21st June 2008

MARKET STRATEGY

The inflation numbers, that were announced Friday morning were like a bolt from the
blue. The street had braced itself for a double digit inflation following the petroleum
product hike, but the figure of 11.05% bordered on the unbelievable. As a standard rule,
when something that is not already discounted happens, the markets must immediately
move to discount t hat.

As a result, both the Sensex and the Nifty made newer lows, which technically make the
markets weak. Since the violations of the key levels happened during the last hour of
trade, and that too on a Friday, it does not augur well.

If the daily charts look bad, the weekly look awful and the monthly dreadful. The
weakness seen in the monthly charts is something that has appeared on the monthly
charts after a gap of more than 5 years, which we need to take notice.

We believe the RBI has it's role cut out. Expect Dr Reddy to tighten the noose on
liquidity, raise rates and warn of further hikes if the incoming data demands.

In an era of rising yields, we would expect the banking stocks to bear the brunt. Similarly
the real estate sector stocks will continue to get the boot for some time. I don't see any
reason why some one should like Indian real estate at this time, when the prices in the
US have already taken a beating of 16.6%. Why would one want to take a currency risk
and face other incidental problems by buying real estate exposure in India, when prices
are yet to begin falling in India.

With stocks at a steep discount to their issue prices, not to talk of the fall seen from the
highs, these companies cant afford to dilute capital at this point of time because it will
lead to massive dilution because of the low market prices now and secondly there is no
appetite for such ventures.

At a time like this, falling back on debt is costly and what ever debt has been taken, the
meter ticks every second. At some point of time, it will not be comfortable for them to sit
on inventory for a long time and real estate prices will have to fall.

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Regd. Office: Anagram House, Darshan Society Road, Nr Commerce Roads Circle, Navrangpura, Ahmedabad – 380 009.
 21st June 2008

Anatomy of Bear Markets

We are in a market that is not behaving the way most investors have seen it acting
in the last five years. You wonder why a stock is falling when the EPS is rising.

Stocks no more climb past levels from which they fall. Companies are getting
hammered on good news. And you don't jump out of bed anymore to switch on the
TV to see what's happened to the Dow.

You are right. It's a different animal altogether. It's a bear market.

Jan 2008

SENSEX MONTLY CHART May 2006

Trend
Reversal

Jan 2004

April 2003

HOW SENSEX STOCKS FARE IN BEAR MARKETS

% FALL 1993 1996 1998 2001 AVRG 2008
SENSEX 0.54 0.41 0.39 0.56 0.48 0.29
= or > 80% - 7 2 3 3 -
> 50 < 80% 17 12 12 7 12 3
> 20 < 50% 11 5 12 16 11 16
> 0 < 20% 2 4 0 2 2 7
POSITIVE RET 0 2 4 2 2 4

But stocks don't fall in one motion. Their long downward journey is interspersed with
brief halts and at times those misleading upward charges, which taper off before you
yell "yahoo!" But if you are looking at the quarterly numbers to tell you to sell that
stock, you will never get an early signal. By the time it shows up in the results, it
might be too late.

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 21st June 2008

Let's go back to the heady days when tech was king. It's April 2000 and Infosys has
just come out with its quarterly results. It has, as usual, bettered market
expectations and reported a net profit growth of 99 per cent YoY and 16 per cent
QoQ.

For the next four quarters it will go on to report a growth of 100 per cent and 41 per
cent, 134 per cent and 27 per cent, 125 per cent and 8 per cent, and finally 111 per
cent and 9 per cent, YoY and QoQ respectively.

With each passing quarter, Infosys kept on giving better results and the stock price
went on tumbling. With an increase in the EPS each quarter and accompanying
falling prices, Infosys became more attractive to the fundamentally minded, till the
management gave a guidance for the full year that was lower than market
expectations in April 2001.

April 2000
Price: 1300
Daily Chart of Infosys Tech

April 2001
Price: 360

Infosys had already fallen 73 per cent from its peak and then it was too late. By late
October 2001, Infosys had fallen 84 per cent from its peak in March 2000. And if you
thought only new economy stocks were the ones to be hit, think again. Mahindra and
Mahindra fell more than 90 per cent during the 2000-2001 bear phase.

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 21st June 2008

Feb 2000
High: 332 Daily Chart of M & M

Sep 2001
Low: 25

To get a fuller picture of the escapades of bears, I studied the last four bear markets
we have seen in our markets since 1990.

The Sensex loses around 48 per cent of its value in a bear market. The smallest fall
of 39 per cent was in 1994-96 and the largest, 56 per cent, in 2000-2001. On an
average around 3 or 10 per cent of Sensex stocks fall more than 80 per cent. And
around 15 or 50 per cent of the total 30 fall 50 per cent or more, while 2 stocks from
the Sensex manage to keep their head above water during a bear market.

