Our web coverage of India is courtesy of Taran Marwah [alternate email: Taran]  Last Updated: 12/04/2006 11:54:56 Mon, 18 Apr 2005 19:24:25 GMT

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BSE SENSEX closed today – Friday 1st Dec’06 at a lifetime high of 13,845. Up 5.40 % from 3rd Nov’06 close of 13,131. History was created today at both BSE and NSE. SENSEX today tested  a new lifetime high of 13,858 ( just 142 pts. short of 14,000 mark) on an intra-day basis and so did NIFTY at 4000 level. For the period under review the high and low for SENSEX were 13,858 and 12,950 respectively. The Indian stock markets were on fire in Nov’06 as in Oct'06. SENSEX just fell short of 14,000 mark ( R3 for last month ). Briefly - Real Estate, Banking, Cement and Infrastructure stocks were on fire testing their life time highs. Other sectors, which were also in demand, were – Two Wheelers, Media, Telecom and LCVs. However the equity market lacked depth. Only a handful of mid-cap stocks apart from the blue chips were in action. Sugar and Metal stocks were weak in Nov’06.


At this level of SENSEX the Indian Equities trade at about 20 times their P/E multiples for 2007 earnings as against 10 - 14 times for the rest of Asian Markets. The Indian Economy has grown at a fantastic rate of  9.1 % for H1 for the current fiscal, as per figures released by Ministry of Finance, Govt. of India. The annualized GDP growth rate as anticipated for this fiscal by GoI is now revised at 9.0 % as against 8.0 % at start of the financial year. This is indeed commendable as agriculture sector is lagging and exports are down on Q2 to Q2 basis for the current and last fiscal. This P/E multiple of 20 for ’07 earnings for Indian Equities makes me nervous. This figure is not justified as per my understanding. We have to be realistic with comparison to BRIC economies and other Asian peers. I still stand by my word that Indian Equities are in a “Bubble Zone”. There can be a savage correction from 14000+ levels. 


FIIs pumped in US $ 2.03 billion into Indian Equity Markets in Nov’06. This is the highest monthly inflow by FIIs in this calender 2006. Hence the SENSEX hit new highs on account of this FII liquidity. In Oct’06 FIIs pumped in US $ 1.78 billion into Indian Equities. Total FII investment into Indian Equities till 1st Dec’06 calendar is US $ 8.70 billion. In calendar 2006 – FIIs pumped in record US $ 10.70 billion. In calendar 2006,  new FIIs registrations with SEBI are 170. Total number of FIIs registered with SEBI as of date is  993. Domestic MFs only invested only  US $ 72.0 million in Indian Equities in Nov'06. Looks like they are following ' Wait and Watch Philosopy'. 


My question is how many of these FIIs registered with SEBI ( through their Mauritius branch offices ) are genuine FIIs and not are front companies of Indian politicians, underworld and businessmen ?  It is worthwhile to mention here for retail investors that 90 % of  all FII investments into Indian Equities is through Mauritius – a tax haven with which Indian Government has signed a DTAT i.e. Double Taxation Avoidance Treaty. Why the same treaty is not in place with other global tax havens viz – Isle of Man, British Virgin Islands, Dutch Antilles, Bahamas, Gibraltar etc ? Can someone from the Indian Finance Ministry answer this simple question for me for the sake of millions of small investors in India ??? I smell a rat here !


I am sure that there is a nexus between Indian politicians and the businessmen/underworld for keeping Mauritius as the safest haven, so as to launder ‘slush funds’ into the Indian Stock Markets. History will endorse my statement as above one day !


 I do not deny that the Indian Economy is the second fastest growing economy in the world after China and also India is a functional democracy. As per my limited understanding the P/E multiple of 20+ does not even justify end 2008 fiscal earnings. Please note that - BSE SENSEX has moved up from a level of 8929 as on  14th June’06 to 13,845 as of today in less than six months. This is a whopping increase of 51.00 % -  Out performing all Global Equities Indices ! Please correct me if am wrong on this figure.


Investors forget again and again about India’s macro level economic parameters. One cannot ignore these fundamentals in the event of a robust 9.0 % annual GDP growth. Our fiscal deficit is still a cause of serious worry. The biggest hit to the soaring fiscal deficit this financial year is the implementation of the ‘populist’ measure by the current coalition Government in New Delhi – “ The Rural Employment Guarantee Scheme”. This translates to a direct extra expenditure by the GoI this fiscal to the tune of US $ 1.20 billion. This is the on account of running a coalition government in India. Leftists have stopped all reforms in India and the Indian Prime Minister has admitted that he cannot tread on a path, which is not approved by the Leftists, who support the current Government in New Delhi, India. Secondly - India still is a deficit Current Account Economy. Exports have dropped in Q2 of  2006 vis a vis Q2 of fiscal 2005. This may be on account weak US $ and signs of slowing down of the American Economy. India cannot be insulated from the world economy today. For the past few months SENSEX is on a brisk cantor ignoring all global equity indices.


I still have not finalized my note on  India’s red-hot ‘Real Estate’ Sector as I am still waiting for the " Real Estate Bill 2006 " to be passed by GoI.. Real Estate prices are shooting through the roof in Indian Metros and also Tier II and III cities in both residential and commercial space for the past two years. In some towns and cities in India the land prices have appreciated by more than 200 to 300 % in the last 24 months. Some listed real estate stocks have jumped by 1000 % ( e.g. UNITECH ) in the last one year or so. These listed real estate companies are around twenty in number at BSE and quote with P/E multiples of 100 to 300. This is just like the ‘dot com bubble ‘ of 1999-2000. Just for ready reference – Commercial Office Space in posh Nariman Point in Bombay is a shade lower than prices in Mayfair in London !


The Indian Govt. is also worried about speculation in the Real Estate Sector and is putting checks in place through the PSU Banks, which have a near monopoly in the Indian Economy. Directives have been issued to the PSU Banks from the Finance Ministry recently that they should extend credit to the real estate developers and builders with stipulated collateral in place. I think the directive is too late. The ‘rabbit is out of the hat’ or you can say ‘the bullet has already left the barrel’ ! The prices are at astronomical levels and crash is imminent as per my understanding of the real estate sector. Anyway - Better late then never ! Also the Asset Securitization Bill has been further armed for Banks to attach the property/land assets of defaulters working in consonance with Debt Recovery Tribunal, under the law of the land. This gives more powers to the PSU Banks to reduce their NPAs. Private Banks in any case are not lending funds to real estate developers and builders since the past two years without proper collaterals.


I may be sounding a bit pessimistic and over-cautious to the investors who are more or less fully invested in the Indian Equities and Real Estate with little cash in hands. I again would like to mention that – Indian Stocks and now Real Estate also are in “BUBBLE ZONE” as was the case in 1999-2000 with the ‘dot com’ sector. I advise investors to be cash rich and preserve their capital.


Stay invested in Gold till mid 2007. You will see a level of US $ 800 as predicted in Oct’2005. It is trading today at US $ 645 pto.


Crude held US $ 58.00 pbbl as predicted in the last month’s forecast. It closed today at NYSE at US $ 63.00+ for Jan’07 deliveries. The GoI reduced the prices of Gasoline and Diesel in end Nov’06 as Crude prices have cooled from US $ 78.00+ to around US $ 60.00 since Mid-July’06 to date spot. This was also a plus for the equity markets although still at these prices GoI subsidizes SKO and LPG. I am sure till the current Government is at the helm of affairs subsidies in Petroleum and Farm Sector cannot be cut further. The Leftist will not allow this to happen. Without the support of the Leftists this UPA led alliance does not have the numbers to stay in power. What can the Finance Minister do to lower the Fiscal Deficit with such huge subsidies in the economy ?  The Finance Minister in my view is still doing a jolly good job inspite of constraints from the Leftists. .


