Sunday, August 05, 2007


Indian stock market update 05 August 2007

Normally I don't update within a day of a previous post given that the market will have been closed and there is no change in stock positions over the week; however, I am somewhat worried over what I have read so far in the past 2 days.
Now, for the current rise of the Indian market, there are several reasons, all happening at the same time. India is finally growing, with a good >9 % rate, next only to China; there is a massive amount of money pouring in from FII's who want to get into a good market and this money in turn is also being sourced from some hedge funds; there are more people in the Indian retail market who want to invest, either directly or through Mutual Funds; and even with political warts, scandals, left pressure, the Government is overall shepherding the economy towards more openness and greater role of the private sector.
Having said all that, all of the above factors will be true except for the factor about funds brought in by the FII's. The sub-prime collapse in the US market, which is also impacting funds held by banks and hedge funds due to the inter-connectedness of the complex financial instruments in the US, is likely to suck out the liquidity in the market for some time. People are worried about where this will go to. Now, the movement could be purely localized in the sense that some firms holding sub-prime mortgages in the US market could go under, but overall money flows continue. Or, things could go haywire and with the inter-connectedness of the global markets, the quick upward march of the Indian market would stall or go onto decline. Most people are predicting that Monday will see a further fall in the Indian market due to the decline of the Dow Jones on Friday, in a continued impact of the sub-prime scandal.
Now what do I believe in ? The India growth story is real, but so is the reality of the liquidity driving the market movements. Maybe a time to hold, and if falling, and if willing to take a risk, to buy fundamentally strong companies such as Reliance, Bharti and Pantaloon that have fallen. I am waiting to decide on Infosys, so not targeting that now. But, the basic mandate would be to be careful and not get excited by stocks falling in anticipation of buying more.
A risky area that I am looking at (and have bought some of) is the area of green technologies and carbon credits, so have bought some of Praj Industries, SRF, and Navine Fluorine. All risky buys except for Praj, which is slightly better. I would be looking at more companies that are getting into the green area, since that should be a good growth area in the future.

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