WEBODIGY Business & Finance Journal

ndian shares are no longer cheap after recording their biggest annual rise since 1991, investment strategists overseeing the country’s top performing equity funds for 2009 said on Tuesday.

Indian shares rose 81% in 2009, driven by a flood of foreign funds, stretching 12 months forward price to earnings multiple of India’s benchmark index to nearly 17 times, one of the most expensive in Asia.

“Markets are not cheap any longer… the earnings have come on the back of substantial fiscal and monetary stimulus,” Sankaran Naren, equities chief investment officer at ICICI Prudential Asset Management said in the Reuters Trading India chat room. “International valuations are cheap compared to Indian markets.”
In large caps, stocks are pretty fairly valued, so one does not see pure value picks there. However, in midcaps, there are some value picks,” Rajat Jain, chief investment officer of Principal PNB Mutual Fund, overseeing Rs 8,000 crore of funds, also said in the chat room.

While Naren, who manages Rs 7500 crore of equity assets, said his main bets were in the healthcare, telecom and utilities sectors, Jain prefers financials, consumer firms, construction, industrials and some infrastructure companies.

Principal’s funds, including its Emerging Bluechip Fund which rose 147.3% in 2009 as the top Indian fund, holds shares such as state-run State Bank of India and private sector lenders ICICI Bank and HDFC Bank.

Bad loans are not a serious concern and could even surprise positively, said Jain.

Sankaran Naren, whose ICICI Prudential Discovery Fund gained 134.3% in 2009, said he was overweight telecom as it is the sector which is seeing a cyclical downturn due to competition. “My belief is that it will work, there is too much crowding in other themes,” he said.

His funds hold shares such as Bharti Airtel and Mahanagar Telephone Nigam Ltd.

“Pharma is very cheap given the certainty of earnings,” he said, adding he liked power utilities as a defensive bet.

Drug firms Cadila Healthcare and and FDC are among his discovery fund’s top-5 picks. His investments from the utilities sector includes Tata Power Company and Indraprastha Gas.

Shun realty

Real estate was the one sector both the fund strategists said they were wary of.

“The sector is new to the stockmarket and we do not know how to value landbanks,” said ICICI’s Naren. “The sector is too volatile for investors.”

Jain added that the problems of real estate firms were not behind them and they still faced execution challenges.

These concerns were aired hours after Godrej Properties surged nearly 20% after listing at a 5.05 percent premium on its debut on Tuesday, in a first listing by any property firm in over two years.

Asian stocks advanced, led by Japanese automakers, and the risk of defaults in the region dropped on signs the U.S. economy is improving.

The MSCI Asia Pacific Index rose 0.4 percent to 124.08 as of 11:45 a.m. Tokyo time. The cost of protecting bonds in Asia and Australia from default fell to the lowest level since May 2008, CMA DataVision prices show. In Japan, bond risk fell to a two-month low. Oil traded near $82 a barrel as snowstorms blanketed most of China, Europe and the U.S. Eastern Seaboard.

Auto sales in the U.S. climbed 15 percent in December, led by Toyota Motor Corp.’s 32 percent surge. Sales gains are helping to slow the pace of job cuts in the U.S. Economists surveyed by Bloomberg News project the government will say on Jan. 8 that payrolls were unchanged in December.

“Demand is on a steady recovery worldwide,” said Yoshinori Nagano, a senior strategist in Tokyo at Daiwa Asset Management Co., which oversees $94 billion. “The market and economy will be better in 2010 than last year.”

About five stocks advanced for every two that fell in the MSCI Asia Pacific Index. The Topix Index climbed 0.9 percent in Japan, where Kyodo News said the government will accept the resignation of ailing Finance Minister Hirohisa Fujii. South Korea’s Kospi gained 0.5 percent. Futures on the Standard & Poor’s 500 Index lost 0.3 percent. The index added 0.3 percent yesterday after factory orders rose 1.1 percent in November, more than twice as much as economists had estimated.

Sales Gains

Toyota Motor Corp., which gets 32 percent of its sales from North America, rose 2 percent to 3,880 yen. The company’s December sales climbed to 187,860 autos from 141,949 a year ago.

Nintendo Co. jumped 5 percent to 24,070 yen in Osaka trading. U.S. sales of the motion-sensing Wii game console probably exceeded 3 million last month, the Kyoto-based company said on its Web site. The company sold 2.15 million Wii players in the U.S. during December 2008, according to estimates by research firm NPD Group.

Toyota and Nintendo were the biggest and third-biggest contributors to the MSCI Asia Pacific Index’s advance. The gauge has climbed 37 percent in the past 12 months as lower borrowing costs and spending packages around the world pulled economies out of recession.

In Seoul, Hynix Semiconductor Inc. gained 2 percent to 23,850 won. The United Arab Emirates government offered in November to buy a stake in the company, the Electronic Times reported, citing an unidentified South Korean government official. Park Hyun, a Hynix spokesman, declined to comment.

JAL Drops

Japan Airlines Corp. sank 4.4 percent to 86 yen. The Development Bank of Japan, the company’s biggest creditor, and the Finance Ministry favor bankruptcy proceedings to restructure the airline, Nikkei English News reported.

