Systematic Investment – A perspective

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The Indian markets took a severe beating last year. Valuation benchmarks were so distorted that even penny stocks began to look respectable in comparison. So how do you get the juice and avoid the dregs? Remember that the financial crisis, like Swine flu, came from foreign shores. So avoid stocks with global linkages, mostly. Go for companies that feed off domestic demand. Thus, the prospects for automobile companies may look better if they continue to get access to cheap raw material. But that may not be the case for metal and oil suppliers, who still suffer the overhang of poor prices globally. We think four themes Act as superb filters to get to the cream. Within these four themes, we have picked companies that have high return on capital employed, profit and revenue growth along with a strong connection to the domestic market. This is by no means an exhaustive list. In our judgment, the companies we’ve selected exemplify the kind of plays investors will benefit from. There may well be several other stocks among the 4,000-odd listed companies that could qualify to be selected under each of these categories. Our list is designed to offer a variety of opportunities for both the long-term value investor as well as those with a slightly higher risk appetite. http://www.ganeshaspeaks.com/fortunemantra.jsp

The Consumer Play Between 2000 and 2008, nearly a third of the incremental expenditure came from the middle class. Their non-food expenditure rose 70 percent, while expenditure on education doubled. In these years, as per capita income rose80 percent, Indians so increased their expenses by nearly the same degree. The same theme will play out in the coming years. The five broad areas to look for companies are: food, essential non-food, education, healthcare (lifestyle) and discretionary expenditure that will include consumer durables and automobiles. Strategy : Buy it, stash it and have a good night’s sleep. Page Industries : A small company that makes a small product with big margins: male underwear. This Rs. 200-crore company makesthe Jockey brand and has a net margin of 12 percent and ROCE of 36 percent. The company has effectively positioned its brand in a largely unbranded and unorganised Rs. 900 crore innerwear market. The company is worth a little over $100 million — cheap to even buy as an ongoing business for global competitors http://www.ganeshaspeaks.com/fortunemantra.jsp

Pidilite Industries : Pidilite has brands like Fevicol, M-Seal, car polish Motomax and other assorted consumer art materials and specialised home paints. The three brands are also clear market leaders in their category. The company is available at a market capitalisation of 1.6 times its sales. With a sales growth rate of more than 22 percent for the last five years, there is a lot of steam left as its brands touch fast-growing areas like education, home décor and automobiles. Dabur: This company has focus. Five years ago, Dabur got out of the pharmaceutical business and put all its effort, like the best brand companies, behind five of its brands. Since then, its ROCE has consistently remained above 50 percent. It touched 80 percent in 2008. Dabur strategy of focussing on health foods like fruit juices sold under its Real brand is starting to pay dividends. Procter and Gamble Hygiene: Over the last three years, the money that P&G invested did not translate into market cap gains. The worm has now turned. Its feminine hygiene line, Whisper, grew at 21 percent and is also the categor y leader in value terms.. Its ROCE, which started dipping since 2006, has again picked up indicating that its new investments are now paying dividends. The stock is trading at its three years highs but is still priced 20 percent below its peers. http://www.ganeshaspeaks.com/fortunemantra.jsp

Marico : Till 2008-09 came by, the company’s sales and profits had grown for 30 consecutive quarters, indicating a stable track record. Over the last five years, the company averaged a 20 percent growth in sales and profits. It recently launched its Saffola range of food products, which is expected to give the company its next round of growth. The stock looks fully priced but its international business and Kaya Skin Clinics have started to deliver returns. Analysts expect these businesses to expand rapidly in the coming years. Risk: People love this sector when the chips are down. But when bulls are roaming the streets, returns from this sector fall. These stocks have higher valuations than the general market, making them look expensive. http://www.ganeshaspeaks.com/fortunemantra.jsp Company EPS PE Ratio(%) Stock Prize 52 Week High/low Dabur 3 26 122 141/60 Marico 2 24 86.90 93/47 P&G Hygiene 37 19 1020 1090/650 Page Industries 20 17 629 700/300 Pidilite Industries 7 20 148 152/75

