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Salil Panchal & Hemen Kapadia in Mumbai | September 21, 2004

The equity markets have faced turbulent times in the past 2-3 months -- the coming of a new United Progressive Alliance Congress-led government to power, the 2004-05 Union Budget which announced agriculture-led reforms and some not-so-popular measures through a turnover tax on stock market transactions (which was lowered due to protests).

Poor trading sentiment plagued the markets in July on fears of a failed monsoon. With deficient and variable rainfall across at least 4-5 states, economists feared drought and a failed monsoon for the second time in three years. Luckily, the monsoon revived but crop production losses will be real and research agencies have forecast a 2-3 per cent dip in agriculture growth for 2004-05.

Rising global oil prices and burgeoning inflation have impacted the markets further and over the short-term these will remain major concerns for the markets. Also, the returns at the Indian markets appear to be too dependent on foreign fund flows, which would increase the volatility risk.

The BSE Sensex has risen 8.29 per cent (394 points) from 4,746.01 on June 12, 2004 to 5139.77 on August 12, 2004. Foreign investors have been net buyers of Indian stock for Rs 1,227.8 crore ($269.9 million) in the same period.

The markets will remain volatile over the short-term but the medium- to long-term picture for the Indian economy is encouraging, despite fiscal pressures and lower agricultural growth. India's GDP growth stood at 8.2 per cent for the quarter ended March 31, 2004.

India is still a preferred choice in emerging markets and the domestically driven growth factors face lower risk compared to those in other emerging markets. All the long-term fundamentals  -- key demographics, outsourcing competitiveness, retail spending and corporate financial performance -- appear intact.

Over the longer-term, infrastructure investment - through roads, ports and telecom -- will emerge as positives.

We present a list of 15 stocks which look attractive, both in terms of safety and growth patterns. Some of these stocks are seeing strong corporate development and from a fundamental point of view look strong, while others show positive trends through technical charts.

ABB India

ABB India Ltd has posted a net profit (before extraordinary items) of Rs 306 million, a 39 per cent rise y-o-y during the same period. Revenues for the half-year ended June 2004 stood at Rs 9.76 billion, 55per cent up y-o-y for the quarter.

The engineering and automation giant appears to be on a strong growth path, with a good order book. The company booked orders worth Rs 12.9 billion during the half-year ended June 2004, 50 per cent higher y-o-y for the same period. This is expected to grow to Rs 14.5 billion by the end of calendar year 2004.

ABB India has strengthened its position as a leading player in the power distribution sector with significant orders for various equipments.

With the emerging emphasis on rural reforms, ABB India will also focus on products and solutions to facilitate rural electrification. ABB India is a partly owned subsidiary of ABB (Asea Brown Boveri Limited, Zurich, Switzerland (ABBZH).

The infrastructure investment phase for India will help the order flows and growth in industrial automation for ABB India. In addition, exports to the ABB group (0.36 per cent of group revenues) could easily triple, as more products are customised to Indian standards.

Arvind Mills

Arvind Mills Ltd, the flagship of the Lalbhai Group, is India's largest and the world's third largest producer of denim. Arvind dominates the local denim market with nearly 70 per cent market share.

The Gujarat-based company has set up plants to manufacture shirts and knitted garments in India and a jeans unit in Mauritius through a subsidiary company. It is in the process of setting up a cotton trouser unit and a jeans plant in Bangalore.

By the end of the current financial year, Arvind Mills expects to produce 8.4 million pieces of garments, using these capacities.

The long-term picture is also rosy, as from January 1, 2005, the Agreement on Textiles and Clothing (ATC) will cease to exist. As a result, 47 per cent of the restricted markets, or 35 per cent of the world textile and apparel market, will be opened up for free trade.

From a technical viewpoint, Arvind Mills is in the midst of a smart recovery and with not only the weekly but also even the monthly oscillators in a bullish frame of mind, a slow but steady ascent cannot be ruled out.

Bharat Earth Movers Ltd (BEML)

As one of the few public sector undertakings to see buying interest in a weakening market, BEML appears to be a mid-cap gem. However, the stock should be viewed with a short-to-medium term investment horizon.

