Market strategy June 2008


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Market strategy : 

Market strategy A sound investment is your future

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SENSEX Market down by over 20 % in 2008. Where the market is heading in 2008 & 2009 ??? & How to play the situation.

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For solution let us understand the problem –Why the market fell down? Global Problem – Sub Prime. Increasing Oil Price. Political Uncertainty. High Inflation. High Interest rate. Pressure of corporate Margin. Over Valuation.

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In the last two decades structural shift has happened in global economy. Financial Economy which is supportive to Real economy had gained more importance and Real Economy became tail of financial economy because of high liquidity. Structure is re-correcting and correction is always painful. US $ 380bn already written off & still increasing. This is around 6 times FII inflow in India. Global Crisis

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Consistent secondary market sell off by FII since Nov-07 is Rs.71730Cr (US $17 bn). Total sell of FII in last 1 year was Rs.45600 Cr.

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Though the bull run was coincided by Oil price increase, recent unprecedented increase is unbearable. Even after price increase of Petrol, Diesel & LPG, Oil Subsidy at current crude price is Rs.185000 Cr or 3.5% of GDP. Along with Fertilizer subsidy of Rs.95000Cr, Farm Loan subsidy of Rs.71000Cr and fiscal deficit of Rs.133000Cr Total subsidy is 9% of GDP. In the previous years current account deficit was funded by capital inflow mainly portfolio investment. Oil is Boiling

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Corporate Performance Sales Growth PAT Growth

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EBITDA Margin PAT Margin

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Correction in over valuation

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Way Forward Oil price increase is not a problem but the pace at which it has increased in recent past is a problem. Demand for oil is driven by Asian Countries including China, India, Indonesia, Taiwan, Bangladesh, Pakistan, Sri Lanka, Middle East etc and all are providing subsidy. 60% of the incremental demand is coming from Emerging Countries. Recently Indonesia increased the prices by 29%, Taiwan 13%, Sri Lanka 14-47%, Bangladesh 37-80%, Malaysia 41-63%, India 10-12%. China not expected to raise price before Olympic. These price increase will definitely curtail demand and prices are expected to soften in near future. Post Sep2009 Cairn will be producing 200000 bbl/day around 20% of total requirement of India. Annual production of 80 mmscmd gas by Reliance will also reduce Fertilizer subsidy, petroleum subsidy. Oil

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Global Crisis Any how India is less dependent on international market. The low cost of production will drive the demand for Indian products (Software / Pharma / Auto ancillary /Steel etc) Low Demand for Indian Products FII has already taken out 20% of their total Investment in last 7 months . Domestic institution has emerged as strong investor in recent past purchased 72% of the sell off of FII. DII had pump in Rs.51685Cr (US$12.3bn) in last 7 months & Rs.57700Cr in last 1 year. Financial Saving to GDP is high at over 18%. As per Morgan Stanley Domestic Flow into Equity MF is expected to grow from Rs.279bn in 2007 to Rs.2108bn by 2017. Equity Market may be less dependant on foreign inflow in future. Low Inflow

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New central government should be in office before May 09. Which ever may be the coalition ,situation will be at par or better than present. Decision making process will improve. High inflation regime is expected to continue for another 3-5 months. Higher base is been formed for next year. If oil cools down inflation will also come down. Normal monsoon expected. Post Olympic Chinese demand for steel may soften. High Inflation Political Uncertainty

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Corporate Performance Investment in Infrastructure – Long way to go. Young Working population - 54% of population < 25 year old. Vast domestic Market. Skilled People. High Saving. Vast Natural Resources. Corporate Balance sheet are in great shape with low debt equity and high cash balance. Sales growth still strong. Historically Peak Margin – some softening possible. Basic Fundamental Intact

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Valuation Ten Year Average PE is 17.98

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How to Play the Situation We expect market to be side way to negative in next 3-6 months. Major down fall should be used to build position with 1 year view. For short term trade - sale on rally. Positive on Consumer driven stock, Engineering, Infrastructure, Oil & Gas, Pharma. Look for value buy (high dividend yield, high ROE, low PE).

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The information and views in this report & all the service we provide are believed to be reliable, but we do not accept any responsibility (or liability) for errors of fact or opinion. Users have the right to choose the product/s that suits them the most. Investment in equity shares has its own risks. Sincere efforts have been made to present the right investment perspective. The information contained herein is based on analysis and up on sources that we consider reliable. We, however, do not vouch for the accuracy or the completeness there of. This material is for personal information and we are not responsible for any loss incurred based upon it & take no responsibility whatsoever for any financial profits or loss which may arise from the recommendations above.The stock price projections shown are not necessarily indicative of future price performance. The information herein, together with all estimates and forecasts, can change without notice. does not purport to be an invitation or an offer to buy or sell any financial instrument. Analyst or any person related to might be holding positions in the stocks recommended. Disclaimer

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