31st Dc 2010

Hi,
New Year is knocking the door. Celebrations have already kicked in, and employees of MNCs are
enjoying their year-end holidays. Like last two years, I am back with my year review.
The Year of Scams- This year will be known as the year of scams- Adarsh to loan-for-bribe, 2G,
the recent Citibank. Scams normally increases in the booming economy which is in transition,
partly due to the galore of opportunities and partly the rise in the expectations of people and
media coverage. As the transition matures to transformation, these would recede, making the
system more reliable and transparent.
The year 2010 will also be regarded as the year of recognition for India. In the last 6-7 months,
most of the world’s top nation’s leaders visited India. The US, France and China included.
Obama’s visit was the most glamorous one! The change in the mindset of US was visible. For the
first time, any American president showed his willingness to back India’s claim for the permanent
seat at the UN’s Security Council. He also made some strange statements regarding the
outsourcing by saying that the Indian investments in the US has helped in creating jobs. But, we
can’t judge any politician by his word, Obama included. So, only time will tell how this will play
out.
Back home, Obama is grappling with severe image crisis. The Republicans has made dramatic
and historic victory in the senate. The US unemployment rate continues to be above 9.5%. But,
chances of double dip recession are greatly reduced. Meanwhile, the Fed has infused more
liquidity in form of QE2, which, sooner or later, will find the way to emerging markets, and
if the domestic front is stable, then in India too.
Logjam in parliament- A strong electoral victory by the Congress could not translate into
accelerating reform, since a tug of war is being fought in the Parliament. The hope floats on the
budget session, as the government claims that cracks are appearing in the united opposition.
Scorching inflation- The inflation emerged to be stickier than earlier thought. A good monsoon
and bumper crop failed to contain inflation. From food inflation to core inflation to food inflation
again and now wages inflation! It is compelling the RBI to decrease liquidity, making loans
costlier.
Booming gold- As said in earlier mails too, inflation will make gold costlier. So, gold is above
20K, and it could sustain there for a couple of years (contrary to my expectations, admitted!).
The realty space’s recovery was punctured by the bribe-for-loan scam. The builders are being
sandwiched by decrease in demand and closing avenues of credits for them. The year 2011
could be used to purchase flat, if individual’s financial health permits.
Last downturn, Dec 2010, needs attention. Although, the indices, Sensex and Nifty, are only
5-6% down, midcaps are down by 20-30%. Some sanctity has definitely returned to the market.
But if the companies report a sustained profit growth in their coming result, the recovery would be
sharp. I have loaded my share of midcaps, e.g. Yes Bank, Opto Circuit, OnMobile etc, and
large caps- Reliance Infrastructure, Bharti, RCOM, MOIL.
Strategy for year 2011- I will keep the risk-reward ratio under surveillance, and will not
hesitate to book profits if it goes beyond certain threshold, say Sensex above 23000 or
Nifty above 7000. On the other hand, 17300/ 5500 are strong support, and I do not expect them
to be broken. So, I will buy further at near these levels only. I have paid all my debts, so I am
very light and hence can take more risks, if needed.
Regarding the job market, they are expected to maintain their buoyancy in 2011 as well.
So, net-net, happy days are here again, and could easily continue for another 1-2 years.
Wish you a happy New Year 2011!
Happy investing! As always.
-Ayush
P.S.- For your convenience, the text of earlier yearly reviews has been appended next.
Hi,
As I was busy with my project, I could not spare time to write. But as the year
2009 is swiftly passing into history, its time to review it. And most importantly,
have a cross check whether the assumptions made about it at the beginning
were met, and how much! For your reference, please find the texts of year 2008
review.
 History would tell that two consecutive year of drastic fall is extremely rare,
and history has the habit of repeating itself. After bloodbaths of 2008, from
