Power Plant has come and they would be fitted as soon as the steam starts getting generated from the heat of Coke Project. The company is coming up with an AGM on 15th September, 2008. I am told Ennore Coke Ltd came out with decent numbers for the Q1FY08, but I am yet to get the figures from my sources. If the figures are good then the stock could give rise to an intermittant rally. Hence remain invested: JSW Holdings have started to hit the buyer freeze and hence we could expect BNK Capital Markets to do well in the days to come as both are holding companies: My recommended BF Utilities and Jolly Boards hit some more buyer freeze to trade above Rs.2000 and Rs.3000 respectively: No one is buying Premier Explosives Ltd before the Q1FY08 and when the Indo-US nuclear deal is fast forwarded. This stock could spring surprises in the days to come: Now everybody has started chanting the same mantra that the markets will rise higher and higher, but when I said in the last month that the markets would rally in the month of August, few investors/traders, believed me!!!

Mkts forming bottom; may consolidate further: Alchemy

Vaidyanathan said the market is in a bottom formation stage and is still to consolidate further. He sees one or two more rate hikes by the RBI. He added that this is a market to pick individual stocks.

According to Vaidyanathan, when markets are trying to form a bottom, they are trying to factor in all the bad news as much as possible. He said, "Unless there is something completely disastrous out there that has not been factored in then you could possibly see the market go further below. We are not in the secular trend this way, we will keep moving back and forth in this range. At 12,500 levels, you saw decent amount of volume, a lot of buying interest, which for the moment defines a good bottom."

Excerpts from exclusive interview with KN Vaidyanathan, CEO of Alchemy Capital Management:

Q: We have seen the market improve in July, what is your thought for August and September?

A: The market has not just improved; India was possibly one of the best performing markets. It was the third better performing market for the past month. It reflects two things; one is positive which is commodities and oil having come off the highs. That augurs well for India. Second is a promise that having won the Trust Vote, there would be some kind of reforms initiated. There are talks about reforms through the executive and announcements around 3G. So, India is kind of factoring in that, which is possibly why over the past few days even though global markets have remained choppy, we have kind of inched up.

This is not a clear sign of trend reversal in the market. You are in the midst of a relief rally, which could take us a little further. It will be based on oil and any further announcements of reforms that in financial services sector.

August-September will be a part of that relief rally period where certain stocks may run a little ahead of the market. But overall, we are still in the bottom formation, consolidation phase. We should not run ahead of that for the next couple of months.

Q: It is conceivable in your eyes that once this relief rally peters out; you could actually go and retest the kind of levels from which we moved up from?

A: Certain events have facilitated the Indian markets like oil, which is a dominant item. Having said that inflation and interest rates are still high. You could possibly see another one-two rounds of interest rate hike in this market.

How do markets behave when they are trying to form a bottom? They are trying to factor in all the bad news as much as possible. If the current trend is an indication, the bottom that we saw last time and volumes coming to the market is the respectable bottom formation for the market. Unless there is something completely disastrous out there that has not been factored in then you could possibly see the market go further below. We are not in the secular trend this way, we will keep moving back and forth in this range. At 12,500 levels, you saw decent amount of volume, a lot of buying interest, which for the moment defines a good bottom.

Q: Do you expect the trend of the last couple of days to continue going forward, which is mid-caps and small-caps outperforming large-cap peers or do you think it is just a factor of sentiment and poor absence of institutional liquidity?

A: Institutional liquidity is the determining factor. Normally when you have something like this, the institutional liquidity drives the large-caps up which you have not seen as yet and therefore the large-caps have not moved much. One needs to keep in mind a couple of things when one looks into mid-caps, positive and negative. The mid-cap index returned for 28% Q1 growth in profit after tax (PAT) against the Sensex and Nifty of about 17-18%. About 22-23% of the mid-cap is the PSU bank sector, which is holding a lot of promise on the back of expected reforms in the sector.

There is some level of buying interest rate but if you flip that over it is also a segment where little volumes can drive up fairly. It is a segment, which saw a huge beating down especially in the real estate sector; incremental marginal buying can take it. This is kind of trend indication, lack of liquidity on the large-cap is highlighting the activity on the mid-cap much more.

Q: What is your own take on this ‘sell commodities buy equities trade’, which a lot of people are talking about globally? Do you think it is a sustainable trade, do you think it is the end of the commodity cycle, which augurs well for or heralds the return of equities? A: If you take the argument that you have seen some kind of a bottom formation then you are back to a stock pickers market. It is not market buying, it is a specific stock buying market. If you know the stock you want, the price at which you want to buy it this is possibly a market, which is giving you some of those opportunities. For example, if I use our own firm as a case study, we went from 30% cash in March to about 45-47% cash in early June and we are now down to about 33-34% cash. So, we have invested about 13-14% over the past month. But our investment is driven by bottom up stocks. It is not early enough to make a call, sell commodities, and buy equities because it is not the broad trend. But certainly it is a market that is giving you some opportunity to buy the stocks you like, which you think can survive the next twelve-eighteen months of difficult period in the economic front at the price at which you want.

Some of these prices are incorporating the valuation hits that the overall market is seeing and the bad news that already factored in. This is a market to pick individual stocks; it is still too early to play because volatility is not out of the window.

Q: Many of the triggers are out of the way for a few months, earnings are done, politics seems like it is done and we won’t have a monetary policy too for a while. How do you think global factors will nudge us over the next few weeks because we will probably be hostage to them now?

A: There are two-three things, both globally and locally. One cannot discount the local factors completely. On the local factor, two weeks ago monsoon was seen as a potential big problem, you had some rains over the past couple of weeks. Now we will need to wait for the next couple of weeks to say that either it is out of the way or it is back in there. If it is back in there, you will import inflation, if it is out of the way that is good news for the local market.

On the global side, the movement in oil price has given a lot of hope. Tonight in the US you are going to have the Federa Open Market Committee (FOMC); our own take is that while the tone maybe pretty hawkish and underlying with rise in inflation, it would remain unchanged. There are some positives because of oil out there. You still have the US market struggling because the fulcrum of that market is the housing thing. Till that problem is resolved and there is no easy answer, you will keep having global turmoil.

Europe is now catching up on the problem index, so all of these will determine capital flows coming into emerging markets. But if you dissect it differently till about a month ago, India and china were out of favour and Brazil and Russia were in favour because of this big commodity run and those markets are giving way. We are not back in favour, you are coming out of favour to neutral before you come back into favour. The problems are known, the uncertainty now is about monsoon and the other thing is when the election would be. The market will kind of factor these in a range that will play out over the next about six-nine months.