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SENSEX Hits Record Highs - Slowdown Approaches But Opportunities Still Abound
SENSEX Hits Record Highs - Slowdown Approaches But Opportunities
Still Abound
The rally looks to be over but market participants remain
bullish pending corporate earnings reports.
Brian Noer Reports for www.IndiaStockMarket.com October 2005
India has long been on the "to watch list" of many investors due
to the country's tremendous potential for growth (the Indian
economy is expected to grow 7% by the end of this fiscal year)
and rapid industrialization. India (currently experiencing a 2-½
year stock market boom) is one of the world's fastest growing
global economies (the fourth largest in size) and features a
population that represents 15% of the world's inhabitants. A
rally at the end of September shot the SENSEX to a record high,
gaining 7% since September 22, making it one of the best
performing markets globally.
Although India boasts a diversified industrial base, the
country's world-class IT and software technology sector led the
rally, with companies such as Wipro (NYSE: WIT), Infosys
(NASDAQ: INFY) and Satyam Computers (NYSE: SAY) leading the
major earners. Mutual funds accounted for much of the buying
during the rally, but analysts are confident that foreign
international investors will react to the trend and follow the
institutional money trail.
Peaks and Troughs
The Indian market is still considered to be in the Bullish
region (even as the rally seems to have reached its peak, just
prior to the corporate earnings season). Investors are hoping
that corporate performance follows market expectations, and at
the moment are adopting a cautious stance until corporate
earnings are announced in the near short term.
The record breaking SENSEX rally's recent slowdown has been
attributed to investor concern over a sharp slide in global
markets, but market participants are optimistic that strong
Indian economic fundamentals, and good second quarter corporate
reports will result in a continuing run of prosperity. Infosys
Technologies, Tata Consultancy Services (NYSE: TTM), Associated
Cement Companies (BSE: 500410) and Wipro are among the companies
who will be reporting mid October.
The Quest for Liquidity
Gulbir Madan of Neptune Capital Management believes that a quest
for liquidity was the driving force behind the record-breaking
rally. "Liquidity is a big deal for any market - the Chinese
market is also liquid due to the fact that the Chinese
government keeps dumping stock." In contrast to China where much
of the growth is state owned and corporations are government
backed, India however, is still very much private sector driven.
Just prior to the news that the SENSEX was experiencing a dip
(the index dropped 2% on October 6th alone), Neptune's Madan
told IndiaStockMarket.com that he could not see the rally
continuing, at least not at its current pace. That is not to be
considered as bad news, however. "The rally has been a product
of too much euphoria," said Madan, "even the locals have jumped
into the fray. Going forwards, India will be, in my opinion, a
great investment story, but the market needs a shake out of the
weak hands - the velocity of the current rise has been too much
and too fast. A healthy correction will do everyone a great deal
of good. The correction has already started and will probably go
on for a few months."
"There are a great number of opportunities with smaller
companies that are experiencing growth in India," said Madan
whose largest position is in the market leader Reliance. Madan
revealed that he also sees opportunities within the company
Bajaj Auto, as well as the growing infrastructure space.
India currently features approximately $537bn of opportunity in
the infrastructure sectors of power, water, transport, roads,
ports, railways and airports. At a recent FICCI (Federation of
Indian Chambers of Commerce and Industry) seminar, Sweden's
Minister for Communication and Regional Policy, Ulrica Messing,
stated that Sweden had confirmed an interest and commitment to
invest in Indian infrastructure and to provide technical
expertise to Indian firms for the purpose of infrastructure
development.
Happenings in the Indian Market
Also on the horizon: India's second-largest bank, ICICI Bank
(BSE: 532174), confirmed that its board would meet on October
13, to vote on the issuance of new shares. Bharat Heavy
Electricals Ltd. (BSE: 500103), India's biggest electrical
engineering firm, stated in a recent release that their last
dividend payment (80 per cent or Rs 195.81 crore for 2004-05)
was the highest of the company's history.
Dr. Reddy's, one of India's largest drug manufacturers, recently
received approval from the US Food & Drug Administration for
multiple strengths of their anti-diabetes drug Glimeperide (a
generic version of Sanofi-Aventis' drug, Amaryl). The company
also received tentative approval for their anti-cholesterol drug
Pravastatin (a generic version of Bristol-Myers Squib's
Pravachol).
In late September, Aethlon Medical, Inc. (OTCBB: AEMD),
announced that they would begin clinical trials of their
Hemopurifier(TM) (Aethlon's Hepatitis-C (HCV) treatment
technology) at the Apollo Hospital, New Delhi. Aethlon Chairman
& CEO, James A. Joyce, stated, "The unfortunate reality is that
50% of Hepatitis-C patients who initiate the current standard of
care fail this exceptionally toxic treatment regimen." Joyce
continued, "We clearly envision that our Hemopurifier(TM)
treatment technology will improve patient outcomes as an
adjunctive therapy, and will serve as an effective disease
management tool as a stand alone treatment."
