Dalal Street

I contradict the views expressed by Mr S P Tulsian statign that Reliance Petroleum is a good buy. Please note that Mr Tulsian holds Reliance Petroleum and has probably bought them at levels of Rs85 and thus recommending it to small investors. Please don’t fall prey and avoid this.

Some facts about Reliance Petroleum

1.Reliance’s Petroleum unit is in deep shit. They are unable to supply oil at the same cost as PSUs do. Their Petrol Pump franchisees are complaining and thus reliancei s paying out of pocket to maintain the goodwill.
2.Reliance Petroleum doesn’t even have a refinery so where is the question of stock outperformign or moving up ?
3.Reliance Petroleum will be subsequently merged into RIL(Just liek old man Dhirubhai did in 1990. Their was Reliance Petroleum too, which got merged into RIlL. Those Reliance Petro shareholders got lesser returns compared to benchmark SENSEX).

So kindly avoid this scrip. If Mr Tulsian was wise, he would have justified the earnings potential of Reliance Petroleumbut he hasn’t so it means he has vested interests.

Moneycontrol analysts predict the opportunities arising of drugs off the US patent regime. Even though the BSE Healthcare has underperformed compared to sensex, these analysts are bullish on the Indian pharma industry and calls it a darkhorse.

Dr Reddy’s and Ranbaxy are well geared to take advantage of an off patent regime that has started recently. Cipla is growing through tie-ups with global pharma companies.

In the outsourcing segment we like Nicholas Piramal, Jubilant Organosys, Shasun Chemicals, and Cadila Healthcare. We are also looking at some niche stories like Marksans Pharma and Hikal Chemicals.

We like Dr Reddy’s in the short-term and Ranbaxy and GSK Pharma for the long-term as they are good value buys.

Now small/retail Indian invetors can also ride the Indian realty boom. Highlights of Subrmanyams article as it appeared on Moneycontrol. SEBI has released gudieliness on Realty Mutual Funds.

Advantages to the investor
Reduction of Risk (single property vs. a portfolio of property)
Smaller amounts can be invested
Easy Redemption
Diversification

However for the savvy investor with good investible surplus, and a high risk appetite the returns from a direct investment in property could be higher. However such a savvy class is in the minority.

Disadvantages to the investor
1. Lack of transparency in deals.
2. Inadequate documentation of history of prices at which deals are struck.
3. Cash element.
4. Legal hassles.
5. Low professionalism.
6. Low regulation
7. Lesser liquidity especially as compared to equity markets
8. The industry could also be a victim of pricing manipulation or fraud
9. Lack of talent appropriate for this industry
10. High transaction costs.
11. Lack of uniformity of laws governing property across many States in India.

Also how will the NAV be calculated ? What are the basis for the same ? It is unclear until someone really hits the market.

NOTE: Till now HDFC & Kotak had realty funds which was only for the high networth individuals(Minimum Rs 5 crores investment was needed with a lockin period of 3 years or 7 years)

Indian market valuations which were fairly valued couple of weeks ago now seem to be overstretched. Indeed they are. Dr. Mark Mobius of Templeton investments is of the opinion that India is trading at a forward P/E of 20 while other emerging markets are at 13. Also note that their is no significant FII investment in the country. It is just Rs1418 crores for the month of June and Rs254 crores till date in July.

Indian Investors be carefull as their will be stock specific activity in the coming days. Book atleast 30% profits today if you have bought at 9000 levels. SELL now!!

In a recent report by Citigroup, they estimate that office and commercial property price may not melt down as their is still huge demand for the same. However, the returns are also not likely to be exuberant from current levels. Yields are liekly to be around 15% on development projects.

Trammell Crow Meghraj adds that, In the current scenario, it makes sense to go for long-term investing. Short-term investing is not advisable given the economy’s inflationary pressures.
In the contest of Indian Comemrical Real Estate, short-term means an investment horizon of 2 years. Medium-term means a period between 2 to 7 years. Long-term is more than 7 years.

I had an opportunity to participate in a conference call with HDFC funds manager, Tushar Pradhan. Excerpts from the call are as follows.

• Tushar feels that the larger extent of sell off in India compared to other emerging markets is not justified. Hedge funds are supposed to be the party spoilers with large sell offs after US interest rate hike. They are looking for short term gains just like GREEDY investors. They can’t hold the stock for years, for example, Hindustan Lever., took a while for the company to turn around. More on HLL later.
• HDFC fund conducted a review with 220 odd companies and none of the companies have changed their guidance or earnings estimate. (Courtesy: Milind Barve). Tushar also held the same view.
• Bear market ? What ? Are you crazy ? What is a bear market ? Falling corporate earnings, falling GDP, high inflation & double digit interest rate. Do you see them in India ? No. Loud and clear, we are not heading towards a bear market.
• Equity investments are for long term only. In the context of Indian economy, long term is a minimum of 3 years. In the context of American economy, long term is 7 years. For lumpsum investments, HDFC had launched a fund with 5 years lockin period, HDFC Long Term Equity fund. However, I advise you to go for SIP.
• HDFC hasn’t seen significant fund outflows.
• Corporate Profitability for 06-07 & 07-08: What has happened is, in 2001 the Indian markets bottomed out as corporate earnings hit a new low. From 2002, the situation started improving and was clearly visible in 2003. So that financial year, you might have seen a company grow 75% to 100%. In the next financial year they again grew by 50%. But that was only possible because their earnings had decelerated in 2001. From now on you won’t witness the same growth, but a modest growth of 20% is achievable.
• On HLL: It is an excellnt company with professional management. Worldclass products and highly efficient distribution and logistics channels. During weak economy, the company suffered a lot. Took a while for it to turnaround. But with retailing boom insight, the company is well poised to take advantage of its Brands and Distribution channels. HLL is a long term story. He didn’t specifically mention to BUY or SELL this stock, but quoted as an example how Hedge Fund managers were in a hurry to dump it.
• To a question by a MF sales person, Tushar asked them to look for a return of 12-15% over next 5 years, but I am confident they will outperform that. I expect atleast 20% compounded return. So once again, have long term view and INVEST, INVEST and INVEST on Dalal Street.
• The overall underlying tone of Tushar was very bullish and confident for any investor who is looking from long term perspective. Also Tushar holds the opinion that Equity is the only asset class that can give superior returns in long term.

Thanks & Happy Investing!