Monthly Chart of Sensex

1992 FALL
1994 FALL 1997 FALL 2000 FALL

CURRENT
FALL

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 21st June 2008

In the ongoing market, the Sensex has just tumbled 29 per cent, a far cry from the
average decline of 48 per cent. So far only 3 stocks have fallen more than 50 per
cent. The average is around 15 and the range is between 10 and 19 stocks. So even
if you were to consider the lowest of the range, you still have 7 more stocks to see
that kind of a fall.

List of Sensex Stocks fell more than 50%

FALL OF YEAR 1992-93 FALL OF YEAR 1994-96

Sr.No. Name 2/4/1992 26/04/93 %Chg Sr.No Name 12/9/1994 4/12/1996 %Chg
BSE SENSEX 4388 2037 -54 BSE SENSEX 4630 2745 -41
1 VOLTAS LTD 22.50 4.88 -78 1 INDIAN ORGANIC 89.07 9.02 -90
2 TATA STEEL 277.04 73.10 -74 2 BALARPUR IND 327.50 35.00 -89
3 CEAT LIMITED 244.89 65.76 -73 3 MUKAND LTD. 385.00 60.00 -84
4 ACC LTD 362.19 103.58 -71 4 VOLTAS LTD 16.25 2.70 -83
5 TATA MOTORS 321.88 101.56 -68 5 BOM DYEING 490.00 86.50 -82
6 PHILLIPS 251.9 84.73 -66 6 PHILLIPS 417.50 79.00 -81
7 INDIAN ORGANIC 76.13 26.16 -66 7 CENTURY 445.00 87.30 -80
8 RELIANCE 166.30 65.36 -61 8 GUJ.ST.FERT 256.15 76.00 -70
9 PAEL 40.01 17.34 -57 9 HIND.MOTORS 48.00 14.25 -70
10 TATA POWER 167.70 74.82 -55 10 ACC LTD 254.96 78.66 -69
11 BOM DYEING 569.13 257.50 -55 11 PAEL 86.71 27.00 -69
12 HIND.MOTORS 48.55 22.25 -54 12 ADI BIR NUVO 298.63 95.26 -68
13 GESHIPPING 52.20 24.63 -53 13 BHARAT FORGE 43.83 14.42 -67
14 L&T 187.50 88.75 -53 14 GE SHIPPING 51.56 18.34 -64
15 BALARPUR IND 366.75 180.00 -51 15 CEAT LIMITED 145.12 53.97 -63
16 ITC LTD. 28.35 14.01 -51 16 RELIANCE 164.37 68.54 -58
17 ZENITH COMP. 68.82 34.41 -50 17 TATA STEEL 181.01 82.01 -55
18 SIEMENS LTD. 65.10 29.62 -55
19 GRASIM IND. 785.00 369.00 -53

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 21st June 2008

FALL OF YEAR 1997-98 FALL OF YEAR 2000-01

Sr.No Name 6/8/1997 20/10/98 %Chg Sr.No Name 11/2/2000 21/09/01 %Chg
BSE SENSEX 4523 2764 -39 BSE SENSEX 5924 2600 -56
1 SAIL 24.75 4.95 -80 1 NIIT LTD. 406.89 11.55 -97
2 ARVIND MILLS 140.25 28.8 -79 2 M&M 308.48 26.27 -91
3 TATA MOTORS 396.5 93.55 -76 3 NOVARTIS 1043.10 200.85 -81
4 M&M 242.13 75.8 -69 4 INFOSYS 1245.37 276.42 -78
5 TATA STEEL 122.53 40.32 -67 5 MTNL 378.55 111.00 -71
6 IDBI BANK 65.63 22.47 -66 6 L&T 231.50 75.95 -67
7 GE SHIPPING 34.04 12.1 -64 7 TATA MOTORS 166.05 69.05 -58
8 GRASIM IND. 376 134.3 -64 8 AMBUJA CEMENT 41.95 18.80 -55
9 TATA CHEM. 208.25 76.2 -63 9 ICICI BANK 157.00 74.65 -52
10 IPCL 133.5 50.75 -62 10 INDIAN HOTEL 21.38 10.20 -52
11 HINDALCO 109.58 48.09 -56
12 SBI 318.81 146.33 -54
13 COLGATE 364 168.2 -54
14 HPCL 361.35 173.02 -52

FALL OF YEAR 2008

Sr.No Name 10 Jan 2008 20 June 2008 %Chg
1 JAIPRAKASH 430.95 166.6 -61.34
2 RELIANCE ENR 2465.1 962.55 -60.95
3 DLF LIMITED 1142.2 456.35 -60.05

More importantly, the average duration of a bear market has been around 18
months. We are barely in our sixth. Have patience and keep your risk appetite intact.
Since markets do not fall in a heap at one go, we could see some bottom fishing
happening at around 4200 in the Nifty, but this will be only temporary and of use to only
position traders.

Anagram StockBroking Ltd:

Bandra Kurla Complex, Bandra(E), Mumbai 400 051. Web site: www.anagram.co.in
Regd. Office: Anagram House, Darshan Society Road, Nr Commerce Roads Circle, Navrangpura, Ahmedabad – 380 009.