I will advise when to enter the Indian Equity Market with specific stocks after the correction is over, if any. For traders the levels to watch for BSE SENSEX for Dec’06 are as follows :


R1 14000 R2 14500

S1 13600 S2 13400 S3 13000




The Indian Equity Markets are not moving in sync with the global and especially Asian and other BRIC Markets. The SENSEX is on a roll with a strong bullish under-current. I am not recommending any stocks to be purchased at these levels. Take most of the profits ‘off the table’ and enjoy your winter vacation in the Swiss Alps !


Special Update on Participatory Notes( PNs)  :
My apprehensions about 'slush funds' entering the Indian Equities have been endorsed by a leading newspaper in India - The Times of India ( New Delhi edition dated 12th Nov'06). I mentioned about this issue in my last update. This is a very serious issue as the Indian Markets are driven to unrealistic levels by these 'slush funds'. The current valuations of Indian Stocks or Indices are not justified as per my understanding. The BSE SENSEX or NIFTY are currently at their life time highs - thanks to the 'slush funds'. The Indian Stock Market is manipulated as per my understanding. The Indian GDP is growing at 8.0 % per annum and the economy is ''On a Roll" ! I totally agree with the pundits in India on this issue.
My fear is that the Indian Stock markets are partially controlled by the political and business mafia. This is the real issue as far as I am concerned. Just imagine this mafia taking the BSE SENSEX to 14,000+ levels and then off loading their holdings. The retail investor or Indian MFs will be at the receiving end ! The retail investor always loses his hard earned money by entering the Stock Market at higher levels because he does not want to miss the bus ! Greed is the main culprit. Stock Markets Operators are exiting at heated levels and the poor retail investor is entering the Market at these crazy levels - He does not wish to miss the bus !
I am just cautioning again the retail investors that please stay away from the equities till further advise as I feel this 'Equity Bubble' will burst at any levels between 13,500 to 14,000+ levels    
I am printing verbatim an article as below on the subject as above :
Tax havens under watch for money laundering :
Even as the government is debating a law for security scrutiny of foreign investment, Reserve Bank of India ( RBI - India's Central Bank) and SEBI are being asked by the finance ministry to keep a watch on money laundering from tax heavens.
The move,senior finance ministry officials said, marked the first instance of the government's economic set up acknowledging that tax heavens were possible routes for money laundering  - a concern expressed by intelligence agencies in the past few months.Agencies involved economic investigations have in past expressed fears that the tax heavens were being used to route and re-route ill-gotten wealth ( slush funds) by the underworld, politicians and businessmen. In fact , they have expressed fears that the funds were flowing into the Indian Stock Markets through participatory notes ( PNs) issued by FIIs.The draft National Security Exception Bill, circulated by the National Security Council Secretariat, has also suggested that RBI and SEBI  should keep a watch to check the actual source of PNs.
PNs are used are issued in lieu of money received from foreign nationals who do not wished to be identified. The money is then used to invest in Indian Stock Markets. A Finance Ministry background paper has mentioned that the two regulators are being asked to prepare a negative list of 'tax heavens'. Officials, however said that the list was not for purposes of restricting investment flows, either direct(  FDI ) or portfolio(  FII  ), but for keeping a tab on money launderers.
The move could well be a negotiating stance adopted by India to pressurize Mauritius  - which is the largest source of foreign investment to India to amend the Double Taxation Avoidance Treaty. So far, New Delhi has been unsuccessful in convincing Mauritius to amend the pact, which even the Indian Finance Minister Honorable Mr. P. Chidambram said could be misused by companies and individuals. But he has expressed helplessness in amending Agreement unilaterally given the strong political and diplomatic ties with Mauritius.
As predicted in the last update the BSE SENSEX tested 12,900 level and closed today - Friday 3rd Nov'06 at a new life time high level of 13,131 up smartly by 6.1% from 6th Oct'06 close of 12,373. In the period under review the high and low for BSE SENSEX were 13,146 and 12,261 respectively. FIIs pumped in US $ 1.78 Billion into Indian Equities in the calendar month of October 2006. This is inspite of India being the most expensive equity markets in the emerging markets worldwide. I feel the Indian Equities are in a "bubble zone" as explained later in this update.   
The Indian economy is on a roll with good set of Q2 results and that the Indian GDP will grow annually this fiscal by 8.0 %. This said and done, the valuations of the Indian Equities at the current level cannot be justified. This covers all frontline SENSEX stocks and quality Mid Cap Stocks in various sectors.  
The FIIs have already pumped in US $ 2.78 Billion in Q2 of the current fiscal ( July-Aug-Sept'06). This is a record in the history of Indian Equities since the bull run started in April 2003. During the same period as above Domestic Funds and MFs pumped in $ 2.28 Billion ( equivalent in INR) into equities.
I have some serious doubts that the above FII figures are genuine inflows from foreign investors. India generates a lot of 'slush' money in its economy, which is parked overseas in tax heavens or other countries in foreign currency. Some of this money could be entering as FII inflows from tax heavens like Mauritius. The FIIs buy Indian Equities through " Participatory Notes ( PNs)" as per SEBI Guidelines since 1992. These "PNs" are issued by "Sub Accounts" of  FIIs as instruments that can trade in Equities in India. The Indian Government bars individaul entities( HNWIs) to register with SEBI as "Sub Accounts" of FIIs. This "PN" route does not expose the credentials of the actual buyer of Indain Equities. Under this garb of PNs - dubious buyers maybe pouring billions of dollars in Indain Equities. This "PN" route should be abolished as recomended to the Finance Minister the the panel set up for "Full Convertibility" of the Indian Rupee ( INR). I am sure substantial 'slush' money by Indian operators in entering Indian Equities through this "PN" route. If this "PN" route is abolished, I bet the FIIs will pull out funds from the Indian Equity markets. This will lead to a crash in the SENSEX by 30 % or more. But I think this is less unlikely to happen as the Indian Finance Minister will not abolish the "PN" route for FII investment in India. Also the Indian Rupee is not convertible on "Capital Account" as yet and hence overseas HNWIs cannot buy Indian equity directly. They have to go through the FIIs registered with SEBI in India - MERRIL, BEAR STERNS, GOLDMAN SACHS, CLSA, PRDENTIAL, FRANKLIN TEMPLETON, FIDELITY, NOMURA etc.     
It is worthwhile to mention here that India is very low ( 3.3 basis pts.) on M/s. Transparency International's 'Corruption Index'. (Lower the Index - higher the rate of corrution i that nation). The most corrupt nation ( Haiti) has an index of 1.3. Pakistan is 2.2 on the coruption index.      
I have no doubt in my mind that substantial 'slush' money has entered the Indian Equities since the past three years and the Indian Equity Markets are on fire defying all logic. This Equity "Bubble" will burst anytime in November 2006 through April 2007. This crash would be savage and brutal.
Astrologically too the situation for the Indian Economy is not good for the next six months i.e. end Nov 2006 to end March 2007. Saturn will enter Leo for the Indian
Sub-Continent from end Nov'06 as per Vedic Astrology. This stellar movement of Saturn can have sinister implications :
a) Stock Markets can crash
b) Political upheaval or instability
c) Major natural calamites viz Earthquakes, Tsunami etc.
The BSE SENSEX is now in 'Uncharted Territory'. It can go to any highs and the prediction is difficult. The BSE SENSEX can go to any crazy level say - 14,500 in the next fiscal year.
For Nov'06 the levels to watch are :
R1 13,300 R2 13,600 R3 14,000
S1 13,000 S2 12,750, S3 12,400
As per Fibonacci the long term support level for BSE SENSEX is at 11,400.
For GOLD and Crude Oil - my predictions as the same as per last update.
I advise investors to completely stay away from Indian Equities till further advise. Let the SENSEX correct. Do not be greedy. The risk is too high at these levels ( 13,000+) to buy equities in India as per my understanding. Punters and Traders can play this market even at these levels. These guys play in the F & O segment which requires skill and experience. They make money both in bull and bear markets.
Invest in Gold for long term. Do not put your funds into any Mutual Funds which have any linkage to Equities. Put your funds in the 'Debt' instruments for the next six months or till further advise. Balance sit on cash. We will enter when the equity bubble bursts.   
The Indian Real Estate Markets are on fire too. Which bubble will burst first is a million dollar question ?  Equity or Real Estate ? I think equity bubble will burst first followed by the real estate bubble. I will put a note on the red hot Indian "Real Estate" sector in a couple of months. Let this Sector be more regulated by the Govt. of India. This Sector is dominated in India by a few copanies who are listed on the BSE and NSE. The FDI into this Sector is open but I feel ther needs to be Regulator in India for the Real Estate Sector to curb speculation and also dubious real estate developers.

