Where the indian stock market is headed?

Currently the Indian Stock market is hitting new highs every day. BSE SENSEX is trying to touch 17000 and NSE NIFTY moving towards 5000 marks.

From March 2009 the Indian market has continuously raised and gained around 90% from the March lows. This was pretty much due to the below reasons

1) Increased liquidity in the Overall Global Markets
2) Improving Economic situation of the global economies
3) Majority Congress Government after recent India Elections
4) Better Q12010 results by the Indian corporate

Due to all these reasons above and also the improvement in the rain in India, the Indian markets are roaring to reach the new heights. Now the market players are betting on the good Q2 results from the Indian corporate. If the results come in line with the expectation of the market then definitely we can see further up move of 10 to 20 percents from these levels. And also if the results don’t come as per the market expectations there will be definite down move.

Somehow to me it looks like the market has run beyond its fundamentals and currently the valuations are very expensive. Any major negative news can spoil the market sentiments and drag it down by 10-20% from these levels. Leaders all over the world are taking necessary steps to keep the momentum going. The money pumped by the different governments in the economy is fueling the stock markets. Due to the excess money in the market everybody is trying to cash-in on the increasing markets which in turn accelerating the pace of the index growth.

The worldwide fundamental issues like the unemployment, housing rates, Industrial growth rate, are not improving as the market is expecting it to be. The Indian market has run much beyond the current fundamentals of the market and the overall economic situation in the world. Any bad news from US or china can disturb the sentiments very badly. Different corporate are also trying to cash-in on the improved sentiments of the market. They are coming up with IPOs with stretched valuations, getting funds by QIPs, coming up with the follow-on public offers, rights issues, direct sale of the shares to the Institutional investors etc. India’s biggest private sector player RIL has also sold some treasury shares at an average price of Rs. 2125 accumulating an amount of US $664.

Selling of stocks by the promoters to raise the money is kind of alarming situation and the retail investors need to be very cautious here on. The market is consolidating and moving upwards on any slight positive news from US, or any other part of the world. Also there have been lot of emphasize given on the local growth or domestic growth story for India. It is pretty clear that India as a country has tremendous potential for growth but the markets are running much beyond the fundamentals.

Considering the overall situation it looks like the Indian Market will keep up moving till the Q2 results in hope of better results from the cooperates. But there is major chance of a big correction in the range of 10-20 percent in the very near future. Any bad news from US banks, China bubbles, and Swine flu influence can start the downward movement for the market.

Pipavav Shipyard IPO Analysis

Background and Business activities

Pipavav Shipyard is shipbuilding and repair facility, co-owned by SKIL Infrastructure Ltd. and Punj Lloyd Ltd. and also counts Singapore’s Sembcorp Marine Ltd. among its stakeholders.

Pipavav Logo

Pipavav Shipyard currently has not commenced commercial operations and is engaged in building the Pipavav Shipyard located on the west coast of India adjacent to major sea lanes between the Persian Gulf and Asia.

After the construction of the shipyard is complete Pipavav would be able to construct and repair ships and vessels of various sizes and construction of products like offshore rigs, jackets and vessels for oil and gas companies. Pipavav right now has agreements in place for the construction of 26 Panamax bulk carriers with the capacity of 74,500 DWT each for delivery from 2009 to 2012.

Pipavav Shipyard picture

Price Band and issue dates

 Price band – Rs. 55 to Rs 60 a share

Dates         – Between 16th September 2009 and 18th September 2009

Size            – 8.55 Crore Shares (Rs 470 – 513 Crore)

Objectives of the Issue

Construction of facilities for ship building, Ship Repair

To meet the working capital requirements

Key Risks

Possibility of Order book contraction

Current Order Book US $930mn.However recently there has been a sharp fall in the prices of steel plates (constituting 20% of overall cost) leading to substantial reduction in the construction cost of ships. Against this backdrop, Pipavav’s clients have demanded a discount in the billing rates which will impact Margins as well as Revenue visibility going ahead

Risk of Execution delays

 Pipavav will become fully operational post April 2010 even though commercial operations commenced from April 2009. The company will deliver its first vessel post April 2010 with subsequent deliveries expected at intervals of one to three months thereafter. We expect the company to start booking Revenues FY2010 onwards instead of following the % completion method as only the trial runs have begun till FY2009. Further, the government subsidy, which is historically delayed, constitutes lion’s share (60%) of our FY2011E PBT. Our Earnings estimates would be hit in case of execution delays.