Heavy equipment manufacturer BEML entered into a technical collaboration recently with the South Korea-based Rotem Co. to manufacture stainless steel air-conditioned railway coaches for the metro rail system in India.

Two main metros, Delhi and Hyderabad already have the metro railway system and Bangalore is the next in line.

BEML posted a net profit of Rs 51.9 million for the quarter ended June 30, 2004 against a loss of Rs 169.8 million for the corresponding period previous fiscal.


BPL is the flagship of the Rs 26 billion BPL Group. BPL has a formidable presence in colour and B&W TVs, and audio systems. BPL is India's one of the leading producers of CTVs with a market share of 24.75 per cent.

The debt-ridden BPL Ltd has recently decided to float a 50:50 JV with Japanese giant Sanyo Electric Corporation.  Sanyo, has been a technology partner with BPL for the past two decades and the new JV will initially focus solely on the colour TV (CTV) business.

It is expected that BPL's two CTV factories at Noida and Bangalore will be shifted under the management of this new company and the entire distribution, marketing of CTVs will be handled from this entity.

The deal could be valued at between Rs 1.5-4 billion and BPL will provide its resources in the form of manufacturing units and its distribution network.

On the technical charts, BPL has reflected strength to close above Trendline 3 (supply line), has formed a higher top, higher bottom formation on the weekly chart.

The weekly mechanical indicators signal a buy and with the monthly mechanical indicators also looking reasonably promising, a further upside seems like a distinct possibility.

Dr Reddy's Laboratories

Dr Reddy's Laboratories is a global pharmaceutical company with strong research capabilities. The company recently announced that the US Food and Drug Administration has issued final approval for Dr Reddy's Abbreviated New Drug Application for Ciprofloxacin tablets 100 mg, 250 mg, 500 mg and 750 mg.

Ciprofloxacin is the AB-rated generic equivalent of Bayer Corporation's CiproŽ, a broad-spectrum antibiotic, approved for the treatment of several types of infection.

Dr Reddy's has plans of launch 3-4 new drugs in the United States this year, while another 2-3 launches are likely in the United Kingdom. The pipeline is strong In terms of abbreviated new drug application (ANDA) filings and the focus will be on Para-IVs.

We believe the long-term outlook for Dr Reddy's is positive. It is one of the top four DMF filers and top 2 Para IV ANDA filers in the US, and has 8 R&D molecules in different phases of product development.

The stock has fallen sharply in recent months, but the company has a long-term focus, several ANDA filings awaiting approval and a strong pipeline of products.

The technical charts also suggest strong medium-term growth.

Currently the scrip has entered a small sideways movement on the daily chart and while the worst might not yet be over, extremely strong monthly support around the Rs 690-700 level, coupled with an oversold situation at the counter, would make it a good medium term buy (only on declines) from a six month point of view, with a 25 per cent capital appreciation.

Gujarat State Fertilizer Corporation (GSFC)

The Gujarat State Fertilizers & Chemicals Ltd. stock could emerge as a surprise package over the short-term. The stock sees a resurgence of trading interest and the 2004-05 Budget has some positives.

While Chidambaram did not announce direct measures for the fertilizer sector, the indirect benefits to the sector through the budget are in the form of higher farm credit and better irrigation facilities (which will push up fertilizer consumption).

GSFC could also see further divestment from its promoters, the Gujarat State Investments Corporation and GIIC, who hold close to 37.8 per cent in GSFC, in coming months. GSFC's corporate debt restructuring proposal, recently approved by the company will also benefit the financials over the next six months.

From a technical viewpoint, the GSFC stock is moving in a trading range between Rs 41 on the downside and Rs 74 on the upside. The long-term uptrend seems to be in place, making it an attractive long-term buy at lower levels.

Indian Petrochemicals Corporation Ltd (IPCL)

Reliance-owned IPCL, the pioneering petrochemical company in India is the largest producer of ethylene (830,000 mtpa) and polyethylene (540,000) in the country. It mainly produces polymers, fibre and fibre intermediaries and chemicals.

The IPCL stock is being driven by corporate developments, with the company planning to build the world's biggest MEG plant at Gandhar in Bharuch district, Gurajat with a capacity of 500,000 tonne per year at an investment of Rs 10 billion.