China’s Shanghai Composite Index fell 0.3 percent. A rally may fade from the second quarter as inflation triggers “significant policy tightening” by the government and the U.S. economy weakens, Deutsche Bank AG said. The MSCI China Index may still end the year 15 percent higher, Ma Jun, Deutsche Bank’s Hong Kong-based China economist, said in a note to clients.

The Markit iTraxx Asia index of 50 investment-grade borrowers outside Japan dropped 2 basis points to 88 basis points, the lowest since May 2008, ICAP Plc and CMA prices show.

The Markit iTraxx Australia index fell 1 basis point to 79.5 basis points, also the lowest since May 2008, Citigroup Inc. and CMA prices show. The Markit iTraxx Japan index declined 3.5 basis points to 127.5 basis points, a two-month low, according to Morgan Stanley and CMA prices in Tokyo.

Spreads Narrow

The difference in yield to own bonds in developing countries instead of Treasuries narrowed 2 basis points to 2.73 percentage points, close to a 19-month low, according to an index compiled by JPMorgan Chase & Co. It dropped 4.16 percentage points last year.

The Philippines is competing with Indonesia and Vietnam to be the first nation in the Asia-Pacific region to sell U.S. currency debt this year. Turkey yesterday sold $2 billion of 30- year bonds, its longest-dated international debt since February 2008, to take advantage of borrowing costs near the lowest on record.

The yen weakened against higher-yielding currencies on speculation gains in Asian stocks spurred demand for riskier investments.

Japan’s currency fell versus 14 of its 16 major counterparts after the cost of protecting Asia-Pacific corporate and sovereign bonds from non-payment dropped. Australia’s dollar strengthened after a government report showed home-building approvals rose at a faster pace than economists estimated.

‘Funding Currency’

“We continue to see the case building for the yen returning to its role as a funding currency to a degree not seen since 2007,” said Greg Gibbs, a currency strategist at Royal Bank of Scotland Group Plc in Sydney. “With risk appetite still buoyant, as witnessed by further declines in CDS premiums, and strong emerging markets, we see more downside risk for the yen.”

The yen fell to 83.90 per Australian dollar from 83.63 in New York yesterday. It slipped to 12.391 against South Korea’s won from 12.435. The Australian dollar rose to 91.34 U.S. cents from 91.19 cents.

The number of permits granted to build or renovate houses and apartments in Australia increased 5.9 percent from October, when they dropped a revised 1.8 percent, the Bureau of Statistics said in Sydney.

Oil traded near a 14-month high in New York as an industry report showed a decline in U.S. crude stockpiles and cold weather bolstered the outlook for fuel demand in the world’s largest energy-consuming nation.

Weather Effects

Temperatures in the U.S. Northeast, which consumes 80 percent of the country’s heating oil, are forecast to remain below normal through Jan. 14, according to the National Weather Service. U.S. crude supplies dropped 2.27 million barrels last week, according to the American Petroleum Institute.

Crude oil for February delivery was at $81.62 a barrel, down 15 cents, in electronic trading on the New York Mercantile Exchange. Yesterday, the contract rose 26 cents to $81.77, the highest settlement since Oct. 9, 2008. Before today, oil had climbed for nine days, the longest winning stretch since July.

Copper for three-month delivery on the London Metal Exchange advanced 1.1 percent to $7,568.25 per metric ton, the highest level since August 2008, on investors’ optimism that the global economic recovery will be sustained. New York and Shanghai futures for the metal used in cables also advanced.

“The general feeling of optimism is spreading” said Wang Haifeng, an analyst at Shanghai Liangmao Futures Co. “The Shanghai, London and New York copper markets are feeding off each other, and taking turns to drive one another higher.”

Tata Steel
-December sales up 73% at 6.63 lakh tonne (YoY)
-Q3 sales increase by 49% YoY

Ratan Tata Says:
-Reports of Tata Buying Fiat’s Sicily units untrue
-Cannot comment on Nano’s future price trend

Polaris update
-Orbitech sells further 0.71% stake in Polaris
-ALERT- Orbitech is arm of Citigroup; Citigroup stake down to 30.4%

Other stocks that are in news today:
-DB Corp to list today; issue price at Rs 212, for retail at Rs 210
-ABG Shipyard gets around 8 million shares in Great Offshore open offer, may end up with 21.5% stake – DNA
-Indian ADRs: MTNL up 10.6%, Tata Comm up 6%, Satyam up 4.8%
-GMR Infra board approves vesting of hotel division of GMR Hyderabad International Airport into its wholly owned subsidiary GMR hotels and Resorts
-Axis Bank launches new scheme; offers home loans at 8.25% fixed rate for first 2 years and floating rate post that
-Idea Cellular MD: Indus Towers’ IPO at least a year away
-FII limit in Maruti reaches trigger limit; FIIs need prior RBI approval for primary/secondary purchases
-RBI approves FII participation in Network18 up to 40% subject to composite limit of 49%
-RIL led Maha SEZ plan put on hold for indefinite period