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com October 2005
India has long been on the "to watch list" of many investors due to the country's tremendous potential for growth (the Indian economy is expected to grow 7% by the end of this fiscal year) and rapid industrialization. India (currently experiencing a 2-½ year stock market boom) is one of the world's fastest growing global economies (the fourth largest in size) and features a population that represents 15% of the world's inhabitants. A rally at the end of September shot the SENSEX to a record high, gaining 7% since September 22, making it one of the best performing markets globally.
Although India boasts a diversified industrial base, the country's world-class IT and software technology sector led the rally, with companies such as Wipro (NYSE: WIT), Infosys (NASDAQ: INFY) and Satyam Computers (NYSE: SAY) leading the major earners. Mutual funds accounted for much of the buying during the rally, but analysts are confident that foreign international investors will react to the trend and follow the institutional money trail.
Peaks and Troughs
The Indian market is still considered to be in the Bullish region (even as the rally seems to have reached its peak, just prior to the corporate earnings season). Investors are hoping that corporate performance follows market expectations, and at the moment are adopting a cautious stance until corporate earnings are announced in the near short term.
The record breaking SENSEX rally's recent slowdown has been attributed to investor concern over a sharp slide in global markets, but market participants are optimistic that strong Indian economic fundamentals, and good second quarter corporate reports will result in a continuing run of prosperity. Infosys Technologies, Tata Consultancy Services (NYSE: TTM), Associated Cement Companies (BSE: 500410) and Wipro are among the companies who will be reporting mid October.
The Quest for Liquidity
Gulbir Madan of Neptune Capital Management believes that a quest for liquidity was the driving force behind the record-breaking rally. "Liquidity is a big deal for any market - the Chinese market is also liquid due to the fact that the Chinese government keeps dumping stock. " In contrast to China where much of the growth is state owned and corporations are government backed, India however, is still very much private sector driven.
Just prior to the news that the SENSEX was experiencing a dip (the index dropped 2% on October 6th alone), Neptune's Madan told IndiaStockMarket.com that he could not see the rally continuing, at least not at its current pace. That is not to be considered as bad news, however. "The rally has been a product of too much euphoria, " said Madan, "even the locals have jumped into the fray. Going forwards, India will be, in my opinion, a great investment story, but the market needs a shake out of the weak hands - the velocity of the current rise has been too much and too fast. A healthy correction will do everyone a great deal of good. The correction has already started and will probably go on for a few months. "
"There are a great number of opportunities with smaller companies that are experiencing growth in India, " said Madan whose largest position is in the market leader Reliance. Madan revealed that he also sees opportunities within the company Bajaj Auto, as well as the growing infrastructure space.
India currently features approximately $537bn of opportunity in the infrastructure sectors of power, water, transport, roads, ports, railways and airports. At a recent FICCI (Federation of Indian Chambers of Commerce and Industry) seminar, Sweden's Minister for Communication and Regional Policy, Ulrica Messing, stated that Sweden had confirmed an interest and commitment to invest in Indian infrastructure and to provide technical expertise to Indian firms for the purpose of infrastructure development.
Happenings in the Indian Market
Also on the horizon: India's second-largest bank, ICICI Bank (BSE: 532174), confirmed that its board would meet on October 13, to vote on the issuance of new shares. Bharat Heavy Electricals Ltd. (BSE: 500103), India's biggest electrical engineering firm, stated in a recent release that their last dividend payment (80 per cent or Rs 195. 81 crore for 2004-05) was the highest of the company's history.
Dr. Reddy's, one of India's largest drug manufacturers, recently received approval from the US Food & Drug Administration for multiple strengths of their anti-diabetes drug Glimeperide (a generic version of Sanofi-Aventis' drug, Amaryl). The company also received tentative approval for their anti-cholesterol drug Pravastatin (a generic version of Bristol-Myers Squib's Pravachol).