The BSE SENSEX closed today - Friday 6th Oct'06 at a bullish level of  12,373 up 3.8 % from the close of 16th Sept'06 ( 11,918 ). It tested a new three month high of 12,489 on 3rd Oct'06 on an intra-day basis. Global markets were bullish including the American Stock Markets. DJIA tested its record intra-day of 11,928 on 5th Oct'06. Global markets were up as DJIA tested record highs as mentioned above. So were the Indian Stock Markets.
Please refer to my predictions of 10th Sept'06. I said there is a 20.00 % probability that BSE SENSEX could test 12,900 and a double top at this level. It looks like we are heading towards 12,900 level, which will be BSE SENSEX's all time high. BSE SENSEX earlier all time high was 12,671 in Mid- May'06.
Low Crude oil prices at US $ 60.00 was one of the main reasons for global stock markets being bullish. Plus interest rates being stable also was a bullish trigger. Remember Crude Oil fell from $ 78.40 pbbl from Mid July'06 to US $ 58.60 in end Sept'06. This is a massive correction of about 25.00 %. Also FIIs were active buyers of Indian Equities. They pumped in US $ 1.17 Billion in the Sept'06 in Indian equities inspite of India being the most expensive market in BRIC economies and other economies in Asia. Indian GDP growth is estimated to be around 8.0 % this fiscal. Plus India is perceived as the best long term story for equities by FIIs from all over the globe. Fiscal Deficit will be lower with this kind of annual GDP growth. Indian Current account deficit will be lower in Q2 and Q3 as Crude Oil has cooled to $ 60.00 level. 
I advise investors to stay away from Indian Equities as there is approx. 500 point rally form today's close to 12,900 level. The reward : risk ratio is minimal at these high level of BSE SENSEX. It may correct from levels below 12,900 as BSE SENSEX's all time high is 12,671.
It is pragmatic to wait for a correction and then enter the market with some small and mid cap stocks with low P/Es and good management. I am working on a few mid and small cap shares which I will recommend at an opportune time. The front line SENSEX and NIFTY stocks are trading at 17.00 times their FY07 earnings as against 10.00 to 12.00 times in BRIC and other economies like Taiwan and South Korea. I will focus on midcap and small cap stocks for investing as trading calls as I expect major correction in third week of No'06. I will advise accordingly.
Investors who missed out on GOLD can enter now at $ 580+. GOLD should not break US $ 550 level as it did in 1983. There is very strong support at $ 550 levels. If it closes for three days below $ 550 pto exit from your long positions in GOLD.
Crude should hold $ 56  to 58 pbbl. Three days closing below $ 56 pbbl will take Crude to levels below $ 50 pbbl. As per my prediction Crude will hold $ 58 pbbl level.
Indian Corporates start reporting their Q2 ( July thru Sept'06 ) results on 11th Oct'06 onwards. These results will have a big bearing on BSE SENSEX and NIFTY. I expect Indian Corporates to announce good Q2 results and hence BSE SENSEX can test its all time high of 12,900.
Hence please bear  with me till further advise and stay away from Indian Equities. The reward : risk ratio is not worth it at these levels.

September 10 update:
The BSE SENSEX closed today - Friday 8th Sept'06 at a bullish level of 11,918. It tested close to 12,000 during the month of Aug'06 contrary to my predictions. I have studied the BSE SENSEX charts for the past decade in detail and am not getting a clear trend. My analysis is follows :


Crude Oil Aug'06 Futures closed today - Friday 14th July'06 at US $ 76.80 pbbl. The intra day high was a whopping US $ 78.40 for Aug'06 contracts.  I mentioned in the last forecast that equity markets the world over could correct on account of Crude Oil going above US $ 75.00+. I wrote on 5th July: "For three days in a row if US Light Crude Futures close above US $ 75.00 - You will see Crude at NYMEX zooming to US $ 80.00+ in a matter of weeks. Equities will take a major dip globally and the starting point will be DJIA tanking. This can happen in July'06 "

    My prediction was correct on Crude Oil again. BINGO!  For three days in a row (7/10 to 7/12/2006)  Crude at NYMEX closed above US $ 75.00 pbbl. As predicted there was a 'break out' in Crude Oil prices. It tested a record intra day high of US $ 78.40 ppbl today at NYMEX..

    For Dec'06 contracts at NYMEX the prices today were in excess of US $ 80.00 pbbl. Global equity markets have corrected this week lead by DJIA ( corrected by 2.7 % this week ). Others important equity indices also corrected in the world - Japan, Taiwan, Hong Kong, BRIC economies and markets in EC. The correction was in the range to 2.0 to 4.0 %.
    There are a couple of factors which are making Crude Oil traders nervous apart from demand push from America, China and India - Japan's interest rate hike, Israel's proactive attacks on Palestinian areas and Lebanon, Nigerian disruptions due to militant attacks on Oil installations and Iran's nuclear fuel enrichment stand off. It is important to note that neither Israel nor Lebanon are Crude Oil suppliers. It is a question of sentiment which is making traders nervous.
    I feel we are going to see prices in excess of US $ 80.00 pbbl in the month of Aug'06 for Sept'06 contracts at NYMEX if not before. The next level is US $ 84.00 and US $ 86.00 pbbl at NYMEX. One can see prices near to US $ 90.00+ by Oct'06 if the geo-political issues as mentioned above are not settled. Global equity markets will be bearish till Crude Oil stays above US $ 75.00 mark. If it tests US $ 80.00 in July or Aug'06 - Global equity markets will crash including India.

If the above issues are settled Crude Oil prices can dip back to US $ 70.00 levels. Although I am bullish on Crude and Gold for 2006 till mid 2007, I still would advise investors to put strict stop losses while trading in Crude Oil Futures in India at MCX. 
India is growing at about 7.5 % per annum and is only next to China in terms of GDP growth. Earnings season is on and Indian companies will show fantastic Q1 results as evident by Q1 results of the current fiscal ( April'06 to March'07 ) shown by INFOSYS( INFY at NASDAQ). INFY's Q1 results were superb and beat street expectations. If the Crude Oil prices dip to US $ 70.00 pbbl level at NYMEX in the coming two weeks - we can see a big rally in the Indian Stock Markets.

BSE SENSEX closed today at 10,678. The high and lows for the period were - 11000 and 10,500 approx. BSE SENSEX could zoom to 11280+ levels ( R3 as per last update ) if Crude dips to US $ 70.00 levels. The Indian stock markets have discounted the major terrorist attacks in Bombay on 11th July'06 by Islamic militants. Stock Markets would have crashed by 10.0 % on 12th July'06 but Government of India intervened and supported the SENSEX by buying huge amount of blue chip stocks through State controlled FIs. This does not happen in markets like USA and EC. The State does not step in to support falling knives!