IPCL is also planning expansion of chlor-alkali plant by 25 per cent to 1,70,000 tonne per year of caustic soda and capacity creeps in the EDC and VCM plants by 15 per cent. 

IPCL proposes to invest the money in changing gas crackers at two of its petrochemical complexes Gandhar in Gujarat and Nagothane in Maharashtra to multi-feed crackers. The shift to a multi-feed cracker is of paramount importance as IPCL has been finding it difficult to source the requisite quantity of gas for achieving capacity optimisation.

IPCL posted strong results for Q1 FY2004-05, with a 215 per cent jump in net profit, from Rs 39 crore (Q1FY2003-04) to Rs 1.23 billion for the June 30, 2004 quarter-end. The company's production rose by 20 per cent, to 1.25 million tonnes from 1.04 million tonnes during the corresponding previous quarter, while exports were up 67 per cent at Rs 2.05 billion.

On the technical charts, IPCL looks a strong bet for the medium to long term.

Indian Rayon

Indian Rayon is the second largest producer of viscose filament yarn in India and the largest branded apparel company in India.

Its focus areas are viscose filament yarn, carbon black, branded apparels, textiles and insulators. Over the past three years, Indian Rayon has diversified into areas of growth like insurance, software and business process outsourcing, striking a balance between manufacturing, brands and services.

The company, which recently announced its financial results, showed a 22 per cent rise in net sales but a small dip in operating profit. The group in terms of future business outlook, sees more growth in garments, textiles, and fin products like insurance, BPO and software.

On the technical charts, the Indian Rayon stock has reflected strength by overcoming an important supply line and the weekly mechanical indicators signal a further upside in coming times.

Infotech Enterprises

Founded in 1991, Infotech Enterprises Ltd is a $35 million software services company with core competencies in geographic information systems, engineering design and IT services.

It provides software solutions for the aerospace, automotive, utilities, telecommunications and manufacturing sectors.

Infotech Enterprises Ltd has devised strategies to address and mitigate existing and anticipated business risks. During the year, while the company entered into a long-term contract with Bombardier Transportation, the company established its first near-shore development facility for Pratt & Whitney in Puerto Rico.

The latter functions as a wholly owned subsidiary of Infotech Aerospace Services Inc.

On the technical charts, Infotech Enterprises gave an upward key reversal but its budding recovery was cut short due to twin resistance from a supply line. The scrip spent the next few weeks moving sideways before showing some signs of life in the last week itself.

The stock has closed above a supply line and weekly mechanical indicators signal a buy after reflecting a significant amount of positive divergence, the intermediate uptrend cannot be ruled out.

Lupin Ltd

Lupin is one of the country's largest manufacturers of bulk actives and formulations. The principal bulk actives manufactured by Lupin include Rifampicin, Pyrazinamide, Ethambutol (anti-TB), Cephalosporins (anti-infectives) and cardiovascular drugs. The company is a leader in domestic anti-TB drugs with a market share of 40.9 per cent.

The company has seen strong overseas business, making visible inroads into the US generic market. The company, pharma analysts say, has created a niche in injectibles and its core business of bulk actives and formulations appears to be stable.

In its latest financial results, Lupin showed a 13 per cent rise in revenues to Rs 3.15 billion from Rs 2.78 billion, in the corresponding quarter previous year.

The company now plans to triple its spend on research to Rs 1.20 billion (2004-05) from Rs. 400 million (FY 2003-04). For the current quarter, Lupin has already filed 2 ANDAs and 2 DMFs.

Considering that almost all the leading pharmaceutical frontline stocks have been battered at the markets in recent months, Lupin appears to be amongst the attractively valued mid cap pharma companies.


This stock of this telecom giant sees cyclical bouts of trading activity and lethargy at the markets. It may not be a market favourite, but we see value over the long-term. The business conditions for MTNL have improved considerably of late.

Tele-density is on a sustained upswing (led by wireless) with the regulatory issues have been sorted out. Tariffs are close to their lowest level, which means that the profit growth of telephone companies will be led entirely by the increase in traffic and cost management. MTNL will be among the biggest beneficiaries of the rising telecom spends in the country.

