Indian Stock Market News, Information, Tips, Analysis, Reports

Nifty and Sensex touched all-time highs last week. Indian companies are rushing in to tap the capital markets and raise funds. The price of crude is rising. Interest rates have risen tremendously. Looking at the various macro economic indicators, one wonders if this is the right time for investing in the stock market. Will there be enough liquidity in the system to lap up the new public issues? Do rising crude prices and rising interest rates signal the end of the bull run? No, says Morgan Stanley.

Morgan Stanley believes SENSEX will touch 50,000 by 2020. Most people would laugh this out. At the moment a target of 50000 for the sensex seems impossible. I had the same feeling a few years back when I saw an interview of Rakesh Jhunjhunwala on CNBC predicting a target of 12000-15000 for the SENSEX when the SENSEX was below 6000. Everybody including the anchor of the show laughed it out thinking Jhunjhunwala was just trying to be humourous. But he wasn’t. He was damn serious. Last week the SENSEX reached his target of 15000. When SENSEX first hit the 12000 mark, Jhunjhunwala revised his target to 25000. Now Morgan Stanley has indicated a target of 50000 for the SENSEX. If Indian companies continue to grow at the pace they are presently growing at, SENSEX will cross 50000 much sooner than 2020. My top 3 picks continue to remain

1. Larsen & Toubro
2. BHEL (and)
3. IVRCL Infrastructures

The Reserve Bank of India (RBI) left the key lending rate unchanged at 7.75% today, despite worries about inflation. Analysts say that RBI took these steps to ease the upward pressure on the Indian Rupee which touched a 9 year high against the dollar earlier today.

RBI estimates the economy to grow at 8.5% in the financial year ending March 2008. This is lower than the 9.2% expected for financial year ending March 2008.

RBI kept the reverse repo rate unchanged at 6% and held the bank rate steady at 6%. There was also no change to the cash reserve ratio CRR beyond a previously announced increase to 6.5% due on 28 April 2007.

RBI reduced interest rate ceilings on non resident deposits. RBI also proposed allowing corporates to repay more external commercial borrowings (ECBs) ahead of schedule. RBI also proposed increasing the aggregate ceiling for overseas investment by mutual funds to $4 billion from $3 billion and increased the foreign portfolio investment limit for listed firms.

The realty sector which is interest rate sensitive and has a very high leverage spurted after this announcement was made today. After remaining subdued for the last few months this announcement served as a major boost for real estate stocks. Real Estate majors such as Unitech, Indiabulls Real Estate, Ansal Housing, Mahindra Gesco Developers, Parsvnath developers, Akruti Nirman, and Sobha Developers had surged ahead in today’s trading. These scrips registered gains between 5% and 10% each.

Another sector that surged after the RBI announcement was made is the banking sector. Banking stocks spurted. Banking majors such as State Bank of India, ICICI Bank and HDFC Bank registered gains between 3% and 6%.

The Indian rupee has risen to 41.72, which is its strongest level against the dollar since May 1998. This will lead to a huge drop in profit margins for Indian IT companies. Markets have realised this and already the IT stocks have been beaten badly.

In anticipation of the rise in rupee, all the major Indian software companies have gone in for some protection.  TCS is said to have obtained a $1 billion hedge at a price range range of 43.50 - 44. Infosys Technologies has a forex cover of $ 470 million. Currency risk can be mitigated in 2 ways. The most common way is to hedge, by selling dollars future and buying rupees through the rupee dollar futures market. The other way to mitigate risk is by buying put options. However, both these methods have their own “costs” attached with them.

Inflation falls to two-month low at 5.74 despite rise in prices of major food products as well as some fuel and manufactured items.. Late week inflation figures stood at 6.39%. This has been a major relief to the RBI and the governement, ahead of the crucial Uttar Pradesh assembly elections.

India’s forex reserves cross $200 billion, for the first time ever. As soon as this data was released by the RBI, the rupee touched a 8 year high and breached the 43.50 per dollar mark. This level was last seen 8 years back!

Reserves have risen rapidly in recent months on the back of growing foreign investment, higher remittances and increased overseas borrowing by Indian companies. The buoyant Indian economy and the Indian stock markets are primarily responsible for this. India is now the 5th asian giant, having forex reserves of over US $200 billion.

Inspite of RBI moderation, the rupee has appreciated nearly 10 percent since July. Companies exporting goods and services, especially the Indian software companies, have been severely affected due to erroding margins. These companies have not been able to increase theire billing rates because of severe competition and hence the profit margins have taken a hit. RBI is now a bit hesitant to intervene and buy dollars because it feels that could fuel inflation as more rupees come into circulation.