I feel that Crude prices will remain firm in July'06 and BSE SENSEX will retest its 200 DMA level i.e. 9600 ( S4 as per last update). The SENSEX could crash to 8750 levels also if Crude Oil prices spiral out of control, FIIs pull out about US $ 2.00+ Billion from Indian Equities and some blue chip companies do not declare Q1 results as per Dalal Street expectations. Seems that 9600 level would hold. But you never know about global geo-political factors which are not in control of  any individual Nation.   
We are in for very uncertain/choppy coming weeks and I advise strict caution to Indian investors who speculate in the Futures and Options ( F & O ) segment in NIFTY, Stocks and Commodities ( including Gold and Crude ). Please do not go by rumours. Study hard facts backed by logic and then invest accordingly in  Futures. There is money to be made 'off the table' in Crude Oil Futures but please invest with stop losses in place or proper with hedging on the commodity exchanges.
In India so far, there is no facility to trade the BSE SENSEX as an Index in F & O segment. NIFTY Index of the National Stock Exchange of India ( NSE ) is traded in the F & O segment alongwith with nominated Stocks. Punters can go short in NIFTY Futures but please hedge with suitable NIFTY Calls. Here also there is enough money to be made as NIFTY could crash to 2820 ( worst case 2600 ) levels from the current levels of 3120 or 3200 levels.

Small investors are strictly advised not to play Crude Oil in F & O segment as this requires expertise and years of experience. Yes they can buy and sell physical Gold investment bars. One can buy physical Gold at US $ 630+ on correction. Target US $ 800+ by Mid 2007, as per Oct'05 update!   

I am not in favour of bearish trends as small investors lose their capital. They do not book profits at the right time in bull phase. Greed overplays and small retail investors are stuck with mid cap and small cap Stocks when the correction sets in as in Oct'05 and May'06 in Indian equity market recently. This update is a 'caution notice' to all investors including the retail ones to exit the equity markets if what is predicted as above happens. Generally it happens with my predictions!  
I can only pray to God that the geo-political issues in Lebanon, Nigeria and Iran are settled soon. Who doesn't like the Bull Markets! 

JULY 2006
BSE SENSEX closed today - Friday 30th June at 10,609. The intra period high and lows were 10,627 and 8799 respectively. I had predicted that if SENSEX closed below 200 DMA i.e. 9600 - The SENSEX could fall to 8750( S3) levels or lower. SENSEX crashed after breaching the 200 DMA as predicted. BSE SENSEX tested 8799 on Wednesday - 14th June on an intra-day basis. The correction was brutal in the Indian Stock Market. But the SENSEX recovered smartly after testing 8800 level. In fact the SENSEX logged its biggest rise on a daily basis in its history on 15th June'06. It rose by 616 pts on 15th June'06. This was a historical day at the BSE. 
As predicted the R1 level for SENSEX - 10,700 was not breached. It fell short at 10,627, very close to our prediction. FIIs were net buyers at low levels in the Indian Stock Markets. The domestic FIs and MFs were also buyers at levels around 9000. The SENSEX bounced back very sharply from 8800 levels to 10,500+ plus levels as the Indian P/Es were now in line their peers in the emerging markets and in Asia - Korea and Taiwan.
I somehow feel the SENSEX lacks conviction although there was big rally in the Indian Stock Markets after the announcement of a 0.25 % interest rate hike by FOMC on 28th June'06. The BSE SENSEX rallied by a whopping total 4.7% on 29th and 30th June'06, as did the all other markets in Asia. The reason was the increase of only 0.25 % interest rate hike by the American Fed. This was in line with the street expectations. If the Fed had hiked interest rates by 0.5% - there would have been major correction in the global stock markets.
The levels to watch for BSE SENSEX in July'06 are :
R1 10700 R2 11000 R3 11280 R4 11500
S1 10400 S2 10300 S3 9800 S4 9600 
S4 -as mentioned earlier is a very important level. This is the 200 DMA level - 9600. This was convincingly breached as predicted in June'06. If this level is breached again in July'06, the BSE SENSEX will again crash to 8750 levels. This can happen on account of any major negative news globally i.e. crude oil price hike beyond US $ 75.0+ or some other negative news from the American economy.   
On the domestic front the earning season is approaching and if the results are in line with street expectations, we could see the Indian Stock Markets stabilize at around 10500+ levels.
My prediction for July'06 is that we are in for another correction which could breach the above S4 level of 9600 for the second time for reasons which could be global or domestic. The Indian "Trade Deficit " is an account of worry. Globally the Crude Oil price hike could be the trigger. Global liquidity tightening could be another trigger for the correction.
The BSE SENSEX is in a zone of 9800 to 10400 but I have a feeling the BSE SENSEX will again test the 9600 levels. This time the correction could be even more severe.
I would advise investors to put money in Gold and Crude Oil Futures, if they missed as instructed in Oct'05 and May'06. Gold can be held in physical form also. Only 25 % of the investor's funds should be invested in Indian Stocks. For the month of July'06 - I would advise investors to have nil exposure to stocks. Sit on cash and enter the stock market when the SENSEX corrects as predicted.
I hope my prediction about the BSE SENSEX is incorrect for July'06!

June 12 Special Update
This is Secial Update as I feel that BSE SENSEX will break its 200 DMA level of 9600 convincingly in the next two days.  
The BSE SENSEX sank to 9201 level on Thursday 8th June'06 and closed at 9296. This closing was well below the 200 DMA level of 9600. BSE SENSEX had its largest single day rally ( since January 1992 ) on Friday 9th June'06 when it closed at a whopping 9810 level - up 514 pts from the Thursday's close of 9296. This was a 'dead cat bounce' and was a false indicator that the SENSEX would sustain 9600 levels.   
The BSE SENSEX closed today i.e. Monday 12th June at 9486 - down 334 pts from Friday's close of 9810. Fear has gripped the market as FIIs have turned net sellers in Indian equities. Domestic MFs are continuous sellers in the Indian equities and there is no indicaion that this panic selling will subside. HNWIs who are invested in Indian equities are also selling across the board. I think the FIIs are pulling funds out of India to get to reasonalble P/E levels.
The selling in equities is not only limited to the SENSEX or NIFTY stocks but is equally brutal in mid-cap and small-cap stocks. The FIIs are worried about the following macro factors in the Indian Economy: 
i) India's Current Account Deficit ( Balance of Payments on trade account) is at US $ 13.2 Billion, which is around 3.5 % of its GDP. This fact is public since March'06. The other BRIC economies have Current  Account ( BoP) surpluses. JP Morgan Chase feels that this level of BoP deficit in India is too high and is at 'palpatable' levels. Also they feel that India attracts too little FDI. This is not 'hot money'. FDI into China in calender 2005 was US $ 53.0 Billion. Brazil and Russia had an FDI of US $ 15.0 Billion each in 2005. India only attracted US $ 6.5 Billion during the same period. Again this information is public since Jan'06. They alongwith other investment guru's like Marc Faber and Jim Rogers feel that all emerging markets will enter 'bear phase' soon as they expect the American Economy to slow down in Q3 onwards. The US $ will strengthen further as compared to the currencies in BRIC economies.
ii) BNP PARIBAS feels that inflation will hit the Indian economy hard as the prices of gasoline and diesel will be raised further. They aslo feel that there is an imbalance in the Indian Banking Sector.
iii) NOMURA feels that Indian Equity P/E ratios are still too high as compared Thailand and Korea. Their report of 5th June'06 mentions that FIIs have only pulled out 7.0 to 8.0 % of their total funds invested in equities in India till 4th June'06. There is a scope for futher withdrawls by global FIIs including NOMURA from the Indian Equities. They feel the fair level for BSE SENSEX would be 8500 to 9000. These are scary levels !
iv) MORGAN STANLEY confirms in their report dated 2nd June that equity outflows from India in the last fifteen days have been in around US $ 2.7 Billion. This is a significant figure as FIIs had pumped in about US $ 4.8 Billion till date of the report into Indian equity markets as per SEBI figures. MORGAN STANLEY feels that the Indian Stock Markets are too dependent on FII flows. This is hard fact. 
I agree with the above discoveries of the FIIs! 
But these so called discoveries as per para (i), (ii) and (iii) by FIIs are stale figures. I am sure there is something more to it than what meets the eye as regards FIIs and the Indian Equities are concerned. They are privy to some information which the common investor is not. I am sure of this. How can views change in just six days!   
What I do not understand is that the how has the situation changed on the 'macro level' about the Indian economy in a matter of two weeks ? On 2nd June the SENSEX closed at 10,451 and today barely after six trading days all the FIIs of the world are talking of BSE SENSEX levels of 8000 or lower. I totally fail to understand what has gone wrong in the Indian Economy in the last six trading days except a hike in the prices of gasoline and diesel, which was far inevitable ? The last time ther fuel price hike was in Sep'05. These FII discoveries are baffling!
These statements have added 'fuel to the fire'. Investors are literally dumping stocks as they feel that BSE SENSEX will crash to 8000 levels or lower. I have to be realistic and follow the trend which is turned extemely bearish in India for the equities over the last ten days.
The BSE SENSEX as mentioned earlier will breach 9600 ( 200 DMA ). The support levels to watch for the next two weeks are: 
S1 9300 S2 9000 S3 8750 S4 8000  
Resistance levels ( R ) remain the same as the last update. I feel 8000 level may not be tested in June'06 and is tested only in July'06. But you cannot rule out anything in the Stock Markets. The fear of the future being so bleak, as predicted by esteemed FIIs as above, has scared Indian investors who are dumping their stock holdings 'lock stock and barrel'. I think we are in for bad times. 
Investors should sell out of equities if the 9600 level is broken in the next two days. Sit on cash.