the beginning of 2009, it was clear that another year of drastic fall was
very unlikely. Those who believed in history were rewarded handsomely
as the market indices gave hefty return of 80-90%. Now, history is against
us, as two consecutive years of mind boggling returns seldom occur. But
they do occur. I do not think the indices will rise more than 30-35% in
2010. This roughly translates into 22000-23000 for Sensex, in best case
scenario. Also, India is on the strongest wicket globally, except its
valuations are high, so I do not think that a fall of more than 15% will
occur, giving 14500 in worst case. The range sound very wide! It is
because it could go in anyway, and wild gyrations are somewhat
warranted. I have started sitting on cash, 7-8%, to avail the opportunities
created by these gyrations. The more the market rises, the more will I sell,
thus increasing my cash level. And will exit completely if the valuations
become hysteric, say PE of 30 and more. Present PE is 18-19, giving exit
band of 25,000-30,000 Sensex values. But I do not think year 2010 will
trigger this exit like situation.
 I hoped, in fact prayed, that on political front; the third front would be kept
at bay. The Indian voters gave Congress a strong mandate of 205 seats in
Lok Sabha, the culprits …bole to Communists..were sent to barracks. So
was the BJP. Shikari khud yaha shikar ban gaya!!
 On inflation side, the results were mixed. Food inflation soared to 15-20%,
triggered by draught, although metals are industrial inflations were
subdued, as global demands are yet to pick up. Crude too is stabilized
between $67-80 a barrel. Sooner rather than later, the central banks are
expected initialize the end of loose monetary policies, perhaps RBI will be
pioneer, say a CRR hike by Jan 2010, followed by repo and reverse repo
hike. However, credit demand, which usually lags 4-5 months from the
economic recovery, is yet to pick up. So, actual lending rates are not
expected to increase too much in Jan-Mar 2010 quarter.
 Around 3-4 months earlier, I analyzed gold, and recommended negatively
for mid and long term. I put $1230 an ounce/ Rs. 18000/- per 10 gram, as
the most optimistic prices. The gold rose to these levels, but the demand
which gave this rise were not from the actual buyers, but from speculative
investors. However, to hedge against inflation and dollar, central banks,
including our own RBI, started buying gold. These bold actions by central
banks have drawn the floor of gold prices. I argued for $800/ Rs.14000
price levels (worst case). These need to be revised to $950/ 15000(plus
 minus Rs. 500). So, in Indian context, 14,500-15,000/- could be the buy
zone. I am not going to buy gold in 2010, if I am not forced to exit from
equities (triggered by Sensex@25000).
 On real estate front, things are stabilized, those planning for purchases,
would have executed the deals, if not, then time could be running out.
Buying a flat in 2009-2010 will be ‘once in a seven year’ opportunity, as
the realty cycle is of 7 years.
 Mutual fund investors have lots to cheer. The SEBI has progressively
made the life of these investors easier. Now you can buy mutual funds
from your demat account, through the stock exchanges route, without any
formality. Although, the start is slow with only few fund houses with fewer
schemes are available through this window. But I think things will be
streamlined in 3-4 months.
 On job market front, had the Satyam episode not happened, the Indian job
(IT) market would not have affected too much. Time has come to full
circle. The demand, both domestic and global, is picking up. ‘Layoffs’ are
again being replaced by ‘mid term bonuses’ and so on. In Oct-Dec 2009
quarter, most of the IT companies (who are not cutoff from market
dynamics!!!), are trying to please their existing employees. They have
even started fresh hirings, which is expected to gain momentum in Jan-
Jun 2010. And do know what is the biggest problem the top management
of Satyam, now Mahindra Satyam, are facing. No, its not fund problem. Its
not of loosing clients either. Its risk of loosing the existing employees,
forcing the company to hire fresh ones, effectively increasing the staff
costs. Similar is the story of companies, which laid off indifferently, e.g.
Sapient. Once bitten, twice shy! So, happy days are here again, and the
party has already started, is not expected to end soon, and could continue
for at least 2-3 years.

