Investments in the Indian markets- 2010

Guys, I sometime back, I had mentioned that I started entering the indian
markets, post election results May 2009. Since then, I have invested in
roughly about 90 different stocks, with an everage return of about 40%. Nothing
great, considering the fact that the Sensex then was about 14500 or so.
Marginally better than the index rate of return, but nothing earth-shattering.
Some stocks have risen very modestly and some have been multi-baggers, but
overall, quite a muted performance. And I am not unhappy with it. Reason? - I
had exited the market just before the elections, expecting yet another hung
parliament. The people proved me wrong ( no thanks for that), but by the time I
quit the market, I had booked quite decent gains, since Oct 09. Remember, I was
practically out of the market from Aug-2008 till Oct 2009, since I believed that
valuations had then hit the roof.

Cut back to Jan 2010. The market currently trades at a FY 10 PE of 20+,
indicating that upside potential is limited. On the other hand, with the
impending meltdown 2.0 of the US Financial system ( God know when and how much
that will impact), the downside risks in the shorter run appear to be high. I
am not yet pulling my money out of the market, since I see free money, derieved
from near-zero interest rate funds in the US and Euro zones - what is commonly
referrred to as carry trade- continuing to drive the Asian markets higher.
Remember, other Asian markets have given even better returns over 2009 than the
indian market. The trick now, is to time the exit and wait for yet another
round of correction.

My recommendation for those of you who think they have missed the current run is
- WAIT for the correction, and then get in. If you dont want to wait, then the
next best alternative is - invest regularly in small and equal amounts every
months, and ride the ups and downs, with a view to staying in the market for the
long haul.

On the sectors, I had written in this forum in Oct 2008 about my contrarian
positions that I was then taking in SUGAR sector, since I believed that it was a
cyclical business. My sugar portfolio has given my close to 300% returns since
then.

If there is one sector that I see as contrarian right now, it is REALTY sector.
But I am not willing to thrown in my hat just yet. Reason? The impending
interest rate hike, which I expect to take place between March and June. That
will dampen activity in the sector even more. The other industry that will be
affected by interest rate hike is the two-wheeler biz. The car makers are
realtively more immune to it.

Sectors to watch out for :

1. Banking , Auto and Realty - without these three industries showing good
growth, there can be no India Growth Story.

2. Cement - has excellent potential with infrastructure gaining importance , but
I expect a glut starting 2H 2010 with all new capacities expected in 2009 coming
on streaming ( due to delays) this year.

3. Steel - grossly over-rated . There is a glut in world steel production, and
the Chinese are cutting down on further investments in Steel factories. Without
the American consumer growing in the real sense of it, there can be no growth in
commodities.

4. Sugar - has more or less had it's run. Expect heavy political noises to bring
down the prices. Add to it, Brazil is expecting a good crop this year, and that
will help stabilize prices.

5. Power - invest only if you have the appetite to wait for 5 years. Returns
wont be immediate.

6. infrastructure - has had it's run. Upside will be selectively good. Pick the
right companies to invest, and stay invested for the long term.

7. FMCG, Pharma - I am never a fan of these over-hyped industries.

8. IT Inudustry - virtually none.


Any specific stock picks for me? Short-term - NONE ( infact exit the market).

Long term - if I were to invest today for the long haul, here are a few picks -

1. Axis Bank - has the best potential among private sector banks in terms of
growth . Be aware of impending interest rate hikes, and expected increases in
NPAs ( write-offs) across the sector.
Sate Bank of India - as long as Indian Government transactions continue to
happen through SBI, expect it to do very well.

2. Crompton Greaves - I expect this to become an Indian MNC over time. Has the
management expertise, and the vision for it. Over-priced right now - wait for
corrections.

3. L&T and Reliance - the usual suspects . There can be no India growth story
without these.

4. BEML and BHEL - strong and steady orderbooks in their respective fields.
Strong execution capabilities. Plus possible further divestment.

5. Shree Cements - Extremely strong balance sheet. Strong growth of over 28%
compounded YTY. One for the cement industry. Expect short term pricing pressures
due to impending glut.

6. Renuka Sugars - strong managment, diversification into Brazil in a big way.
Risks - sugar is close to peaking, if not yet already there.

There are a few other small-cap stocks that I am risking my personal bet on.
Either turn-around cases, or companies with good order visibility and
comparatively low PE even today. They are far riskier though.

I have shared with you, my actions so far, and my thoughts on possible picks.
These are purely mime, and in no way constitute any recommendations for you.
Please do you own homework before deciding what is best for you.


Have fun, investing ( and punting) in 2010!

Cheers... Dilip