Commentary on Emerging Markets

Emerging markets (India, China) are hot again. Both SSE and BSE indexes are making records every day. From macro economic point of view, these markets are getting slightly ahead of their economies. If you are a long-term investor, then you don't need to worry since macro-economic, demographic factors are in favor of continuing growth for years to come with some bumps along the way. However if you are momentum player, you may want to watch out next few months. Remember last summer (I was in India at that time) when BSE index came from 12000+ to 9000. You may want to cash out some of your winners by Apr end and keep some cash handy to invest at lower levels. Same goes for China market
As saying goes in US, sell in May and go on summer vacation!

Coming to my individual recommendations in previous posts, here is quick update:

1. Teledata Informics still going strong. It is at 87+ and nearing my target of 100 within 3 months of my recommding at 47. Latest Q results were great and on annualized basis, it has P/E of 2 to 2.5. IMO, it deserves P/E of at least 5 resulting target price of north of 150. However since it has run up so much in last 2 months, it may have some corrections along the way. It is getting demerged by May 2007
2. Aptech: Still going strong and now trading at 315. There was a news that Infosys is going to use Aptech for training their new employees (My brother mentioned about this news since I cannot see ET completely). Based on that, Aptech has still great potential. I am revising my initial target from 200 to 400 in next 12-18 months
3. New recommendation: Idea Cellular.

• Idea is # 4 mobile provider in India with more than 11 million subscribers. Penetration of cell-phones is still at about 15-16% in India. India has potential of having about 500-600 million subscribers in next 5 years. Idea being # 4 should have at least 10% market share resulting in 50 million subscribers. Even if we value each subscriber at $ 500, it would give market value of $ 25 B in 5 years. Currently it has market value of about $ 7B. So my long-term (5 year) target for Idea is 450 (today it is trading at 115) giving return of approx 400% in 5 years. In near term, it should reach 200 by end of 2008.

India update and stock finds

Since my last posting on "seeking alpha in Indian market", my recommendation "Teledata Informatics" has increased nearly 40% in 2 months (from 47 to 65+) when BSE sensex has moved only sideways. Similary my last year's recommendations (Aptech) is doing great and just crossed 260+. I wish I can start some type of hedge fund focusssed on Indian market and apply my "alpha" finding skills:-)

My another prediction about SSE Composite Index crossing 3500 has already came true. It is trading at 3560+ as of Monday 4/16. IMO it is getting way overheated even to my taste. But momentum is very strong and I won't be surprised if it crosses 4000 by year end but along the way there would be lot of volatility.

Here is another "alpha" stock in India market:

Zee news:
This is spinoff from Zee entertainment mainly focussed on news in various languages. There are many news only channels in India (NDTV, Aaj-Tak, Doordharshan and so on) but Zee is one of the most recognised channel in India and has extensive reach. We Indians are also crazy about getting latest news and in many shops, some of these channels are on for most of the day. As an indepedent company, market has not realized full potential of Zee news and at current price of about 40 rupees, it offers great potential for significant returns (and hence alpha). My target price is 100 ruppes by Dec 2008 returning 150% in 21 months.

(Discliamer: I own small quantity of Zee news which I bought at around 38)

Next few weeks is going to be busy with my MBA final paper/homework submissions coming - looking forward to wrapping up spring quarter and having break for summer

Model Portfolio: Q1

As promised, I have been tracking my model portfolio regularly and here are the results and highlights of Q107 results.

• Model portfolio resturns were 2.22 % (compared with .6% for S&P). So at least till now, I am track to beat S&P by 2% points by end of year
• Best performaing asset was FSESX: FIDELITY SELECT ENERGY SERVICES which returned 15.59% and Yahoo stock was second with 12.73% return
• Worst performaing asset was Cisco stock which was down by 10.36%. Second worst was FXI:ISHARES TR FTSE INDX which was down by 3.31%
• Overall till now the portfolio is well balanced and even during late Feb sell-off held pretty well.
• I am not doing any adjustments to this model portfolio

Here are my forecasts for overall market:

• USA market will go sideways for next quarter till there is clarity on economy and interest rate direction
• Chinese market will keep on going upwards and Shanghai Index may break thru 3500 by quarter end (from 3250+ now)
• Indian markets will continue to go sideways and BSE index will touch 11500 before recovering to 13000. Elections in most populous state UP will impact elections (congress may do poorly in this state)
• Best investments would be still to get overall international exposure with Europe offering best risk/reward
  

/Shyam