JUNE 2006
The BSE SENSEX closed today i.e. 2nd June’06 at 10,451 down about 13.0 %from the close of 12,043 as on 29th April’06. The intra month highs and low for BSE SENSEX were 12,671 and a whopping 9827. The SENSEX corrected about 22.4 % in May’06. I predicted in the last month’s forecast that a correction in the Indian Stock Markets would be triggered by external factors. Exactly the same happened!
I had predicted that the BSE SENSEX would test 12,630+ levels. The SENSEX breezed past this level to test a life time high of 12,671 on 11th May'06. On the flop side I had predicted support levels of 11800 - 11500 - 11280 and 11000. But hell broke loose on 15th May onwards and SENSEX started cracking and all the above Support levels were broken in a matter of a week. The final nail in coffin was on 22nd May'06 when the next set of levels below the 11,000 mark were broken in one single day - Black Monday !  
American markets fell, followed by crash in the emerging markets. The fall was further compounded by global meltdown of prices of base metal prices – Aluminum, Copper and Zinc. Gold also corrected sharply from a high of US $ 726 pto at LME on 12th May’06 to US $ 619.00 as on today at LME. FIIs pulled out about US $ 1.6 billion in May’06 from the Indian Equity Markets as compared to US $ 10.0 billion from the emerging markets. FIIs have pumped in US $ 4.0 billion into Indian Equities from Jan to April’06. The equities in the emerging markets crashed including BRIC and other markets in the Middle East. FIIs booked huge profits as Indian Equity Markets were relatively at a higher P/E as compared to other BRIC economies and economies of Taiwan, Hong Kong and Korea. 
On Monday 22nd May there was bloodbath on Dalal Street. The BSE SENSEX fell from 11,143 to 9827 on intra day basis – a fall of 1316.00 pts. This is the single largest intra day fall in the history of BSE SENSEX. The earlier largest fall in absolute numbers on intra day basis was on 17th May 2004, when the SENSEX fell by 865 pts. I was in Germany on 17th May'04 and hence did not witness the carnage which was on account of political uncertainity in India. 
In this case from Friday’s 19th May close of 10,939, the BSE SENSEX crashed to 9827 on Monday 22nd May’06 before noon. This was a 10.0 % ( 1112 pts ) fall in the SENSEX. As per SEBI rules, if there is 10.0 % fall in BSE SENSEX or NIFTY from the previous day’s close, then the trading is suspended for an hour to ‘cool off’ nerves. Hence trading was suspended at BSE and NSE for an hour. After trading was re-started, I think domestic FIs lent support to the Indian Markets and the BSE SENSEX closed on 22nd May’06 at 10,482, a net fall of only 454.00 pts.
There was an all around selling and frontline stocks were hammered, as these stocks are liquid. Mid Caps and Small Caps were treated similarly by other investors. Margin calls of punters were triggered and hence this massive sell off. There was no default by any major broking house in India. 
Analysts have been predicting a correction in the BSE SENSEX from 9000 levels. I predicted that the BSE SENSEX would test 11,000 if the American Markets crashed or on account of some other external factors. I never thought that the sell off would be so brutal after 11,000 mark - All the support levels of 10,700 -10,400 -10,300 -10,000 and 9800 would be breached in a single day. This happened on Black Monday – 22nd May’06. I have never seen a carnage like this in my life. 
The analysts have given the following reasons for the correction in global equity markets including India, which was more severely hit: 
i) Global fall in emerging markets lead by fall in DJIA and NASDAQ. 
ii) Global crash in prices of base metals – Aluminum, Copper and Zinc. There are views that Copper prices can fall further by 20 %. Gold will be stable. 
iii) Hike of interest rates in USA. 
iv) Slowing down of the American Economy, which could lead to recession in 2007. 
v) The change of monetary policies in Japan. The Bank of Japan may hike interest rates from the current ‘zero level’ regime in Japan. 
vi) A stronger American Dollar vis a vis currencies of emerging economies including BRIC. 
On account of all these factors equities on global emerging markets got hammered. The corrections were in the range of 10 to 25 %. Indian Equities were among the worst hit. 
In May’06 in India – The Stock Market was on fire till 11th May. Stocks in the real estate sector with ‘land banks’ were at crazy P/E ratios ranging from 80 to 300 ! Real Estate is supposed to be the next hot sector in India. These stocks got hammered and I think there is a lot more downside in these stocks – Bombay Dyeing, Unitech, Morarjee Realtors, Dawn Mills, DCM, Adani Export, etc. 
Hotel, FMCG, Two Wheelers, Pharma, Auto, Steel, Cement, Base Metals, Oil and Gas, Capital Goods, Paper and Engineering Sector frontline stocks were all on fire on BSE and NSE. Select blue chip stocks in the above sectors in micap were also on fire. Too high and unsustainable P/Es. The list is too long and hence I am not mentioning the individual stocks. There is a silver lining in the India story, but in a bearish market – all good news is discounted ! Indian economy grew @ 9.3 % in Q4 of the last fiscal year ( Jan to March’06). This bullish figure was totally discounted by the stock market. 
The correction set in on 12th May’06 onwards with a relief rally on 17h May’06. After that it was one-way street till the Black Monday – 22nd May’06. This fall or correction was looming large after 12,000+ level of SENSEX but the way it hit even I was zonked! 
I feel we are heading for a short-term correction cycle in the Indian Stock Markets for the next four months. Global pundits are saying that the fair value for BSE SENSEX is anywhere between 7,500 to 8000. I feel there is a very very strong support level for BSE SENSEX at its 200 DMA i.e. 9600.
The levels to watch for June’06 are: 
R1 10700 R2 11000  
S1 10300, S2 10000, S3 9800 S4 9600 ( 200 DMA )
If for any reason say – Tightening of global liquidity, hike in interest rates in USA and Japan, Liquidity crisis in India or other external factors like Oil shock ( $ 80+ ) or Iran fiasco - the 200 DMA of 9600 is breached convincingly then we are in trouble for few months. If BSE SENSEX closes for three days in a row below 9600 then we are in for difficult times. I will give a special update on the situation. 
I hope the BSE SENSEX does not breach the 9600 level in June’06. 
I have been advising investors through Oct’05 to as late as last month that they should reduce their exposure to equities to only 25 % of their investible funds. The risk to reward ratio for equities was too high from BSE SENSEX of 10,000+ levels. Very few investors must have paid heed to my requests. Gold in Oct’05 was at $ 465 pto levels. Crude was at sub $ 60 levels. 
Anyway – I advise investors to please liquidate their equity holdings including ASIAN PAINTS as I feel that BSE SENSEX level of 10,000 (S2) could be breached before 15th July’06. Please book your losses, if you have not done as yet. 
I do not see BSE SENSEX testing 11,000+ till end Sept’06.
We will make a revised portfolio when the SENSEX is at stable levels. 
Till that time keep your chins up and take a break from the Stock Markets. Focus on Gold and Crude Oil to make decent returns. THINK SWISS – PRESERVE YOUR CAPITAL !

