Indian Markets are the Best options for FII’s

BSE Sensex crossed 13,000 points milestone with FII’s, IT and banking companies bullish performance. In October FII’s pumped 7,000 crores into the equities. In the last two years, for FII fund managers, the Indian markets have been one of the best performing in their portfolio, bringing them millions in bonuses. But, since the sensex had risen substantially during the same time, they had diversified their portfolio to medium-sized companies after the larger ones became fully valued. In the sudden global meltdown in May, stocks of medium-sized companies fell the hardest even as the Indian markets fell faster than their counterparts in other emerging markets. But in the recent months with the performance of IT and banking companies the FII’s are showing interest to invest in Indian markets.

An analyst with a leading US-based FII says: "Investors kept asking why are we not investing in India which showed promise of growing at 8% for the next couple of years rather than in Japan which was coming out of the woods, or Korea.

Since September 15, 2006, when 30-share BSE Sensex had crossed 12,000 mark, banking and IT stocks have been driving the bull run. While Sensex went up by around 8.4% during this period, the BSE index for banking companies improved by 15.5% and that of IT companies also rose by 12.2%.

However, other sectors like FMCG, health care, auto and public sector undertaking (PSUs) did not perform well. Index of FMCG companies moved marginally up by 0.5% during this period. Because of the flood in various parts of the country and drought in other parts, demand for FMCG products did not pick up in the second quarter. Therefore, investors are apprehensive about performance of FMCG companies.

The share price of Hindustan Lever, which is the leader in the FMCG sector and has 3% weightage in the index, fell by 6% from Rs 243.55 on September 15 to Rs 228.75 on Monday. Similarly, share prices of other companies like Nirma, P&G and Colgate have also come down.

The share prices of banking sector companies were a clear indication that the investors have confidence in the Indian economy. The banking sector could be taken as proxy for the economy. As the general perception in the market is that Indian economy would perform well in the short to medium term, there is a demand for the shares of banking sector companies.

Similarly, companies from IT sector also performed well. This is mainly because of better than expected results from large companies like Infosys, Wipro and TCS. Good results by these companies have made the sector attractive. The Bull Run has also encompassed medium and small cap companies indicating that investors' interest in these companies have come back. Still it has not recovered to the pre May 2006 crash level.

Indian Oil Companies are in crisis

The world markets and companies are fluctuating with the changes in oil prices. OPEC members are trying to moderate production and demand. But none of these facts are going to affect the oil prices in the Indian markets. Indian oil corp. ended this quarter with $211 million loss. Hindustan Petroleum (4.31 billion rupees) and Bharath Petroleum (3.48 billion rupees) also bore losses this year. The oil company's shares fell below 6 percent in these 9 months in India.

The Indian government did not allow the companies to raise the oil price when it reached a high in the global markets. Crude oil went up to a record high $78.40 a barrel in July but this increase could not affect the Indian customers.

The government limited the fuel price increase to 15 percent last year when crude oil costs rose 40 percent but the government provided subsidies to encourage the state-owned refineries and it also compensated with bonds worth 280 billion rupees to help them. State-owned refiners have been allowed to raise fuel prices by about 7 percent since Jan.

The Indian Government is trying to expand its economic growth and its following some policies to protect economy as well as inflation. But the oil companies are becoming more uncertain with these policies. These are moving from profits to losses irrespective of the price changes in the markets.

The Indian Prime Minister Manmohan Singh , is to control the inflation, he is not imposing any burden on the poor. The government is giving a big hand to privatization, FII’s and Foreign Direct Investments. On the way towards growth of the Indian Economy the oil companies are passing through such barriers.

OPEC recovering its penny

Oil prices rebounded on Thursday than expected after Saudi Arabia declared its support for a 1m-barrel-a- day cut in actual output by the Organization of the Petroleum Exporting Countries at the cartel’s meeting in Qatar. Saudi Arabia’s declaration on production cut made the markets clear in its policy. Saudi Arabia is unclear for the past two weeks about production cut but it’s encouraged the OPEC members to cut the production.

Saudi Arabian oil minister has announced that they are trying to balance the disequilibrium between the supply and demand. Abu Dhabi and Venezuela have joined with OPEC to cut production on Wednesday. This decision has lead to decline in the US crude and oil product inventories.

The Saudi Arabian oil minister signaled the markets that there may be further cut in production in December. All these changes seems like there is further scarcity in the markets. The oil price may touch $64 per barrel by next week. OPEC is probably moving on the right path to protect the markets with the support of the other members. There are interesting price changes ahead to entertain oil investors.

Let’s check the today's market...

US markets are in a bullish way

Standard & Poor’s 500 Index touched record high since 2000 and Dow Jones crossed 12000 points milestone as falling in oil prices and increase in consumer spending. Wall Mart, the largest retailer in the world, shares advanced after it announced some plans to reduce the expenses. The Federal Reserve may keep interest rates unchanged in spite of the slump in housing market and these anticipations in the market encouraged share prices.

Crude oil fell for a second day on speculation that OPEC's member countries won't fulfill their pledges to cut production. Reduction in oil prices by the OPEC encouraged consumer related companies. It’s a big relief to the market to reach $58.81 a barrel from the record high $78.40. This fall in price may further make the markets jump.

Consumer spending is boosting the US economy which accounts 70 percent. Gross Domestic Product report has shown the growth in the Consumer spending. All these positive signs are making the investors gain from their investments.

OPEC’s move to protect OIL prices

OPEC (Oil producing and exporting countries) members agreed to cut output by 3.4 percent to boost up the oil prices. Crude oil is continuing downtrend from the last one month and it fell to a seven-month low of $57.75 on October 4.

Saudi Arabia already started trimming its production by 200,000 barrels a day. Remaining OPEC members Libya, Algeria, Kuwait, Venezuela and Nigeria, which promised to lower the production by 1 million barrels a day. This report made the oil prices to reach 60$ a barrel.

I think this cut in production will create the demand and once the global demand increases, OPEC may increase the production. But this may initially hurt the profits of Saudi Arabia, largest oil producing country.

US bonds get out of clutches

U.S. Treasuries headed for a weekly gain on speculation a government report today will show hiring slowed, adding to evidence easing economic growth will curb inflation. Employers last month added the least number of jobs to give Fed Reserve more scope to cut interest rates. Industries showed slower expansion in the service and manufacturing sectors.

With signs of an economic slowdown, a weak jobs number means we can expect Treasuries to rise and Lower Interest rates will boost up the bonds and treasuries. It will help the US economy to restrain inflation and economic growth.

But Employment report of US made the European bonds fall little. This report may create inflation pressure in the global market.

European Markets as Global Leaders?

European stocks climbed to a five- year high on speculation the Federal Reserve will cut interest rates in the world's largest economy. The European Central Bank probably will today raise its benchmark interest rates to keep inflation in check.

In Technology shares, Infineon, Europe's second-largest chipmaker and SAP, the world's largest maker of business-management software drove the European stocks. In Energy shares, BP, Europe's No. 2 oil company and Royal Dutch Shell Plc shares gained heavily.

Europe’s share of global financial markets rose in the past five years compared to America, a survey by International Financial Services London. Between 2001 and 2005, Europe’s share of global business, relative to the US, grew in all categories.

I think Slow down in US creating the opportunity for emerging markets to strengthen themselves in global markets.