Merry Christmas and Happy New Year 2010.

Happy Investing!
-Ayush
Year 2008 review text-

Hi,

So another year is ready to become history. In many ways this year would be
remembered as historical indeed! An eventful year!

The year 2008, started with euphoria of Bull Run, soon became the last leg of
Bull Run. What started as a correction in bull market became a full fledged bear
market, in fact one of the worst bear market, as far as price fall and valuations
are concerned. Even the most pessimists did not expect the market to go down
into 4-digits.
Investment banks, e.g. Leyman, went belly open, giving financial tsunami all over
world. Placements at the B-schools, IIMs included, suffered. In fact the financial
vertical, the highest paying jobs for campus placements, went into tailspin.
The inflation was overpowered. But only at cost of growth. The penalty was so
heavy so that world over, central banks, including the Fed and our own RBI,
opened flood gates of liquidity. But till date even this flooding did not make any
liquidity going into the financial market.
Starting with the subprime, the US, and later Indian, realty collapsed. Most of real
estate companies have lost more than 80-90% of their share values.
No one expected that ‘Kyoki Saas bhi…’ would go off air. With Star-Ekta break-
up, the dynamics of TV soaps has been altered to end the monopoly of Star Plus.
Reality shows became new reality.
Rival between ‘the’ brothers continued. The R&D cell of a major pan-Indian
telecom operator divided vertically, triggering exodus.
Credit situation became so worse that getting telecom license/ 2G spectrum is
liability, and Unitech has paid price for going into this business.
‘Joining bonus’, ‘employee focused’, ‘innovative’ were replaced by ‘Layoffs’, ‘belt
tightening’, ‘cost cutting’ etc.
And very recently, the voters showed more responsible behavior in polling by
voting on development saga instead of caste/ religion etc. But leaders and
political parties continue to change sides to remain in power. Congress in J&K
and Devgaudas in Karnataka.
Thickness of Delhi times and other supplements reduced, as the advertisements
shrank.
The crude oil, after touching 147 dollar a barrel, burst. Now at near 40 marks.
Other commodities’ stories are not very different.

But as they say, there is another face of coin.

Stock valuations are cheap, and, to some extent touch mouth watering levels
some fortunate days. Believe me, it’s once in five years offer and may not be
available in 2010 onwards.
India will be one of the least affected country and will become stronger (in
relative term) after this recession.
Hopefully, third front will be kept at bay in the coming general election. But if this
is not the case, the markets will extent its losses in huge amount.
Prices of metal/ crude etc. has corrected so services economy like India will be in
better position, as far as inflation is concerned.
There is no sign of demand softening in the rural areas, as 2-3 good monsoons
has increased the purchasing power of our rural folks.

As after any disaster, the probability of another disaster reduces considerably but
people seldom understand. I will follow this hypothesis and continue to invest at
moderate pace, at each dip of 10 % or more.

Happy New Year 2009!

-Abhi

Hi,
Investing during critical phases, e.g. sitting on huge losses, but keeping the
conviction intact, differentiates men from the boys. And as I have written earlier
also, portfolio shuffling is what differentiates smart men from men.
My search for new opportunities is still continued, but with every rise, it is
becoming more difficult to find the value. Around 3-4 months earlier, I thought
and recommended hotel stocks, Indian Hotel and Hotel Leela, then at around 65/
33. These are now commanding 100/ 48 respectively. A gain of more than 50%,
much more than the market, which gained around 20% during the same period.
However, I must add the missed case also- the telecom sector, triggered by the
further rounds of tariff war, eroded some profits. It is the only sector, in which I
am still in red. But, I have not sold, and in fact am increasing my weitages, in a
staggered manner- typical to my style. Added Bharti/ RCOM/ Idea @ 280/ 163/
53 respectively. As the tariff war is expected to last for 3-4 quarters more,
profitabilities of the sector is bound to threatened. I expect some more jitters on
these counters- say in Jan last or Feb first week. I will not sell, but use the
opportunity to further increase my holding in the sector. The tariff war will trigger
consolidation in the sector, which in medium to long term, increase the
profitability. Although delayed, the 3G licensing will happen in 2010. And I think
the incumbants hold greatest chance of survival and value creation for
shareholders. I have added another sector on my radar list- companies which
make products, which are consumed by the farmers, excluding the fertilizers-
because the picture in fertilizer sector is distorted by the government subsidies
and other policy interventions. I have shortlisted two such companies- Rallis
India- a Tata group company, and Nagarjuna Agrichem. The former will give
stability and later will help in growth. I have not yet started the buy, because I
need more time to get familiarity with the sector as well as these stocks.
Jan 12, 2010

Hi,
The market, on day-to-day basis, is quite boring these days. The volatility is reduced, so
is the volume. Technically speaking, this kind of situation is not expected to last for long
duration, say more than a month or so. And it can go in either way- i.e. beak out or break
down.
Factors which are positive for the market include-
 The Oct-Dec 09 quarters result is very encouraging, as expected. This will help
increase the earning expectations, and hence earning upgrades.
 The growth parameters- GDP/ IIP etc. too are very good.
 Bank credit growth has, off late, shown a remarkable recovery in Dec 2009.