MAY 2006
I regret I could not update the India Web for the past three months. I will be regular with my monthly update. 
BSE SENSEX closed today 29th April'06 at a whopping level of 12,043 - Up approx. 24.00 % from the 3rd Feb'06 closing of 9743. BSE SENSEX created history of all sorts from 3rd Feb till close of today. The high and lows for BSE SENSEX for the period as above were 12,102 and 9740 respectively. BSE SENSEX tested 10,003 on 6th Feb'06. It tested 11,101 on 21st March'06 and tested 12,054 on 20th April'06. The year 2006 will be another golden year in the history of Indian Stock Markets. The levels of 10,000, 11,000 all important level of 12,000 were all breached in a matter of three months.
The Indian Stock Markets were on fire after the presentation of the Union Budget for the fiscal 2006-07. The Budget for the next fiscal year is presented by the Indian Finance Minister on 28th Feb of the preceding year. Just for our overseas investors, I would like to remind that in India, the financial year for the Government of India is from 1st April to 31st March.
The Budget was very well received by the investing community both Indian as well as FIIs. The annual GDP grew at 8.0 % and the forecast for the next fiscal is 8.1 %. For the first time the Indian Fiscal Deficit was restricted to 4.0 % of the GDP. This was a fantastic effort by the Indian Finance Minister and investors especially FIIs pumped in a record US $ 1.70 Billion into Indian Equity Market in the month of Feb'06. This is a record of all sorts. Congratulations to the Indian Finance Minister !
During this period all most all the blue chips in Cement, Power Equipment and Transmission, Construction, Engineering, Auto Ancillaries, Two Wheeler, FMCG, Sugar, Steel, Zinc, Copper and Commercial Vehicle Sector Stocks were on fire. I am not giving their details as the list is too long !
I thin only PSU Oil and Gas Sector stocks did not rally on account of huge subsidies in this sector. The Oil PSU Refiners have to bear the subsidies on Gasoline, Diesel, Kerosene and LPG. But the major subsidy is borne by ONGC. This Sector was clearly the under performer. The compulsions of coalition government is the main reason for this huge subsidy in the Petroleum and Farm Sector. The Left Parties oppose hike in the prices of Petroleum products and lowering of procurement prices by the Govt. for Indian Farm Produce. We have to live with this huge subsidies in both the sectors, as above, till 2009, when the tenure of the present Govt. expires.  
On 20th April'06 - Crude futures for May'06 tested $ 75.00 in New York. On 20th April'06 Spot Gold tested US $ 645.80 on an intra day basis. This a new 25 year high for Gold. On 26th April'06 Copper and Zinc tested their life time highs. We stick to our prediction about Gold as mentioned in Oct'05 forecast. Investors can refer to the year 2005 posts at the bottom of this page. 
Property Market in India is on fire too. The debate in India in the investor circle is that which bubble will burst first - Property or Stocks ! There is no denying the fact that the BSE SENSEX and NIFTY have foxed almost all the pundits since early Feb'06. Everyone has been predicting a major ( 10 to 15 % ) correction from 10,000+ levels. There were minor corrections but the BSE SENSEX defied laws of gravity in the past three months and motored past 12,000 with ease. Bears had a very very torrid time. I think they also must have turned bulls after 10,500+ levels !
The Indian Stock Markets are no doubt expensive as compared to its Asian peers and the other BRIC economies. This bull rally is purely driven by excess liquidity by both domestic MFs, FIs and FIIs. In addition almost all sectors in the Indian Economy have met Street expectations as regards financial performance. It has been a phenomenal fiscal year in the Indian History ( April'05 to March'06 ) as the economy grew by 8.0 % - only next to China. 
I feel that the market is in very strong grip of bulls and the BSE SENSEX will test 12,600+ in May'06. The levels to watch are as follows :
R1 12200, 12400, 12630
S1 11800, 11500, 11280, 11000
If there is no major negative global event i.e. Crude past US $ 80+ or a terrorist attack or Iran fiasco - Then the Indian Markets will fall only if the global stock markets tank especially the American Market. Failing which the above levels are relevant.  
In Oct'05 - I had advised investors to park 50 % of their investible funds into Gold and balance into equities. Gold at that time was quoting US $ 465 pto. Please stay invested in Gold. We will start exiting at around US $ 800 by the end of 2006. I now advise investors to further reduce their exposure to equities by 25 %. Hence be invested in equities to the tune of 25 % only of your investible funds. Balance 25 % sit on cash or please invest in tax free debt bonds. I agree with Henry - THINK SWISS AND PRESERVE YOUR CAPITAL after June'06.
I am only recommending one stock which looks very attractive to me even at this level of BSE SENSEX.
Buy ASIAN PAINTS at Rs. 630+ now and exit at Rs. 900+ by the end of May'06 or by first week of June'06. There is huge accumulation in this Paints blue chip between Rs. 630 to Rs. 650 levels. It will explode to Rs. 900+
Cheers to the Indian Stock Markets! 

MARCH 2006
Dear investors and friends:

Due to some unforeseen circumstances at my end the update on India Web Page will not be till further notice.
Inconvenience regretted,
Taran Marwah


BSE SENSEX closed today i.e. 3rd Feb at a level of 9743, up 4.0 % from the closing level of 2nd Jan’06 of 9390. As predicted BSE SENSEX was in a bull orbit after crossing 9600 level and fell just short of the magical five figure mark. It tested 9994 on 1st Feb’06. The intra month high and low for the SENSEX was 9994 and 9158 respectively. History was created yet another time at BSE as SENSEX touched a life time high of 9994! 

BSE SENSEX corrected sharply to near 9150 level ( S2 ) after testing the 9700 level as predicted. The Q3 corporate earnings were a mixed bag but met with Dalal Street expectations and a few sector stocks were on fire again, some of them testing new or life time highs. FIIs were active in the last week of Jan’06. Asian Markets were also on fire during this period. N225 tested 16,700+ levels in Tokyo

In fact almost all the stocks mentioned in Jan’06 forecast tested new highs. Fantastic dream bull run for the said stocks. A few additional stocks as below were on fire in Jan’06 : 


METALS : TISCO, HIND ZINC  and NALCO. TISCO was on fire on account of proposed mega deal between MITTAL STEEL and ARCELOR.

CEMENT : GACL, ACC and ULTRATECH CEMENT. World’s second largest cement manufacturer HOLCIM, Switzerland, picked up a minority stake in GACL. HOLCIM already has a stake in ACC. The Indian cement market is under a consolidation phase. MNC Cement giants wish to gain a foothold in the Indian Market. A few smaller cement companies’ stocks were also near their life time highs.

DOMESTIC PHARMA : CIPLA, SUN PHRAMA and DR. REDDY’s scaled new highs. In the forthcoming budget some tax relief is expected for this sector. CIPLA declared excellent Q3 results and plans to reward its shareholders with a bonus issue of stock.

