Strong undercurrent By G.S. Roongta

As I had stated with great conviction in the last issue, the BSE Sensex nearly hit the 12000 mark last week as it was within kissing distance of the most important 12K mark. The bulls were, however, terribly disturbed when the stock market crashed on Monday, 11^th September’06 on global cues along with the meltdown in Asian markets on news of a slowdown in the U.S. economy.

G.S. Roongta

On Monday, 11^th September’06, the BSE Sensex fell like nine pins losing nearly 400 points in intra-day trades resulting in panic with big players running helter skelter to cut short their bull position. It gave the impression of another Black Monday being repeated! Again after the Black Monday of May’06, when the BSE Sensex had crashed by over 1200 points forcing the Stock Exchange Authorities to close down the market for one hour to restore normally in an unhappy atmosphere.

Thank God, the market bounced back when it reopened after an hour but uncertainty remained looming large in the minds of investors on account of crash in the market which ultimately took a heavy toll of roughly 2500 points by July’06 end from the high of 12671 on 11^th May’06.

That Monday has now become ominous for stock market ill effects with terrible panic situations that recur on Mondays.

The BSE & NSE authorities should, therefore, perform a puja to stop the demon on Mondays! The BSE Sensex initially drifted lower the next day too to hit a low of 11444 but the news of positive economic data released an hour or so before the close of the market provided the trigger for recovery. The FM’s announcement about the Index of Industrial Production (IIP) hitting a new high at 12.4% in July’06, which is the highest in a decade, reassured the market about the resilience on the Indian economy in relation to the rest of Asian as well as global markets.

It reaffirmed the global thinking about the Indian economy set to make landmark progress in coming years next only to China or even best China’s growth rate in the near future.

Getting a clue about the robust growth in Industrial Production especially in the manufacturing and electricity sectors, it is now pretty clear that India’s GDP growth is headed to achieve 9% growth in 2006-07 as against the target of 7.8% to 8%. There is, therefore, no reason to be pessimistic in as much as the Rain God, too, have showered above average rainfall, which was also well-spread throughout the country.

Once agriculture output, which is likely to witness impressive growth estimates start flowing in it will give a further boost to the ongoing bullish sentiment.

FIIs are well aware of these developments about the Indian economy and it is for this reason that they have changed their mind after their divestments from May to July’06 and led them to re-enter the Indian market.

Let us bear in mind that these players are not doing us any favour by investing in our country. They do so because they know very well that India is a better destination to provide better returns compared to other countries.

If investors take a cue from the day to day fluctuations, they will miss the boat or will fall off in between somewhere in the middle before reaching any destination. The 500 points rally last week is a clear indication of the direction that the Indian stock market is destined to take.

The Sensex rise, as I said last week, is immaterial now and big players who will corner large parcels of stocks give out misleading clues about them deliberately.

If we look at the breadth of the stocks that rose and fell on Thursday, 14^th September’06, it was so narrow as the number of stocks that fell was almost equal to the stocks that rose. Yet the BSE Sensex hit the most sensational level of 12K. This means that the indices fluctuate irrationally to influence the market but the individual stocks tell the true story about the underlying market sentiment.

G.E. Shipping hit a new high of Rs.290, ICICI Bank rose by 22 points to cross the Rs.650 mark, UTI Bank rose by 10 points, Corporation Bank hit the Rs.355 mark rising by 16 points. Bajaj Auto rose by 55 points to over Rs.2825. Each day, several new stocks are buzzing to achieve new heights even beyond those attained in May’06 when the Sensex hit its life-time high of 12176.

Another major bullish factor for the market is the falling crude oil prices, which have tumbled down by US $14, which works out to nearly 20% and will positively impact corporate working.

Last week, Priyadarshini Spg. Mills was recommended. Unfortunately, it could not attract investors’ attention following the meltdown in the market on Monday & Tuesday.

Moreover, small investors who are not fully acquainted with corporate performances are just misled by the broad fluctuations in the market to properly evaluate the merits of good or bad stocks and fall a prey even if they follow the advise of columnists like me because of dis-proportionate fluctuations irrespective of merits.

Anyway, stocks recommended under this column are based on fundamentals and fundamentally good stocks will always rise on merit even if delayed.

Earlier, WPIL was recommended at Rs.30 three week back which has spurted by 20% in just 2 weeks and still has scope to rise further.

Escorts was also recommended under this column which after withering a downturn to as low as Rs.68, it has now crossed Rs.98 to Rs.100 mark based on its fundamental strength.

Those who have faith in the column need not book a loss as fluctuations in share prices is the order of the day and true investors alone can reap a good harvest.

Priyadarshini Spg. Mills is like Escorts. It is immaterial whether it evokes the fancy of readers this week or next week. Because of market fluctuations, I cannot stop recommending fundamentally good stocks. As is I am sure of it evoking investors’ fancy once the market sentiment improves.

This week again a low-priced share is being recommended. It does not need much elaboration as it was recommended earlier also in this column and had evoked a good response but the scrip could not deliver as it was negatively impacted by the global fall in price of its products.

Sathavahana Ispat Ltd.

- Sathavahana Ispat is currently quoted at Rs.25

- It’s book value is Rs.32 with an equity of Rs.26.30 cr. and reserves of Rs.54.25 cr. as of 31^st March’06.

- Its products are pig iron and metallurgical coke with an installed capacity of 2,10,000 MTD and 1,50,000 MTA respectively. Both are raw materials needed for steel production. China is in short supply of this product and is the main importer.

Price: The robust growth the world over of the steel industry has put severe pressure on raw materials such as iron ore and coking coal. Steel prices, which had fallen to US $150 from US $160 per tonne last year have now bounced back and the freight cost to China from Brazil & Australia has also gone up from US $40 to US $70, which makes Indian products most attractive to buy.

Industry: The current outlook of the Iron & Steel industry appears to be quite robust. The Indian Iron industry is, therefore, in a position to reap a good harvest of growth and demand.

Performance Review: After a not so encouraging performance in FY06, the performance in the current year has improved and is expected to do well for the year ending 31^st March’07.

Dividend: Despite its not so encouraging performance in FY06, the company recommended a dividend of 5%. Hopes of a better dividend in the current year are therefore not unfounded.

Conclusion: At Rs.25, the stock is worth buying to reap 50% returns in a year’s time.