The relay in the Indian Stock Markets

Published by admin on November 3rd, 2007 | Tagged Business, News

This is a guest blog post by Mr.Navendu Dogra.Navendu Dogra, 22, lives in New Delhi and works at a financial research firm. He is an investor, a basketball player and a foodie. Any feedback/comments/questions can be addressed to
navendu_dogra@yahoo.com

For the past one month, all of us have encountered a similar headline in our tabloidized newspaper about an “adult sensex” at 18,000, “last of the teens at” 19,000 and the more recent “20-20 sensex” at 20,000. Each of the 1000 points was completely blown out of proportion. Consider this, the journey from 19,000 to 20,000 points took 11 trading sessions and an increase of just 5.25%, whereas back in 1992, the journey from 3,000 to 4,000 took 22 trading sessions and an increase of 33.33% (courtesy Harshad Mehta).

The idea behind such an introduction was to explain why we’re scaling a thousand points so easily, and to hopefully try moving on to the bigger question - Should you invest at 20,000 or has the train left you behind?

The short answer to that is NO, its not too late. The longer version of the answer goes something like this. This massive rally has been extremely stock-specific, carried forward only by the likes of Reliance Industries, Larsen & Toubro, Bharti Airtel, Reliance Communications, ICICI Bank and HDFC (by the way, I’m in no way saying that the scope of these companies is over, they are still going full-steam ahead). What I’m getting at is the fact that the journey from 5,000 to 20,000 has completely negated certain sectors that remain very cheaply priced and hold treasures that will unlock themselves in the future. The hopeful investors waiting on the sidelines should pay heed to such sectors.

There’s one such space that has been a bit of a laggard and I thought I should share it with the readers. The Indian chemicals sector has been a “Cinderella” of sorts in this bull market. The chemical stocks, now in October 2007 are more or less at the same level as they were in October 2003 (with the exception of Tata Chemicals). For example, Punjab Chemicals and Crop Protection Ltd. (BSE: 506618) was Rs. 124 levels in October 2003 and at Rs. 133 levels in October 2007, Bihar Caustics and Chemicals Ltd. (BSE: 500057) has given returns that barely beat inflation.

Having said that, I would like to put forth the fact that there is definite earnings visibility in these companies. Take for example Gujarat Alkalies and Chemicals Ltd. (BSE: 530001). The company has been on a capital expenditure drive since the last fiscal setting up a 12,500 tonnes per annum (tpa) hydrogen peroxide at Dahej, Gujarat and commissioning it in August 2007 and another project with a manufacturing capacity of 50 tpa of anhydrous aluminium chloride, at Dahej, scheduled to be commissioned in December 2008.It is also expanding its caustic soda capacity by another 400 tpa. The company has a well scattered portfolio of 26 products and caters to industries like paper, pharma, textiles, soaps and detergents, pesticides etc. There have also been talks of the company scouting for a private equity deal and it recently signed a MoU with Dow Europe, the world’s second largest chemical player to explore business possibilities. The stock currently trades at a very reasonable P/E ratio of 7.39. Considering the kind of expansion the company is undergoing and the fact that its driving force is the domestic demand, which is expected to remain firm, makes this an excellent pick for the investors.

So, ladies and gentlemen, a new race is about to be run, with the starting point at 20,000. Place your bets and hope that you’re an early bird, for once!
Navendu P. Dogra.

Disclaimer: The views expressed in the article are personal. The readers must consult their financial advisors before taking exposure to equity as an asset class.The author has some of the stocks discussed in the article.