ENGINEERING : It seems India will excel in manufacturing sector as well and not only services sector - IT Sector. A host of additional companies saw their stocks soaring to new highs in the engineering sector – CROMPTON GREAVES, KIRLOSKAR BROS, CUMMINS, GREAVES COTTON and KIRLOSKAR OIL ENGINES. Some of these companies will be the Asian manufacturing hubs for the parent MNCs – CUMMINS INC, USA.



RETAIL : TRENT and SHOPPERS STOP. This sector is a new kid on the block in India as shopping gets into Malls ! 


Quality stocks have had a dream run in the bull marathon which started in 2003 onwards in Indian Equities. I feel that almost all quality stocks in their respective sectors have reached their fair valuations. In some cases the valuations are over stretched. Hidden gems have to be found for 2006-07. 

Investors should be very careful to put their funds into equities in 2006. We had advised our investors in Oct’05 that out of their total investible funds, only 50 % should be allocated to equities in 2006. Balance 50 % should have been already allocated to GOLD in Oct’05 when the prices were near US $ 465 pto. GOLD tested a new 25 year high at US $ 573.25  pto in London today. Our prediction of US $ 550 pto by Mid 2006 is history now ! BINGO ! 

My prediction that GOLD will be US $ 800+ around Mid 2007 is now on a more sound footing !  Analysts are now talking GOLD at around US $ 600 pto by Mid 2006.      

BSE SENSEX may top off at 10,000+ level. The SENSEX could give a very sharp correction from 10,500 level which could be tested in Feb’06 itself or maybe in March’06. FII funds have slowed in Jan’06 as compared to calendar 2005. FIIs are sitting on the fence with large funds to be invested into India. So far the allocations have been below expectations for the Indian Equities. We do not know when will the FIIs enter again with a bang. Domestic FIs are flush with funds and analysts feel that this time around domestic FIs will fuel the rally past 10,000. 

I feel that BSE SENSEX will correct very sharply in Feb or March’06. The trigger could be Union Budget blues, Crude Oil spiking above US $ 80+ or an adverse political development in India

I advise investors to take profits home in Feb’06 rally, if any. Please do not put any funds into equities till the SENSEX corrects as mentioned above. The levels to watch in Feb’06 are ; 

R1 9850 R2 9940 R3 10,000

S1 9600 S2 9500 S3 9420

In event of Crude Oil spike the global markets will crash and so will the BSE SENSEX. Union Budget due on 28th Feb’06 could also be viewed as negative by FIIs and they might decide to pull out a couple of billions of dollars. In case any of these two events do happen - Do not be surprised to see a level of around 9000 or even 8750.   

No new stocks are being recommended for investment till first week of March’06. I repeat it will not be able to make money in equities as easy as in 2004 and 2005. In 2006 it will be extremely difficult to get multiple returns in equities. Investors should be content with 45 to 50 % gains in equities in 2006. Investors should curb their greed and be realistic. The years like 2004 and 2005 are a rare phenomenon wherein investors got returns on equities ranging from 50 to 500 %. These were golden years for the Indian Stocks. 

Indian GDP is expected to grow @ 7.5% next fiscal as per the Indian Finance Minister. This is a commendable GDP growth rate in view of high energy prices in India. Economists agree with this annual GDP growth figure but Indian Fiscal Deficit is cause of worry. Indian total fiscal deficit still is hovering around 8% of GDP. This level maybe is one of highest in the developing world. In an ideal situation this figure should be around 3 %. 

Let us see how the Finance Minister handles this issue in the forthcoming Union Budget for the next fiscal which will be presented in the Parliament on 28th Feb’06. In India Budget has an impact on the economy unlike the developed world where this is a ‘non issue’. The Left Front will insist on a populist Budget, which may not be well perceived by the FIIs. Subsidies in Farm and Petroleum Sector will be forced upon by the Leftists and this further leads to bleeding of the coffers !

 Let us hope the Indian Finance Minister does a good balancing act in the Budget. We all wish him luck as he has a very tough job at hand!


I wish all the investors, clients and my associates a very prosperous and a profitable 2006 !


BSE SENSEX closed today i.e. 2nd Jan’06 at a bullish level of 9390, up 5.0 % from the close of 2nd Dec’05 level of 8962. BSE SENSEX created yet another history today as it tested an all time high of 9457 today, although on an intra day basis. The monthly high and low for the BSE SENSEX were 9457 and 8784 respectively.


FIIs pumped in US $ 2.0 Billion into Indian Equities in Dec’05. This is a record of all sorts. As predicted on account of this FII activity – BSE SENSEX breezed past 9300 level with ease in Dec’05. It is now close to 9500 as predicted. FIIs pumped in US $ 10.5 Billion into Indian Equities in calendar 2005 as against US $ 8.5 Billion in calendar 2004. Japan was a new destination in 2005 and now we hear that FII funds from Middle East are chasing Indian Equities. 2005 was a great year for Indian Equities and will be remembered in history as the BSE SENSEX breezed past new levels of 7000, 8000 and 9000. It seems that everybody in the world financial sector wants to have a share in the Indian Equity Pie !


I feel 2006 will be another landmark year for Indian Equities. I feel it is a matter of 9 to 12 weeks from today to see the predicted level of 10,000 for BSE SENSEX, if FIIs keep up their commitments for the Indian Markets. The said rally will purely be liquidity driven and may ignore fundamentals in the sectors or individual stocks, as in the recent past. Analysts expect that in calendar 2006, FIIs will pump in close to US $ 12.0+ Billion into Indian Equities. In this event one can expect BSE SENSEX even at higher levels during the next fiscal year.


During the month of Dec’05, quite a few sectors were on fire ! Selected Stocks in these sectors scaled new highs. Brief details are as under :








TWO WHEELERS : BAJAJ AUTO was on fire ! TVS MOTOR and HERO HONDA tested new highs.


TRACTORS : M & M deserves a special mention. This stock has had a dream run. After being ex-bonus it rebounded back to Rs. 500+ which was the cum-bonus price. This stock has much more promise in 2006.


POWER EQUIPMENT COS :  This year was probably one of the best years for investors who put their money into – BHEL, SIEMENS and ABB. Nearly 100 % returns in 52 weeks !


MNC PHARMA : The Domestic Pharma major- RANBAXY was a disappointment. We had recommended this Sector for MNCs. AVENTIS, MERCK, PFIZER were on fire !




IT SECTOR : INFY, SATYAM and WIPRO inspite of a weak Rupee.


I feel that calendar 2005 was a special year for Indian investors. The credit goes to the select Indian Companies who dared to benchmark themselves with global levels. Not to forget FIIs who reposed faith in the Indian Economy and select Indian companies.


Economists agree with the Indian Finance Minister that 7.0 to 7.5 %  annual GDP growth is sustainable in the next two to three years inspite of the pressure from the Left Front and high crude oil prices. At these GDP growth rates FIIs will be active in the Indian Equity Markets ahead of other Asian Economies, as India has shown to be a true working democracy. I also feel that inspite of high crude oil prices, this GDP growth rate is sustainable in the Indian Economy.


GOLD tested US $ 540+ pto in Hong Kong on 12th Dec’05. There was a sharp correction from this level to $ 495 level in the next two weeks. It is back again on its upward journey ! I feel that $ 550 level will be tested much before June 2006. Analysts are now talking about a level of US $ 570 by July’06 !


I feel that BSE SENSEX will be bullish in the month of Jan’06. FIIs will continue to pump in funds into the Indian Equities. The levels to watch for Jan’06 are :


R1 9500 R2 9600 R3 9750

S1 9300 S2 9150 S3 9000


I feel there is a very strong support for SENSEX at 9000 levels. If the BSE SENSEX can break past 9600 levels in Jan’06 – one can see fireworks on Dalal Street. SENSEX can test 9750 in a matter of weeks. I expect a very sharp correction from 9600-9750 levels. Please book profits at 9600+ levels. Re-enter at 9000 or 8750 levels. 