In late September, Aethlon Medical, Inc. (OTCBB: AEMD), announced that they would begin clinical trials of their Hemopurifier(TM) (Aethlon's Hepatitis-C (HCV) treatment technology) at the Apollo Hospital, New Delhi. Aethlon Chairman & CEO, James A. Joyce, stated, "The unfortunate reality is that 50% of Hepatitis-C patients who initiate the current standard of care fail this exceptionally toxic treatment regimen. " Joyce continued, "We clearly envision that our Hemopurifier(TM) treatment technology will improve patient outcomes as an adjunctive therapy, and will serve as an effective disease management tool as a stand alone treatment. "
As with every stock exchange, not all the goings on are rosy. The Securities and Exchange Board of India (SEBI) recently took another step in their crackdown on penny stocks by issuing an order that required leading brokers to cease dealing with several companies: Eltrol Ltd. (BSE: 530835. BO) (the company recently changed its name to "Shree Mahaganga Sugar Mills"), Ganpati Finsec (BSE: 531343. BO) and Ind Tra Deco (BSE: 504336).
Going For the Gold
The Indian gold sector is bristling despite volatile world gold prices. The World Gold Organization released a report at the beginning of October stating that gold consumption in India (the world's biggest importer of gold) would surge by 33% to 850 tonnes by the end of 2005. The Indian Central Bank currently holds 358 tonnes of gold in their reserves, and in the past two weeks, due to skyrocketing global gold prices, the value of these reserves increased from $4. 5bn to $5. 3bn. The forecast of India's increased gold consumption was based on higher individual incomes and good farm output (the yearly monsoon season in India this year was mild).
Reflecting this increase in individual income is the fact that the demand for consumer durables is at a ten year high (according to a report by Morgan Stanley). An AC Nielsen report for the first half of 2005 shows that high-end consumer items in particular are in great demand - items such as home theatres, refrigerators, air conditioning units, washing machines, and flat screen television sets. Demand for laptops was at 123% year on year growth for the second quarter of 2005.
The rapid growth of the Indian economy is expected to bring with it a shortage in skilled and experienced middle management staff. Various labor market experts predict that by 2010 the Indian workforce will consist of 83 million people. To prepare for this labor market growth, Manpower Inc. recently doubled the size of their operations in India, and is in the process of implementing their existing proprietary assessment and training programs for the Indian market.
Manpower in India
Jeffrey Joerres, Chairman and CEO of Manpower Inc. discussed with IndiaStockMarket.com his company's expansion of operations in India: "Manpower Inc. 's Indian business started several years ago with services that were not along traditional Manpower service lines. Our main service line is contract staffing but we went into India with services such as permanent placement, selection and assessment. We recently decided to create a much bigger footprint, as India is a market that absolutely will require a growing sophistication of hiring practices. "
Manpower Inc. just released news that they had acquired three divisions of ABC Consultants, India's leading professional executive selection and recruitment firm. "Since joining together with ABC we have more than doubled our footprint and have now become the largest provider of employment services in that market. This is both a strategic and tactical investment for us - the Indian market is on fire right now. "
"India features a robust labor market with a tremendous amount of talent, " said Joerres "particularly in the office/IT side. Some of the employee turnover rates that multinationals were experiencing in their centers, while previously acceptable have now become unacceptable. Right now companies need to make operations as efficient as possible. This means selection of the right employees as well as the right management. At the moment first line and second line managers are hard to come by. "
"India is growing into the outsourcing sector, and currently Indian companies are in a stage of increasing sophistication, productivity and efficiency, " continued Joerres. "In many ways this is the same scenario that many Western companies in China are going through - now that a sector is becoming several years old, the next stage is to make operations as productive and efficient as possible. We do not project a great deal of growth in the outsourcing sector in India, but we do see the trend continuing, and this continuation makes for a very robust market. "
Catching up to China
China is considered to be the world's dominant manufacturing and industrial center. The growth of India's economy however shows that this country is catching up fast. India's manufacturing GDP is experiencing 11. 4% growth due to a higher global demand for Indian manufacturing goods, higher national purchasing power and therefore growth of national demand for Indian made products. In terms of percentage growth, India is catching up to China, while in absolute terms, China still remains dominant
Brian Noer
Brian Noer has a degree in Business and Economics from the University of Western, Ontario. His career in the financial markets spans sixteen years and several continents, including: Manager with The Bank of Montreal in Canada, Associate Analyst with the structured finance group at Moody's Investor Services in the UK, and Editor for several financial trade magazines in the UK for both Thomson Financial Publishing and Euromoney PLC (titles include Thomson's trade magazines "The International Securitisation Report", and "Capital Market Strategies", and Euromoney's "Asset Finance International"). Brian is the Writer, Editor and Research Associate for the InvestorIdeas.com portal team.
Disclaimer: www.InvestorIdeas.com/About/Disclaimer.
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