Factors which could threaten the market include-

 The inflation- food inflation was already high in 15-19% band, now wholesale
inflation too has flared up to 7% plus (caused by statistics of base effect). The
RBI, sooner rather than later, will end the loose monetary policy. In fact I expect
the beginning in its 29th Jan credit policy announcements, say a CRR hike of
0.25% to 0.5%.
 The stimulus withdrawal process could be initiated in the budget, although the
finance minister and his team of officials are maintaining that it will continue for
some more time.

Compiling above factors, I think the forces are more or less balanced, logically speaking.
But the market seldom follows logic; it normally deviates into either side. So, it could rise
another 10-15% in Feb, and if the budget is very positive, this rally will continue for
another month or so. This rally, like any typical bull rally, could be followed by some
corrections of 10-20%. This correction could occur in March/ April. Rate tightening by
RBI or inflation could trigger this correction.
4800 on Nifty and 15500 on Sensex are strong support zones. Strong resistance is
being felt at around 5300/ 17800. But I think, break out is more likely than a break down.
My strategy, as said in previous 2-mails, is to sit on cash, say 10-12% by the end of Feb,
and then gradually increase it to, 15% in March, and 20% in April.

I have calculated the sell prices of following shares-

Sell Sell
Script Price1 Price2
Asian
Electronics 44 47
DLF 385 440
Future Capital 275
HDFC 2675 2800
HDFC Bank 1740 1800
ICICI Bank 900 970
IDFC 195 210
Punj Lloyd 260
R Power 173
RIL 1090 1300
Tata Elxsi 340
Tulip 1100
Unitech 89 98
Voltamp 1030 1250
Yes Bank 310

Some of them, e.g. Yes Bank, HDFC, are my favorites. But one should not emotionally
attach with any of the stocks. They were gems at certain price, good at some higher
prices. Now, I think, the risk reward ratio has increased, due to increase in their prices.
And I do not expect them to repeat their performances in near future. So, I will sell them,
some in parts, and some in one go. (Remember the portfolio shuffling mail). And in case
of correction, I will take call whether to buy them, or the laggards- telecom (Bharti,
RCOM), or the agrichem ones (Rallis India, Nagarjuna Agrichem). I will analyze the
situation and decide at appropriate time.
As part of my macro strategy of asset allocation, I have prepaid some of my loans,
starting with the costliest one. And as per my present plan, I think I will be debt free by
May-Jun 2010, depending upon the market levels, of course. And I am not in hurry to
invest in gold. The Bull Run is maturing and so the risk is increasing, although slowly,
but surely.
Happy investing, as always!

-Ayush
Hi,
Please find the list of stocks and recommendations in the accompanied table-
How to use the table? It depends on the objectives and style of investment you follow.

Case 1- If you feel the need to increase your cash level, like me (I am presently under
this category, as per my macro plan). I will be biased towards selling as this will
decrease my equities’ exposure. I will use the ‘Target Price Sell’ column more often than
‘Target Price Buy’. However, if the prices are lucrative, triggered by negative global cues
etc. I will not hesitate to buying in select stocks at the ‘Target Price Buy’ rates.
Case 2- You have missed the opportunities of last bear market and you are a long term
investor. In fact like a typical retail investor, you were fearful when every one was
predicting doomsday. Use the dips as opportunity to enter steadily in this market, and be
biased towards buying. The target prices Buy column will guide you. Unless the stocks
rise exponentially, do not sell them, as long term
Case 3- You are a mid term investor with 2-6 months time horizon. You can use both
sell and buy recommendations, and keep an eye on the Nifty/ Sensex levels. They are
expected to be in range- 4600/ 15000 (be in ‘buy’ mode) in the lower side and 5400/
18000 (be in ‘sell’ mode) in the upper level.
However please note-
1. The recommendations assume that the bull market is intact. I.e. the markets will
not fall below 4600/ 15000, on closing and sustained basis. If they indeed fall,
wait for some consolidations before entering.
2. Oil prices will not rise steeply, and will remain below $100-110 a barrel in next
12-15 months.
3. Food inflation will be tamed in 6-8 months, or 1 year maximum.
4. The UPA-2 will be stable and will last its full term.
5. The list of stocks is not exhaustive, and selection is based on my need of
portfolio balancing.
Regarding the Budget 2010, it not bad but its not excellent either (Swami Ankaleshwar
Ayer- the writer of the weekly article Swamionics, published in Sunday Times of India
every Sunday, naturally!). It has assumed too much positive about the economic
recovery, and if this recovery, for any slightest reason, is threatened, some jolts and
jitters could be felt. However, the major taxation reforms- GST in indirect tax and Direct
Tax Code (DTC) in income tax, are scheduled for implementation in next financial year.
They will boost the coffers of government in coming years, and together with the
computerization (Tax Information Network) of the taxation process, will set the fiscal
front in far better, efficient, and user friendly way.