It seems that Crude Oil prices in the range of US $ 60 to 65+ pbbl have already  been factored in the Asian Economies for the next  years. Other Asian Stock Markets too were on fire during Dec’05. NIKKEI, KOSPI, HANG SENG and TAIWAN ST Indices tested new yearly and/or five yearly highs.


No new Stocks are being recommended. Quality stocks across a few potential sectors have had a dream run in the past six months in 2005 as mentioned above. I will recommend additional stocks when the market corrects. We have to find quality virgin Midcaps and Smallcaps in Indian Equities which will be new multi baggers in 2006-07. It will not be easy to make mega bucks in the Indian Stock Markets in the next fiscal as valuations would be stretched on almost all the blue chips. Hard research is required to spot hidden gems. I have already recommended six stocks last month, which I feel will be multi baggers in 2006-07.


Cheers for the Indian Stock Markets in 2006!

BSE SENSEX closed today i.e. Friday – 2nd Dec’05 at a life time high of 8962. Up whopping 11.0 % from last month’s close of 8073. History was created today at BSE as the SENSEX tested an all time high of 9056. BSE SENSEX breached past the all important 9000 mark on 29th Nov’05 on intra-day basis. The high and low for the BSE SENSEX for Nov’05 were 9056 and 8050 respectively. The BSE SENSEX was in a bull orbit in Nov’05 and surprised almost all analysts including the undersigned.
The FIIs came back with a bang in India, in Nov’05 after pulling out US $ 840 Million in Oct’05. The figure of US $ 600 Million mentioned in the last month’s update was an approximate figure. FIIs poured in US $ 902.50 Million in the Indian Equities in Nov’05. On top of this Domestic FIs and MFs pumped in US $ 123.00 Million. Indian Stock Markets were on fire from 14th Nov’04 onwards. The action was in frontline SENSEX and NIFTY Stocks most of which tested their all time highs/new 52 week highs. Some Midcaps were on the same trajectory. This sudden pumping of funds by FIIs was on account of a few factors  - Robust Q2 GDP growth announced by Govt. of India – 7.5 % , No further interest rte hikes in USA and Bullish stock markets in Hong Kong,  Japan and South Korea etc. The respective indices – HANG SENG, N225, KOSPI etc testing new 52 week highs or five year highs. For Q1 of this fiscal the Indian GDP growth was 8.1 % ( China’s GDP growth during the same period was 9.4 % ). The Indian Govt. feels that the annual GDP growth this fiscal would be in excess of 7.5 %. This would be only next to China in the world.      
FII investment into Indian equities this fiscal till date have been US $ 8.70 billion. If FIIs continue to pump another US $ 1.0 billion or so in Dec’05 – we can expect Indian Stock Markets to test new highs. The Indian Stock Markets are heavily dependent on FIIs flows for directions/trends in the future. I feel that FIIs will continue to pump in funds in the Indian Equities but cannot estimate the quantum of funds. I feel that BSE SENSEX should test new highs in Dec’05.
The levels to watch for Dec’05 are :
S1 8750 S2 8540
R1 9100 R2 9300
There is a very strong support for the SENSEX at 8540. If BSE SENSEX drops below 8540 - expect a free fall to 8250 levels. One cannot rule out anything in Stock Markets. FIIs may decide to pull out a billion or so as in Oct'05 !
BSE SENSEX can breach past 9300 levels and if this level is sustained, I expect the BSE SENSEX to test 9500+ in Dec’05 itself. The figure of 10,000 may then be tested this fiscal itself i.e. by 31st March’06, if FIIs continue to pump funds as they have been doing so far in the current fiscal except for Oct’05.
GOLD tested US $ 505.30 pto in Hong Kong. It is on its journey towards $ 550 pto as predicted !
I feel NYMEX Crude would be US $ 60.00+ for Jan’06 deliveries during Dec’05.
We would like to recommend the following Sectors and Stocks for our investors :
  1. Defence Sector : In India, the production of Defence Hardware is primarily with the Govt. of India A few years back this sector was opened to Private Sector Indian Companies. We feel this sector is a virgin sector in India and returns can be fantastic in the medium to long term future, provided one can pick up top quality blue chip stocks. We in India do not have the likes of Lockheed Martin, Raytheon, Boeing, Northrop Grumman etc. We strongly recommend the following three Stocks in this Sector in India : 
a)      KIRLOSKAR OIL ENGINES : This Stock closed today at Rs. 198.00, a new 52 week high. This is a Rs. 2.00 paid up Stock. We feel that the Indian Navy ( Mazagaon Docks Ltd. ) will place a huge order for six units of diesel engines with this company by Jan’06 for propulsion of its Diesel Electric Submarines through 2007-2010. The current EPS is Rs. 90.00.We expect the FY’06 EPS at Rs. 150 and FY’07 Rs. 180. We expect a price of Rs. 400 in the next 9 to 12 months. Markets discount the future. Maybe one can see this price earlier !
b)      NELCO :  This Stock closed at Rs. 113.20. It tested a new 52 week high of  Rs.123.00 in Nov’05. The company has started delivering ‘ IR Ground Sensors ’ to the Indian Army and huge orders are expected in the near future from Ministry of Defence, Govt. of India. There is also a strong possibility of this company getting orders from Indian MoD for Ground Surveillance Radars. I expect the price of this Stock to double in the next 9 to 12 months to Rs. Rs. 240.00+.
c)      L & T : Our old favourite engineering stock tested Rs. 1810 today. We had predicted in March’05 that this stock will test Rs.1800 in 9/12 months. Bull’s eye ! We predict the Stock to double from this level of Rs. 1800 to Rs. 3600+ by Mid 2007. By this time it would have bagged a US $ 1.5 Billion order from MoD, Govt. of India for supply of 155 mm Towed Howitzers for the Indian Army. In addition it is also working on a few select niche projects for the Indian MoD.
  1. BIRLA ERICCSON : We fancy this optical fibre manufacturer in India ahead of its peers – VINDHATELE, STERLITE OPTICS, AKSH OPTI etc. This Stock closed today at Rs. 32.95. The 52 week high and low for this stock are Rs. 49.00 and 21.00 respectively. This is a turnaround stock and there is huge demand in India for optical fibre to meet the telecom infrastructure of  both Govt. of India and Private Telecom players. The OF from this company commands a small premium in the marketplace because of its quality. We predict that the Swedish partner will buy out the Indian partner – BIRLA Group in this JV Company in 2006. I predict this Stock to be Rs. 60.00+ in 12 months.
  1. WOCKHARDT PHARMA :  This Indian Pharma major closed today at Rs. 443.00. It’s 52 week high and lows are Rs. 557.00 and 325.00 respectively. We fancy this stock ahead of its Indian peers – REDDYs, BIOCON, PANCEA, SHANTHA etc. WOCKHARDT has already made significant progress in the Biogenerics Sector in Europe. It is a leader in India in EPO, Human Insulin, IFN and G-CSF products. It is expected that global ‘Off  Patent’ Biogenerics Market would be worth US $ 10.00 billion by 2010. As of today it is worth US $ 0.30 billion. WOCKHARDT will face intense competition from global players like – TEVA, STDA, NOVARTIS and smaller niche companies like- GeneMedix, Rhein Biotech and BioPartners etc. I feel WOCKHARDT is a Rs. 900+ Stock in Mid 2007.
We wish to point out one small macro issue for the Indian Economy – Fiscal Deficit. For the fiscal 2004-05 the gross Fiscal Deficit of Govt. of India was 8.3 % of GDP. This is a cause of worry as with the Left Parties providing support to the current Congress led UPA Govt. in India, this figure may end up close to 10.0 % by 31st Mar’05 against a budgeted figure of 7.7 % of GDP by the Planning Commission. Compulsion of running a coalition government in India with the support of the Leftists, who are blocking all reforms and not allowing to cut subsidies !!!
Cheers to the BSE SENSEX in Dec’05 !

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