This bull market is not over yet

Oct 9, 2009

In this issue:
» We will surpass previous highs says Mark Mobius
» Jhunjhunwala expects a correction; bullish in the long term
» India Inc. has a lot of cash, much of it raised afresh
» Billions of dollars needed to feed the developing world
» ...and more!

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Given the speed and extent of the stock market rally especially in emerging markets like India, there are many who believe that a correction is imminent. Not the man who manages about US$ 25 bn at Templeton Asset Management. Mark Mobius says, "If the money supply keeps on growing, we will continue to see a bull market". In fact, he believes that we will surpass the previous highs as we are just halfway from where we were before. His optimism springs from his expectations of a fast pick up in earnings. In terms of specific sectors, he prefers consumer and commodities-linked industries in the emerging economies. He remains especially bullish on oil.

In our view, while there are investment opportunities, investors need to exercise caution while picking stocks. Earnings would have to grow at a very fast clip to justify the steep climb in valuations. While the market's expectation of earnings growth might turn out to be true, we believe paying a full price decreases the odds of investment success. At current prices, investors need to be extra vigilant about ensuring that the odds are in their favour.

 Chart of the day
There will be around 9.1 bn people in the world by 2050. That will pose some severe challenges for governments around the world. One of the most important will be food. As per Food and Agriculture Organization of the United Nations, investment of billions of dollars in agriculture is required to feed the population. Today's chart of the day shows the projected investment required in agriculture in the developing regions by 2050 in areas such as crops, livestock, cold chains, storage facilities, market facilities and first-stage processing. Not surprisingly, India and China, the two most populous nations will have to invest the most.

Source: How to feed the world in 2050, FAO

While the long term view on Indian markets remains uncontested, from a near term perspective Indian equities are looking somewhat expensive. There couldn't be a better person than Rakesh Jhunjhunwala, easily one of India's most popular and bullish investors to verify this. Speaking at a Private Equity summit, Mr. Jhunjhunwala said that the Indian equity markets have run up too much without any significant correction and typically, such rises are accompanied by a burst and the same could happen in India over the next couple of months.

However, Mr. Jhunjhunwala was also of the opinion that with earnings of corporate India growing at 15%-17% per annum over the next 5 to 7 years, Indian stock markets remain a good long-term bet. Besides, he also felt that domestic inflows could touch as much as US$ 60 bn over the next couple of years and would remain one of the key reasons behind the attractive returns from Indian stocks.

While Jhunjhunwala did not divulge his own portfolio as well as refrained from giving any stock picks, we could certainly help you build your own portfolio over the next couple of years and that too, based on the principles that have made its founder as well as foremost practitioner one of the richest men in the world. Click here to know more.

The benign interest rate scenario and capital raising has enabled India Inc to build their cash war chests . As per a leading business daily, constituents of BSE-500 index reported a 24% YoY rise in total cash and equivalent in their balance sheets (at Rs 2.5 trillion) at the end of FY09. Important to note that the private sector companies reported a higher 37% YoY growth in their cash balances.

Most of it was accounted for by the rise in leverage and equity dilution. Internal accruals in the form of retained profits did not contribute much to the increase in cash positions. This is because these companies reported a 6% YoY fall in their combined net profit in FY09, while their retained earnings declined by approximately 7%. In comparison, the total debt outstanding surged 36% YoY. Thus it goes without saying that while the cash war chests may enable inorganic growth and capital expansion, the same may not be accompanied by commensurate investor returns.

Infosys declared its financial results for 2QFY10 today. The company has clocked a topline and bottomline growth of 2% QoQ and 1% QoQ respectively. During a conference call with the management, the CEO and MD, Mr. S. Gopalakrishnan indicated that Infosys sees an improvement in business environment especially in the US and emerging economies with greater stability in IT budgets and a revival of interest in strategic IT initiatives. However, the recent appreciation of rupee against dollar is a concern due to the revenue volatility which could dent the company's operating margins. The company remains cautious about the growth in the second half of the current fiscal.

Gold prices are hitting new highs as investors are selling currencies and buying gold. This is the trend seen not only in the US but across the world, be it UK, China or India. According to noted economist Dennis Gartman, investors are buying into gold not on inflation fears but on a general distrust of currencies. He expects gold prices to climb higher but eventually expects the rally to end. Famed commodities investor Jim Rogers echoed similar sentiments while adding that although he believes that over long term gold prices will continue to rise, he is not investing in gold as he does not see strong fundamental reasons to invest at the current levels.