Peer Analysis and Suggestion

Pipavav peer analysis

Pipavav’s issue has been factored in company’s strong Order inflow, potential extension of the government subsidy and timely execution. Considering the global and domestic players in the industry the issue looks really expensive. We are suggesting to AVOID the subscription for this issue.

Why Invest in India?

India is currently providing tremendous opportunities for the investors all over the world to participate in the Growth of India. Last two decades had been very important for the developing countries like India and China.

            China has already proved her metal by becoming the manufacturing hub of the world. These two Asian countries are making lot of waves in the investments world by attracting legendary investors for the significant investments.  Giants in different sectors like Automobile, Chemicals, FMCG, Telecommunications, Information Technology, Defence, Infrastructrue, Power etc are entering into India and China via collaborations with the domestic players etc. The investment which I am talking about is the long term investment means for the minimum of 3-5 years. At this stage the Indian stock market is trading at a P/E ratio more than 20 and is almost ready for the significant correction. Any major correction in the range of 10-20 percent will provide decent opportunities for the investors to enter in the quality Indian stocks.

Some of the major reasons why one should invest some portion of his/her portfolio in India are as below

 Stable Government in India

This year India has the general elections in which UPA (United Progressive alliance) led by the Congress Party won the elections by majority as 262 out of total 543 seats.

Dr. Manmohan Singh with Obama

India is the largest democratic election in the world and electorate strength is greater than United States and United Kingdom combined. Continuous second term for this government brings in the continuity in the development activity in the nation.

 Thrust on Infrastructure and Power

India is developing and currently far behind the developed countries in terms of Infrastructure and Power generation and utilization. Power demand and supply situation in India has the deficit of around 12% and Indian industrial sector and the urbanization is hungry for the power.

Worli Sea link project

There is also a tremendous scope for the development of roads, free ways, airports, automobiles, utilities, railways, telecommunication, aviation, hospitals, healthcare facilities etc. The Indian growth story is not solely depending on the export of services and products but it is mostly driven by the domestic consumption. This makes India comparatively less dependant on the other economies.

 Huge population with excellent Skills and big middle class market

India is highly diversified country with hundreds of languages and thousands of dialects.Each and every state in this country is striving for development in different spheres of industrialization. Huge English speaking educated pool of young resources is the major contributing factor for the growth of India. This talented pool of decent earning young People form the largest middle class and upper middle class section on the planet and hence are the great market for consumption. This exponentially growing high earning section of people is fueling the domestic demand/supply mismatch and hence driving the capacity expansion in different sectors.

 Excellent Management and Entrepreneurs

Knowledge based India economy is the fertile ground for the entrepreneurs. Young Indians have a dream to become the next Ratan Tata, Narayana Murthy and Dhirubhai Ambani of the corporate world. India has an extraordinary talent pool with virtually limitless potential to become entrepreneurs and excellent managers. People of Indian origin like Indra Nooyi, Vikram Pandit, L.K.Mittal, Sabir Bhatia, Vivek Paul and Sanjay Jha are highly successfully managers in some of the top companies in USA.

Ratan Tata launching Nano

India is well positioned for the excellent growth in the next couple of years. It provides and excellent opportunities for the investors all over to world to take part in the growth of this country. Any serious growth investor can invest in Indian stocks market on any correction here on. If you are able to grab the Quality stocks/funds at the reasonable price and having a long term horizon for your investment you will surely reap the benefits.