The Infrastructure Play India needs new roads, ports, airports, railway lines and huge amounts of power. Apart from steel and cement, there are several ancillary plays as well. For instance, warehouse network will be needed along the roads and near ports. As more small towns get connected to big cities through roads, vehicle sales will benefit. Strategy : Not good for paying school fees; great for college education kitty. Blue Star: Two decades to reach Rs. 1,000 crore in sales; two years to reach Rs. 2,000 crore in 2008. Non-core businesses are gone and 90 percent of revenues come from refrigeration and cooling products. It’s almost debt-free with an ROCE of over 50 percent. Growing demand for cold storage, outsourcing outfits and other commercial offices in Tier II cities put the estimated non-residential demand for air conditioning at Rs. 38,000 crore http://www.ganeshaspeaks.com/fortunemantra.jsp

BHEL: For 2009-10, the company is increasing its capacity from 10 GW to 15 GW. Capacity additions are ahead of schedule. The slowdown in the global economy has brought down input costs significantly. The company has also taken control of its salary costs that were eroding its profit margins. BHEL will be among the top beneficiaries as India begins to add 20,000 MW of generation capacity each year for the next five years.Power Finance Corporation: At about 25 percent, the company’s net profit margin is close to what the best software companies earn at half their price-to-earnings ratio. This public sector company also enjoys the preferred lender status for all the mega power projects in the country. Its employee expenses are just 1 percent of sales. Mahindra & Mahindra: Rural India is earning well because of infrastructure boom. M&M’s SUVs are selling briskly and its market share in the SUV space has gone from 51 percent to 57 percent in the last two years. A week after Xylo was launched, M&M received 9,000 bookings, or one-fifth of its annual SUV sales. The stock may be fully priced now but the upshot comes from prosperity in the hinterland that better infrastructure will bring. http://www.ganeshaspeaks.com/fortunemantra.jsp

Allcargo Global Logistics : This stock was one of the earliest to recover after it fell dramatically in October. It has already recovered all the lost ground as the company managed to keep its net profits margin above 15 percent. The stock is available at a P/E of 17 on trailing earnings, just as expensive as the broad market. Allcargo, a complete logistics provider, is positioned well to exploitthe projected 17 percent in port traffic and the increasing trend of outsourcing of logistics by manufacturing Companies. Risk: Long payback periods are par for the course in infrastructure. As a result, earnings in the near term could be depressed, often in proportion to the borrowed funds. If costs of funds go up, returns could diminish. In some cases, regulatory glitches can also slow down the process as is the case with mega power plants coming up in Uttar Pradesh. http://www.ganeshaspeaks.com/fortunemantra.jsp Company EPS PE Ratio(%) Stock Prize 52 Week High/low Allcargo Global 41 19 795 950/272 BHEL 56 35 2329 2405/984 Blue Star 18 15 346 433/122 M & M 45 25 823 942/236 Power Fin Corp. 10 17 240 250/86

The Liberalisation Play Government moves out, lets in private capital, it works more efficiently and delivers great returns. That’s liberalisation. The new government has the mandate to open up sectors like banking, insurance, retail and airlines to private investors. When it does, be there. Strategy: Simply select the best performers in these sectors Crisil : The 800-pound gorilla of rating agencies, it rates 1,000 firms today. If the financial sector is liberalised, that number could go up to 10,000. Crisil has retained earnings of 75 percent with an ROCE of 42 percent. It is the fourth largest credit rating agency in the world. http://www.ganeshaspeaks.com/fortunemantra.jsp