As with every stock exchange, not all the goings on are rosy.
The Securities and
Associated Websites
Exchange Board of India (SEBI) recently took
another step in their crackdown on penny stocks by issuing an
order that required leading brokers to cease dealing with
several companies: Eltrol Ltd. (BSE: 530835.BO) (the company
recently changed its name to "Shree Mahaganga Sugar Mills"),
Ganpati Finsec (BSE: 531343.BO) and Ind Tra Deco (BSE: 504336).
Going For the Gold
The Indian gold sector is bristling despite volatile world gold
prices. The World Gold Organization released a report at the
beginning of October stating that gold consumption in India (the
world's biggest importer of gold) would surge by 33% to 850
tonnes by the end of 2005. The Indian Central Bank currently
holds 358 tonnes of gold in their reserves, and in the past two
weeks, due to skyrocketing global gold prices, the value of
these reserves increased from $4.5bn to $5.3bn. The forecast of
India's increased gold consumption was based on higher
individual incomes and good farm output (the yearly monsoon
season in India this year was mild).
Reflecting this increase in individual income is the fact that
the demand for consumer durables is at a ten year high
(according to a report by Morgan Stanley). An AC Nielsen report
for the first half of 2005 shows that high-end consumer items in
particular are in great demand - items such as home theatres,
refrigerators, air conditioning units, washing machines, and
flat screen television sets. Demand for laptops was at 123% year
on year growth for the second quarter of 2005.
The rapid growth of the Indian economy is expected to bring with
it a shortage in skilled and experienced middle management
staff. Various labor market experts predict that by 2010 the
Indian workforce will consist of 83 million people. To prepare
for this labor market growth, Manpower Inc. recently doubled the
size of their operations in India, and is in the process of
implementing their existing proprietary assessment and training
programs for the Indian market.
Manpower in India
Jeffrey Joerres, Chairman and CEO of Manpower Inc. discussed
with IndiaStockMarket.com his company's expansion of operations
in India: "Manpower Inc.'s Indian business started several years
ago with services that were not along traditional Manpower
service lines. Our main service line is contract staffing but we
went into India with services such as permanent placement,
selection and assessment. We recently decided to create a much
bigger footprint, as India is a market that absolutely will
require a growing sophistication of hiring practices."
Manpower Inc. just released news that they had acquired three
divisions of ABC Consultants, India's leading professional
executive selection and recruitment firm. "Since joining
together with ABC we have more than doubled our footprint and
have now become the largest provider of employment services in
that market. This is both a strategic and tactical investment
for us - the Indian market is on fire right now."
"India features a robust labor market with a tremendous amount
of talent," said Joerres "particularly in the office/IT side.
Some of the employee turnover rates that multinationals were
experiencing in their centers, while previously acceptable have
now become unacceptable. Right now companies need to make
operations as efficient as possible. This means selection of the
right employees as well as the right management. At the moment
first line and second line managers are hard to come by."
"India is growing into the outsourcing sector, and currently
Indian companies are in a stage of increasing sophistication,
productivity and efficiency," continued Joerres. "In many ways
this is the same scenario that many Western companies in China
are going through - now that a sector is becoming several years
old, the next stage is to make operations as productive and
efficient as possible. We do not project a great deal of growth
in the outsourcing sector in India, but we do see the trend
continuing, and this continuation makes for a very robust
market."
Catching up to China
China is considered to be the world's dominant manufacturing and
industrial center. The growth of India's economy however shows
that this country is catching up fast. India's manufacturing GDP
is experiencing 11.4% growth due to a higher global demand for
Indian manufacturing goods, higher national purchasing power and
therefore growth of national demand for Indian made products. In
terms of percentage growth, India is catching up to China, while
in absolute terms, China still remains dominant
Brian Noer
Brian Noer has a degree in Business and Economics from the
University of Western, Ontario. His career in the financial
markets spans sixteen years and several continents, including:
Manager with The Bank of Montreal in Canada, Associate Analyst
with the structured finance group at Moody's Investor Services
in the UK, and Editor for several financial trade magazines in
the UK for both Thomson Financial Publishing and Euromoney PLC
(titles include Thomson's trade magazines "The International
Securitisation Report", and "Capital Market Strategies", and
Euromoney's "Asset Finance International"). Brian is the Writer,
Editor and Research Associate for the InvestorIdeas.com portal
team.
Disclaimer: www.InvestorIdeas.com/About/Disclaimer.asp
©Copyright InvestorIdeas 2005
About the author:
Brian Noer has a degree in Business and Economics from the
University of Western, Ontario. His career in the financial
markets spans sixteen years and several continents. Brian is the
Writer, Editor and Research Associate for the InvestorIdeas.com
portal team.
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