Wealth October 2010 Issue

Dear Investor,

When the market fell after the 2007 bull-run, the theory of decoupling was widely bandied. People expected emerging markets to grow faster than developed ones as more money was expected to flow into emerging markets. That theory played out in the last quarter of 2007, and the last leg of the bull-run. It is said a rising tide lifts all boats. But in the global financial crisis that followed, a declining tide pulled down all markets.

Today we are witnessing a second round of decoupling. Some emerging markets have crossed their previous peaks and some are near them, like ours. This time the decoupling is stronger. India is the best performing market so far in CY10 and the second best in the latest quarter. So, the issue is whether there will be coupling again, should there be a double dip in the US. Economists refer to the double dip as a concept in which the economy plunges into recession after showing signs of recovery from an initial fall. Even if there is a double dip recession in the US (the probability of which has fallen), the consensus is there will only be a long overdue 5-10% correction in US markets.

The sad part of the current bull-run is that retail has not participated. Unfortunately, there are now signs of their initial interest in the markets and their return. Interest in IPO’s is reviving after good returns from several recent issues. Investors should remember that the Sensex has tripled in 21 months and is due for a correction, even though it may go up first by about 5%. The key to making money now, and always, is distinguishing between momentum and value investing. The current momentum provides opportunities that may not necessarily be good long-term investments. Hence, it is important not to convert stock bought for momentum into long term investments. For value investing, India is an interesting bottom-up market with the Sensex at 20,000 points and the Nifty at 6,000. Despite rich overall valuations, specific large caps in high-growth sectors hold the potential to deliver steady returns over the next 2 to 3 years.

The top picks are SBI, BHEL, M&M, Infosys and GAIL.

Value
Bharti Airtel, ING Vysya, BHEL, Dewan Housing (DHFL), Siemens CESC . . .

Mid cap Research
CMC Ltd, Persistent Systems Limited, The Great Eastern Shipping Co.Ltd. . .

India Strategy
Indian markets are in euphoric times. This is evident in the strong performance of benchmark indices, above average valuations, unprecedented FII flows, large IPO subscriptions, increased traded volumes, and so on. Based on a top-down and bottom-up analysis, our investment view is that at current levels of over 20,000 Sensex and 6,000 Nifty, India remains an interesting bottom-up market. Despite rich valuations overall…

Market Outlook
The Nifty started September on a strong note, with the August high of 5,549 points being crossed on the 6th September 2010. This breakout was followed by a spectacular rally in the Nifty, which saw a move past the upper end of the 1-year rising channel at 5,750 points on the 13th September. Thereafter the Nifty shattered the 6,000 point-barrier on 21st September. This fast move to 6,000 points beat our expectations as we did not expect the Nifty to cross 5,750 points in September. The Nifty then paused for breath as a consolidation between 5,930 and 6,070 followed for the rest of the month. The Nifty closed September at 6,030 points, a gain of 628 points. All major sectors were gainers but outperforming sectors were banking and metals, and underperforming sectors were oil & gas and power.

Fund Of the Month
DSP BlackRock Small & Mid Cap Fund

Insurance is a need, not a myth
Life insurance is an often overlooked part of a family’s financial plan. Life insurance is meant to help your survivors should an unforeseen event occur like death of a breadwinner. It is advisable to buy life insurance if you have dependents or are planning to start a family…

Commodities Technical Snapshot

Gold- Gold future prices on the MCX for December delivery are trading in the higher lows pattern, which is a positive indicator. Recent support for gold prices comes at Rs8, 940. If gold breaks this barrier, prices could falltoRs18, 840. There is good resistance at . . .

Copper – Copper futures on the MCX for November delivery have been trading in positive territory over the past couple of months. Good support comes at about Rs 341. The RSI and Stochastic also indicate some upside in the counter. So, dips can be used as. . .

Crude Oil – On the MCX crude prices have been trading in the 3,300-3,830range. There is support at 3, 400 of 27 DMA and Rs 3300

Resistance is at Rs3 630-3,830. The RSI is stable at support of the middle band while Stochastic indicates some downside. We expect crude to continue. .

Jeera- Looking at the Fibonacci retrenchment, there is support for Jeera at12, 770 of 61.8% and the 9 DMA moving average, whereas resistance is at. .

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