ICRA: There is room for both Crisil and ICRA in the space. At Rs. 788, the company is getting close to its 52-week high of Rs. 900. But the number doesn’t capture the potential arising from RBI’s new rule that all debt products be rated. HDFC Bank: A cautious and solid bank, it is safe because its governmentbond holdings are 3 percent over the statutory liquidity ratio (SLR) requirement. Fiscal liberalisation will benefit this bank because it is in a position to scale up quickly. At Rs. 1,569, the price looks steep based on 2009-10 P/E multiple of 4. This is very much the stock for those who like conservative growth. Kingfisher Airlines : The company has a debt-equity ratio of 3:1. And it makes losses. If foreign capital is allowed, you can be sure of one thing: Vijay Mallya will make sure Kingfisher gets it. That will make life a lot easier for the airline. Oracle Financial: It suffered when Foreign banks went broke. But its earnings jumped 77 percent and revenues rose 23 percent in 2008-09. As its clients come off the ventilator, they will need to be rewired. Oracle Financial will be waiting. http://www.ganeshaspeaks.com/fortunemantra.jsp

Risk: The ambiguity of regulatory changes, however, gives them some additional risk. Given that US banks have behaved so badly, it is going to be hard for government to liberalise the financial sector. http://www.ganeshaspeaks.com/fortunemantra.jsp Company EPS PE Ratio(%) Stock Prize 52 Week High/low CRISIL 178 16 3740 4375/1848 HDFC BANK 43 29 1457 1580/774 ICRA 25 22 931 939/320 KINGFISHER AIR 0 0 47 93/22 ORACLE FINANCE 49 15 1791 1826/405

The Vulture Play These stocks have fallen like there’s no bottom. But the levels at which they are trading offer huge opportunities. Strategy: Buy on rumours and sell on news. Suzlon: Debt is high and so are the receivables. But Tulsi Tanti is willing to dilute his stake and meet commitments. If US President Barack Obama backs energy generation from green sources, Suzlon’s 5 MW wind turbines will be hot. The stock has gained nearly 300 ercent since the time it fell to Rs. 35. Ranbaxy: The last 12 months have been bad. Sales are down, research hasn’t paid off and US FDA is after it for manufacturing lapses. But the new Japanese owner Daiichi Sankyo has had great successes in research and working with the FDA. Expect them to put Ranbaxy back on an even keel. NIIT: As IT crashed so did the IT trainer. Its stock fell 85 percent to Rs. 14. But it is moving beyond IT and is training professionals for banking jobs. The amount spent on education doubled in the ast five years and NIIT grew twice as fast, quadrupling its top line. The stock has recovered to half its 52-week high. http://www.ganeshaspeaks.com/fortunemantra.jsp

Wockhardt: Its core business is in fine fettle. Its problems are foreign loan repayments and derivative losses. Banks are taking over the company operations and Habil Khorakiwala has put some businesses on the block to pay off debtors. Wockhardt’s strong cash flow should return it to good health in two years. Hindalco: The acquisition of Novelis tripled Hindalco’s sales but caused an 11 percent decline in net profits. But aluminum prices are rising and credit is beginning to flow. Hindalco’s nine-month profits look nice. It now has the space to fix Novelis. Tricky but not impossible Risk: This one’s clearly a high risk strategy. There could be serious heart ache before the gains come. http://www.ganeshaspeaks.com/fortunemantra.jsp

"The markets seem to be on a downward path. I will invest only when they start turning positive". This is a standard argument given by most investors when asked to invest in a falling market. These investors believe that they could time the market to perfection and hence, investing in a falling market makes no sense. However, expert after expert has gone on to say that trying to time the market is a fool's game and should be avoided at all costs. The chart of the day laid out below further highlights the point. During the last ten year period, if an investor would have missed out the ten best days in the stockmarket, a sum of Rs 100,000 would have returned a puny Rs 133,592 as opposed to Rs 349,256 had he stayed fully invested. Even missing the two best days would have lowered his final figure by a significant 23%. The moral of the story is that it pays to remain invested for the long haul rather than trying to move in and out of markets in an attempt to try to time them. Chart of the day http://www.ganeshaspeaks.com/fortunemantra.jsp

