A sound investment is your future

MARKET STRATEGY
• Market down by over 33 % in 2008.
• Where the market is heading in 2008 & 2009 ???
• & How to play the situation.
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.
 Global Crisis

•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.
• 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.
Oil is Boiling

•Though the bull run was coincided by Oil price increase, recent
unprecedented increase is unbearable.

% increase FY04 FY05 FY06 FY07 FY08 Jun-08 (2M)

Crude Oil Price 11.40% 57.10% 17.30% -0.20% 67.00% 19.50%

Sensex 83.40% 16.10% 73.70% 15.90% 19.70% 2.00%

• 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.
Corporate Performance

Sales Growth

PAT Growth
EBITDA Margin

PAT Margin
Correction in over valuation
 Way Forward

Oil
• 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.
 Global Crisis
Low Demand for Indian Products
• 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 Inflow
• 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.
 Political Uncertainty
• 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
• 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.
 Corporate Performance

Basic Fundamental Intact

• 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.
 Valuation
Date Nifty PE Nifty Variance Sensex Variance
23 5403 726 18217 2447
22.5 5285 608 17821 2051
22 5168 491 17425 1655
21.5 5050 373 17029 1259
21 4933 256 16633 863
20.5 4816 139 16237 467

5-Jun-08 19.91 4677 15770

20 4698 21 15841 71
19.5 4581 -96 15445 -325
19 4463 -214 15049 -721
18.5 4346 -331 14653 -1117
Fair Value 18 4228 -449 14257 -1513
17.5 4111 -566 13861 -1909
17 3993 -684 13465 -2305
Ten Year Average PE is 17.98
 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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 A sound investment is your future

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