THE BUSINESS OF EDUCATION - International Indian

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significant change. Two things – the
greenback’s appreciation against the rupee
in recent weeks and the lag effect in having
weekly inflation numbers – may have
caused the difference. For example, crude
oil at $106 a barrel in real terms now means
$118 a barrel owing to the appreciation
of over 11 per cent in US Dollar vis-à-vis
rupee in the past four months,” believes
analyst Sundar Patel.
But such is the sentiment, that even
known names are finding it hard to sell their
brand value in such sluggish weather. In the
middle of August, Tata Motors announced
its plans to raise funds to part finance the
$2.3-billion acquisition of Ford’s iconic
auto brands Land Rover and Jaguar. The
latest proposal is slightly different from one
the auto major announced in May: That it
would raise Rs 7,200 crore via three rights
issues. There’s no change in two proposed
issues to raise Rs 4,200 crore. However, the
Tata’s have dropped a third rights issue of
five-year 0.5 per cent convertible preference
shares to raise Rs 3,000 crores. Instead, the
commercial vehicles and car giant has opted
to raise that amount through a divestment
of its stakes in group companies.
Around the same time, the Aditya Birla
group company Hindalco became another
Indian mega-corp— which had also made
a multi-billion acquisition, of aluminum
giant Novelis for $6 billion—to reign its
capital-raising game plan. In June, the Birla
aluminum major had proposed to raise
Rs 5,000 crore by issuing one rights share
for every three held, at a price of Rs 120.
According to the Centre for Monitoring
Indian Economy (CMIE), Corporate India
has investments totaling Rs 71,10,334 crore
lined up. But the question is: Where is all
that money going to come from?
The tamed sentiment on the Dalal
Street is taking its toll on all forms of
equity capital-raising: Initial public
offerings, follow-on public offerings,
private placements and depository receipts.
Rights issues have been a trendy way for
corporations, but as the tinkering in the
Tata and Hindalco blueprints indicates,
such fund-raising isn’t , without its share
of hiccups. Hence, bank lending has raced
up but as corporate chieftains (like ICICI
Bank MD K.V. Kamath) have warned,
“
There is a
possibility that we
would get better
levels. Therefore,
there is no compelling
reason to go and buy
because stocks have
corrected now. The
broader undertone
will continue to
remain bearish.
”
rising interest rates (which haven’t yet
peaked) threaten to throw a huge spanner
into the mega-expansion plans of Indian
promoters. What’s more, the higher cost
of debt will result in interest costs rising
further, eating more into India Inc.’s profits
(interest expenses as a percentage of sales
have already begun rising in the quarter
ended June 2008, compared to the previous
year’s corresponding period).
So what does all this means to retail
investors? Should they hold on? Technical
analyst Deepak Mohani thinks that for
those people who have got a nice blue
chip portfolio for several years, there is no
reason to dump. “There is no reason for
people with a long-term portfolio of blue
chips they have had from 5 or 6 years to
get out. They can absorb this decline and
get into the next bull market,” he says.
According to him, the trouble is more for
those people who have got into the market
in the last one or two months. He advises
them to “book their losses even though they
may be substantial enough.”
Jaideep Goswami of HDFC Securities,
on the other hand asks people to bide their
time and postpone their buying. “There is
a possibility that we would get better levels.
Therefore, there is no compelling reason to
go and buy because stocks have corrected
now. The broader undertone will continue
to remain bearish,” he says. “We need to see
the overwhelming sense of optimism, which
is not yet back. People are basically looking
for profits even now. We may see some
buying coming at lower levels in stocks
like Larsen & Toubro or Ashok Leyland or
Maruti Udyog for that matter,” he adds.
Clearly, there is a sense of caution and
even analysts are not sure which way the
markets would swing now and what kind of
strategy would be effective in these troubled
times. This dilemma is best summed up
by T S Harihar of Karvy Stock Broking.
“The only strategy that I can think of is
a volatile strategy, where one just takes a
bet that the markets will be volatile. The
only thing that I can bet on is volatility.
One can make combination buy calls and
puts. Other than that, it is very difficult to
take a directional strategy in this market,”
Harihar concludes.
However, there could be some brave
souls who are even now looking for profits
in this volatility. In a volatile stock market,
where prices change rapidly, there are two
main strategies that can deliver good longterm
gains to investors. The first rule
is to believe in another age-old proverb.
Do not keep all your eggs in one basket.
Hence, diversify. You should invest in a
wide range of different shares that can act
as protection against other sectors. Also, do
put everything into the highest risk areas.
Invest in long established companies that
offer stable results. Fast changing stocks such
as those in the travel and technology sectors
traditionally do well seasonally, but are also
affected significantly by international news
events. Secondly, you need to be on your
toes to decide when to buy and sell in order
to get the best returns. A fast changing
market gives you plenty of opportunities
to buy and sell, taking advantage of the
best price for either action, but you need to
commit yourself to spending serious time
poring over your portfolio to discern the
optimum moment for making your move.
It is important to recognize the long-term
trends that underlie short-term volatility,
and position yourself to take advantage.
Archisman Dinda is a freelance writer
based in Kolkatta.
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THE INTERNATIONAL INDIAN