Dollar V/s Sensex relation http://www.ganeshaspeaks.com/fortunemantra.jsp Date U.S. $ Sensex P.E. P.B. DIV % 3-Oct-08 46.88 12526.32 15.75 3.28 1.46 10 48.72 10527.85 13.44 2.80 1.71 17 48.68 9975.35 12.52 2.61 1.83 24 49.95 8701.07 10.63 2.25 2.12 31 49.25 9788.06 11.89 2.50 1.90 7-Nov-08 47.76 9964.29 12.35 2.58 1.84 14 49.46 9,385.42 11.80 2.46 1.93 21 50.03 8915.21 11.34 2.37 2.01 28 49.84 9092.72 11.62 2.43 1.96 5-Dec-08 49.69 8965.20 11.45 2.39 1.99 12 48.71 9690.07 12.32 2.57 1.85 19 47.08 10099.91 12.90 2.69 1.76 26 47.89 9328.92 11.96 2.50 1.90

Dollar V/s Sensex relation http://www.ganeshaspeaks.com/fortunemantra.jsp Date U.S. $ Sensex P.E. P.B. DIV % 02-Jan-09 48.89 9958.22 12.73 2.66 1.79 9 48.92 9406.47 12.00 2.51 1.89 16 48.77 9323.59 12.08 2.53 1.88 23 49.19 8674.35 11.88 2.38 2 30 47.6 9424.24 12.85 2.55 1.86 06-Feb-09 48.6 9300.86 12.92 2.52 1.88 13 48.72 9634.74 13.37 2.60 1.82 20 49.6251 8843.21 12.44 2.42 1.95 27 50.73 8891.61 12.55 2.44 1.94 06-Mar-09 51.51 8325.82 11.85 2.31 2.05 13 51.67 8756.61 11.81 2.30 2.06 20 50.14 8966.68 12.69 2.47 1.91 27 50.6454 10048.49 14.06 2.74 1.73

Dollar V/s Sensex relation http://www.ganeshaspeaks.com/fortunemantra.jsp Date U.S. $ Sensex P.E. P.B. DIV % 02-Apr-09 50.3 10,348.83 14.55 2.83 1.67 9 49.91 10,803.86 15.13 2.95 1.60 16 49.49 10,947.40 15.25 2.97 1.71 23 50.22 11,134.99 15.45 3.00 1.68 01-May-09 49.6736 Close 8 49.25 11876.43 16.51 3.13 1.59 15 49.55 12173.42 16.61 3.12 1.57 22 47.1099 13887.15 18.96 3.54 1.37 29 47.29 14625.25 19.87 3.67 1.30 05-Jun-09 47.08 15103.55 20.37 3.76 1.26 12 47.41 15237.94 20.43 3.77 1.26 19 48.13 14521.89 19.21 3.54 1.34 26 48.51 14764.64 19.48 3.51 1.32

Dollar V/s Sensex relation http://www.ganeshaspeaks.com/fortunemantra.jsp Date U.S. $ Sensex P.E. P.B. DIV % 03-Jul-09 47.99 14913.05 19.58 3.60 1.29 10 48.69 13504.22 17.79 3.27 1.42 17 48.69 14744.92 19.14 3.55 1.31 24 48.38 15378.96 20.01 3.71 1.25 31 48.16 15670.31 20.35 3.78 1.22 07-Aug-09 47.86 15160.24 19.69 3.66 1.26

In the previous slides we have seen that how dollar v/s rupee has an inversely opposite relation We have seen that on 13 Mar 09, dollar stands at 51.67 v/s Rs. and bse index is at 8756.61 and PE 11.81, PB 2.30, Div%2.06 During this point the dollar is at its highest peak level while sensex was touching new lows Similarly on 12 June 09, dollar was at 47.41 v/s Rs. and bse index at 15237.94 and PE 20.43, PB 3.77, Div% 1.26 During this point the dollar is at its lowest point while sensex was at its highest peak level Thus there is a difference of Rs. 4.26 from its lows to peak level and for sensex its 6481.33 points and PE 8.62 PB 1.47 Div % 0.80 http://www.ganeshaspeaks.com/fortunemantra.jsp