Analysis Target Price Target Price

Name Date Price Support Resistance Buy Sell
Future Capital Holdings 26-02-10 167 170 250, 280 n.a. 250, 280
880-890,
ICICI Bank Limited 26-02-10 848 800, 750 890, 950, 1150 810-820, 760 940-950
Infrastructure Development
Finance Co 26-02-10 155 140, 125 155, 170 140 165
Jaiprakash Associates
Limited 26-02-10 129 125, 100, 45 158, 174 126-130 155, 170
Larsen & Toubro Limited 26-02-10 1542 1433, 1300 1600, 1670 1300 1600, 1670
OnMobile Global Limited 26-02-10 361 365, 320 490, 536, 600 365, 320 480, 580
Opto Circuits India Ltd. 26-02-10 209 208, 186 238, 253 186 250
strong support at
Punj Lloyd Limited 26-02-10 173 150-160 210, 260 173, 160 210, 250
Reliance Capital Limited 26-02-10 714 675- 700, long 890, 990 700 880, 980
 term support at
450-500
935-945, 890-
Reliance Industries Limited 26-02-10 980 934, 890 1100, 1150 905 1075, 1125
Reliance Infrastructure
Limited 26-02-10 1003 1050, 970 1180, 1260 975 1175, 1250
Reliance Power Limited 26-02-10 138 133, 100 158, 185 135, 110 155, 175
Religare Enterprises
Limited 26-02-10 372 360, 310 390, 500 plus 365, 310-320 400
Tata Elxsi 26-02-10 271 250, 210 210, 300, 320 255, 220 290, 315
Tulip Telecom Limited 26-02-10 939 900 1030, 1100 920 1020, 1080
105, 89, 78, 300
Unitech Limited 26-02-10 72 68, 50 plus 69 89, 105
Voltamp Transformers 930, 960,
Limited 26-02-10 824 670, 760 960, 930, 1150 770 1150
Yes Bank Limited 26-02-10 236 225, 250 275 225-230 270-275
Asian Electronics Limited 25-02-10 28 23, 21, 17 34, 40 22-24, 18-20 40, 46
1100-1120,
Axis Bank Ltd. 25-02-10 1089 1000, 900 1120, 1200 900 1200
Cairn India Limited 25-02-10 259 210-220, 250 300-310 250, 215 300
280-290, 230-
DLF Limited 25-02-10 293 280, 230 360, 395, 435 240 360, 395
140-145, 128-
Fortis Healthcare Limited 25-02-10 154 138, 126 155-160 130 155- 160
Housing Development 2500, 2675,
Finance... 25-02-10 2465 2350, 2250 2490, 2680, 2825 2350-2400 2800
Bartronics India Ltd 28-01-10 145 150, 100, 80, 60 180, 250 170, 150, 80
255, 240, strong
Nagarjuna Agrichem Ltd 28-01-10 255 support at 170 300, 200 260
Rallis India Limited 28-01-10 1087 990, 940, 900 1000, 770 1000, 950
330, Long term
Bharti Airtel Limited 14-10-09 340 support 300, 275 430-450, 500 plus 310, 275
Idea Cellular Limited 14-10-09 61 60,45 80, 110, 125 plus 61, 45, 34
Reliance Communications 400, 230, 200,
Ltd. 14-10-09 232 175, 160 800, 550-600, 380 175, 160
The Indian Hotels Co… 14-10-09 82 75, 64, 40 140 plus 77, 66

Happy Investing! As always.

-Ayush