Speaking of fear, it was the rampant emotion in October 2008. Greed took over in March 2009. It's back to fear again. You might find it ironical but it is 'fear' that is driving asset prices up currently. And we are talking about all kinds of assets, ranging from stocks to gold. After the sharp rally of the past few months, investors are loading up on stocks for the 'fear' of missing out on the rally. Gold bugs 'fear' massive currency declines and are therefore gorging up on the yellow metal. Bond investors 'fear' deflation. This can be seen in rising bond yields in the US despite a considerable supply from the government.

Never before has fear felt so reassuring. Pick an asset class, and it's going up in price. All based on fear. Greed is yet to return to the markets.

US President Barack Obama has been awarded the Nobel Peace Prize for "his extraordinary efforts to strengthen international diplomacy and cooperation between peoples" as per the Nobel committee. The first black US President had won his electoral votes last year on the plans of withdrawing US troops from Iraq by 2011 while increasing focus on an eight-year conflict in Afghanistan. Obama is the third sitting US President to be awarded the prize, following Theodore Roosevelt in 1906 and Woodrow Wilson in 1919 and Jimmy Carter in 2002. While the President's peace-seeking intentions are noteworthy, the award seems to be a little premature.

Meanwhile, the Indian markets moved deeper into the red as profit booking was being witnessed in stocks from the banking, IT and auto sectors. At the time of writing, India's benchmark index, BSE-Sensex was trading lower by about 140 points or 0.8%. As for global markets, Asia was trading mixed, while Europe began the day on a weak note.

 Today's investing mantra
"Almost by definition, a really good business generates far more money (at least after its early years) than it can use internally." - Warren Buffett

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21 Responses to "This bull market is not over yet"


Oct 11, 2009

I agree that bull market is not over yet, but good picks are difficult to find. There are many which are at half the average PE of sensex. Stocks that will gain from infrastructure spend may provide the clue. EM must find and advise its subscribers.


Vincent Casablanca

Oct 11, 2009

Target prices/ Target sensex: I sometimes wonder about recommendations made by analysts in respect of target prices of stocks or target for sensex. Why would anybody give free advice in the newspapers/magazines/websites. Could it be that they intend to exit the stock and hence the 'buy recommendation'??
Correction: Is it really a difficult thing to conclude, even for a layman, that markets may correct, given the recent surge? What is difficult, for anybody, is to say at what levels will it correct??
RJ: I know about two stocks that RJ had/ has invested in. Crisil/ and Titan. That is one philosophy I agree with (if that is the strategy of his invt). Invest in companies that operate in a monopolistic market (of course the company itself is a monopolist); that have long term FII's as shareholders; no/low debt; ever-increasing consumer demand for its products; Quality product; eminent promoters etc.,



Oct 11, 2009

Nice update.This is purly trading market.Smart traders will make money while amateur will lose.Investors should rely on valuatione rather then FII flow.FII tends to pull carpet when people think all o.k.

Like (1)


Oct 10, 2009

please stock suggest below rs.50/-

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Oct 10, 2009

pls dear you suport to onge high price and low price

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gaurav sharma

Oct 10, 2009

The bull market is over after monday ..........i think nifty after 15 days 4700.....i am a arbitrager

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Oct 10, 2009

its really a 'wholesome' coverage,as i would call it...:-).For a person like me who would want to look at information on overall asset position at the end of the day,this is a good way of doing it...and since it is available to me right at my desk in a consolidated form ,its easier for me to analyse the markets quicker
keep going
all the best...

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Oct 9, 2009


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Subramanian G

Oct 9, 2009

Above I am reading .. "Speaking of fear, ... it is 'fear' that is driving asset prices up currently."

I am a bit confused. Is it not the greed which is driving prices up ?. It is the 'fear' that it may drop make the sellers sentiment. So, if the prices go up still, is it not greed which is majority ?

In a stock market or derivatives market, it is greed which drives up price. In a real tangible commodity trading, it is the fear that prices are shooting, that attracts more buyers.

If diamonds are as plenty as pebbles, no one will stoop to pick them up.... atleast until a media investment is made on it, to show the stones are worthwhile and adds romance. Ask a old timer, he will expose the foolishness in both !

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Narayan MP

Oct 9, 2009

True value comments based on the facts and figures deserves appreciation

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