The stock saw stronger trading interest on reports of the merger with another giant, BSNL being considered by the government. This will alter valuations for MTNL and could bring a better rating.

We are bullish on MTNL's prospects with the implementation of the new IUC regime. Based on the stability of MTNL's cash flows and the inherent self-balancing features in the new IUC regime, MTNL deserves a much better rating.

The business model for MTNL is now less vulnerable and subsequent quarters will benefit from stable long distance rates, higher retention on ILD origination and lower license fees (by 200 basis points) and some growth from the wireless business.


Oil and Natural Gas Commission is the largest oil and gas company is India in terms of production and reserves. It contributes 77 per cent of India's crude oil production and 81 per cent of natural gas production and enjoys huge sales to domestic refining companies.

ONGC is set to spend over Rs 45 billion over the next 3 years to explore new oil fields. A portion of this will be spent to improve the recovery factor in oil exploration for old oil fields.

The ONGC stock looks attractive backed by the continued strength in crude oil prices and higher production levels from its overseas initiatives.

Investors should prefer to see ONGC over the medium to long term, as it will remain volatile over the short-term. Most analysts predict global oil prices to remain bullish over most of the year and ONGC looks attractive not just based on current domestic demand but also due to its international operations.

While refining margins could remain robust, losses on the marketing front for the integrated R&M players cannot be ruled out.

The petroleum ministry is now considering a proposal to allow ONGC to charge differential rates for the natural gas it produces, with power and fertiliser plants enjoying a lower tariff relative to other consumers. Currently, ONGC earns Rs 2,850 on every million standard cubic metres per day (mmscmd) of gas that it sells to GAIL India Ltd, which transports and markets the gas.

From a technical viewpoint, ONGC is showing sparks of life on the near-term charts after stabilising just above the Rs 620 level and while the current recovery could extend some more, there still remains a question mark on the sustainability of such a move. Over the medium term, the stock appears more robust.

Tata Power

The integrated Tata company, has seen a strong turnaround in business, particularly its power systems, electronics and broadband divisions.

Through the recent budget, the government showed commitment towards power, infrastructure and construction sectors. All the announcements like emphasis on electricity for all and extension of a tax holiday under Section 80I A would ensure continued investment in capacity expansion in the power sector.

Analysts have upgraded the FY 2004-05 EPS and revenues estimates with the rationale that the increased momentum to power sector reforms and Tata Power's strong positioning to exploit the resultant opportunities, the stock appears reasonably priced and should see a further upside.

On the technical charts, Tata Power at Rs 265 levels is still oversold on the weekly chart and with some amount of positive divergence on the daily chart a corrective rally will continue for some more time.

Tata Tea

The Tata-group branded tea company, expects tea prices to ease from current levels. Although they would still remain high on a y-o-y basis, the marginal price increase would not be enough to have a material impact on its business.

With global tea prices up, the larger players like HLL and Tata Tea have gained market share in April 2004, while local players have lost market share.

Tata Tea continues to make its transition from being a tea producer to a marketer with global presence.

This will aid re-rating, boosted by its entry into new markets and a clear focus on brands (accounting for 86 per cent of revenues).

The company's domestic business could be an issue of concern and is not likely to see any significant revival beyond the price cyclicality of teas, although productivity continues to improve.

The Tata Tea market share has risen from 7.6 per cent in FY2003 to 9.7 per cent in April 2004. Tata Tea reported a 3.6 per cent y-o-y growth in sales to Rs 7.8 billion in FY2004 against Rs 7.6 billion in the last year.

Tata Tea has entered into six new markets - including Russia, Pakistan and Bangladesh. Analysts now rate Tata Tea differently, considering it is no more a plantation company but a branded exporter of tea.

All these factors will aid margins, expansion / marketing strategies and exports. From a technical viewpoint, Tata Tea appears strong over the short-to-medium term.


This technology giant should be a core holding in a tech portfolio. Fundamentals are looking the best in recent years, with some analysts forecasting earnings to grow at 54 per cent y-o-y in FY2004-05.

Wipro had been impacted by the technology / telecom bust earlier and this had impacted earnings between FY 2002-04.

However, the company now has a larger service portfolio and client profile. The product pricing from new clients will improve earning potential, making the stock a safer bet in the medium to long term.

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