For past couple of weeks, markets have been subjected to wild swings for Reasons such as rising fiscal deficit, drought like situation, swine flu, etc. Every time market has reacted to such negative news but have recovered swiftly. At the same time rise get capped and market remain range bound. Market is looking for a trigger for a direction either up or down. Against this backdrop, take a look at chart below. Its a Dollar Index Chart and shows that Dollar is at its crucial support level. http://www.ganeshaspeaks.com/fortunemantra.jsp

Two things can happen - Dollar takes support and becomes stronger or Dollar does not hold on to support and breaks down. The immediate fall out is clear. If it becomes Stronger than Commodities may fall and so is the emerging markets. Remember, what happened in last Sept - Oct '08 period. Rupee depreciated sharply against Dollar and market tanked to below 10000 levels. We are at similar position but with a difference. To rescue its economy, US has been printing Dollar and it is widely published fact that Dollar will lose its shine. If that happens then it shall have cascading effect on all markets viz. currency, commodities and interest, emerging markets. If Rupee appreciates against Dollar, then you may see hugeFII inflow and with additional liquidity even interest rates shall also get subdued. Albeit this is short term view. Longer term market continue to get guided by fundamentals. For the time being, focus on Dollar and watch its impact on other markets. If Dollar remains where it is then markets shall get guided by local factors. http://www.ganeshaspeaks.com/fortunemantra.jsp

Effect Of Fii Investment On Indian Share Market http://www.ganeshaspeaks.com/fortunemantra.jsp

http://www.ganeshaspeaks.com/fortunemantra.jsp Year FII (in cr) DII (in cr) JAN -5173 3718 FEB -2833 2774 MAR -683 3951 APR 5580 -782 MAY 3886 -82 JUN -85 2633 JULY -1365 5819 AUG - 3495 4966 TOTAL -4168 22997

1992 = Old Economy Shares Instrumental For Bull Run 1999-2000 = Software Shares Instrumental For Bull Run 2005-2008 = Infrastructure and Real Asstet Instrumental For Bull Run 2010 = WHICH Sector Will be Instrumental For Bull Run? 1> Alternative Energy 2> Media & Entertainment 3> Oil and Gas http://www.ganeshaspeaks.com/fortunemantra.jsp

Alternative Energy http://www.ganeshaspeaks.com/fortunemantra.jsp Name of Company Face Value Prize 52 Week High/LOw Astra Microwave 2 83 96/33 Jyoti Ltd 10 39 64/25 Moser Baer 10 90 139/41 Solectron Ems India 10 41 105/18 Webel-sl Energy 10 329 333/44

Media & Entertainment http://www.ganeshaspeaks.com/fortunemantra.jsp Name of Company Face Value Prize 52 Week High/LOw Adlabs Films 5 336 532/130 Compact Disk India 10 68 76/25 Entertainment Network 10 210 315/93 HT Media 2 119 143/35 IBN 18 2 119 138/51 Jagran 2 107 111/40 NDTV 4 160 331/69 Prime Focus 10 197 451/51 TV Today 5 96 120/46 Tv 18 5 114 247/53 UTV Software 10 484 823/183

Oil & Gas http://www.ganeshaspeaks.com/fortunemantra.jsp Name of Company Face Value Prize 52 Week High/LOw Alphageo Ltd 10 255 403/69 Cairn India 10 260 273/88 Dolfin Offshore 10 277 314/105 Jindal Dilling & Industries 5 624 1515/225 Selan Exploration 10 303 324/100 Shivvani Oil & Gas 10 363 584/88

Systematic Investment – A perspective

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