THE CASE OF THE BULL

Even as I key in this editorial, the markets have scaled a new all-time high. The optimism which had been surrounding the markets following the general elections has now turned so exuberant that all targets on the higher side look small. From around 20,000 in November 2013, the Sensex hit close to 24,000 in mid-May and is now trading slightly above 26,000. What is interesting is the depth of this phenomenal rally. The BSE Mid Cap Index has appreciated from 7,510 in May 2014 to 9,311 currently, a 24 per cent rise in just over a little more than two months. The Small Cap index has done even better. From 7,630 in May 2014 the index is currently trading around 10,200, up by a huge 34 per cent.

 This kind of optimism is unprecedented. But the best thing about the market right now is the belief in the fundamental strength of the economy that is driving it up. Market activity over the past month or slightly more than that has been absolutely driven by fundamentals. From hope, the focus has now moved towards the unfolding of action. Globally, while the economic situation has been improving, geopolitical disturbances have been raising their heads. Ukraine, Russia, Iraq and Israel are boiling pots. That should have ideally played a big role in arresting the market’s upward movement. However, what is happening is completely contrarian. There is not even a slightest hint that this market will ever look back.

Rs 71,383 crore! This number should be enough to answer all questions about why and how the markets have scaled such dizzying heights. That is the net amount FIIs have invested in the Indian equities year-to-date. This class of investors has been the one driving the Indian equity markets forever. The retail investor is yet to come, and all of the action witnessed so far is, thanks only to the big money coming from these overseas investors. It may not look pertinent to touch upon points like whether round tripping of Indian money is happening in the context of the FII infl ows. Aft er all, there are some solid fundamental reasons why global investors are so bullish on India.

 The new government’s action plan has kicked in with the announcement of its fi rst Budget. It is now time for action on the ground, which would in turn translate into pure economic growThand hence keep the market’s upward trajectory intact. One good thing that has emerged from the Budget is the government’s intent of cutting red tape and ushering in an era of quick and eff ective decision making. That should help a lot going forward. Coming back to what the markets are up to, one look at the line-up of companies vying to hit the markets with their primary issues should tell you what the mid to long term future looks like.

 There are close to 20 companies which have been reported to have either lined up their IPOs or are looking at raising funds from the primary markets. All these put together are looking at raising a sum of close to `17,900 crore. That speaks a lot about the confi dence that the markets are exuding right now. Another factor that refl ects this point is the monies being raised by companies like Flipkart. According to reports, the company is set to announce one of the biggest fund-raising by any e-commerce company very soon. It is looking at USD 1 billion which will reportedly come from its existing investors. This speaks a lot about the infl uence that Indian businesses are having on foreign investors.

 At Dalal Street Investment Journal, it has always been our stated mission to be ahead of the curve and help in the process of wealth creation. This issue cuts through the Budget to cull out some very interesting sectoral picks that will add immense value to the portfolio of our patrons. We are recommending just one stock from each of the sectors that we have analysed from the Budget perspective. These are based on some solid fundamental research and are sure to add value going forward.

 As usual our regular recommendation features include Biocon as the Choice Scrip and the state-owned GSPL as the Low Priced Scrip. Biocon is the fourth largest insulin player in the world. The major growth driver for this company going forward is expected to be its biosimilar product portfolio. Currently, it is working on eight biosimilar products under the exclusive arrangement with Mylan besides the rh-insulin, which the company is expecting to fi le in the US and EU once the Malaysian facility comes on stream. The imminent opening up of the biosimilar market in the US and the high entry barriers make Biocon an interesting pick at the moment. The Low Price Scrip for the issue is GSPL, which we believe with the increasing use of gas in industrial areas and coming from the most industrial state, will be a big benefi ciary. Also, its debt repayment may improve the profi tability of the company. The transmission volumes are very close to bottom and expected to pick-up in near future which will be benefi cial for the company going forward. It would be good to hear from you on how this issue helped you in your investment decisions.