Monday, February 22, 2010

World watch - Too much money chasing too little market cap ..........

WARNINGS that emerging markets are inching toward bubble territory are misplaced so far but the volume of securities on offer must rise fast to accommodate the new cash that is expected to join the sector in coming years.

Emerging assets have become very desirable as the financial crunch damaged western balance sheets and budgets and further enhanced the relative growth attractions of the emerging world.
With emerging markets roaring back from the slump of 2008, crises in the likes of euro zone mem- ber Greece -- and also two years ago in Iceland -- have challenged decades-old assumptions that sovereign risk was inherent only to developing economies.
In theory, that should be a positive for emerging markets, which are on the whole, hugely underrepre- sented in global portfolios, especially of more conser- vative but cash-rich investors such as pension funds.
But the reality is that relative to the developed world, emerging bond, stock and currency markets remain underdeveloped, small and illiquid. Which means a large-scale cash influx can quickly inflate asset prices to unsustainable levels, risking a repeat of the familiar boom-bust emerging market cycles.
"Too much money chasing too little market cap -- potentially it's a concern," said Michael Wang, emerging equities strategist at Morgan Stanley. "It was a concern in 2007-2008 when there was a lot of euphoria over emerging markets and this wall of money came in. We are starting to see that kind of euphoria again."
The 37-country MS- CI emerging markets index has market capi- talisation of $3 trillion -- just over a tenth of the MSCI World's $20.5 tril- lion and a third of the US S&P 500. And the $5.5 trillion in local currency bonds issued by every emerging nation in the world are worth less than the US treasuries outstanding.
Flows are tipped to grow, as the pull of emerging markets -- rising incomes, growth, relatively sound public finances -- coupled with "push" factors from the developed world -- anaemic growth, falling popu- lations and rising debt.
Emerging equity and bond funds got inflows of $75 billion in 2009, dwarfing all fund groups except US bond funds.
This year, private capital flows -- direct and portfo- lio investments -- to emerging markets will rise 66 per cent to $722 billion, the Institute for International Finance (IIF) says. That is over three times more than levels a decade ago, IIF data shows.
There are signs pension funds, pressured to boost returns, are increasing emerging market allocations -- a Barings study last November found a third of UK pension funds would consider investing in emerging markets, up from under 5 per cent in 2007.
The problem is that even a small re-allocation from a deep market to a relatively shallow one can cause substantial swings.
Take for instance pension funds. With $23 trillion in assets globally, just a 1 per cent extra allocation to emerging stocks would bring inflows of $230 billion -- almost a tenth of the existing market capitalisation of the MSCI EM.
Volumes of existing securities would have to rise by a comparable amount, possibly via stock listings, to avoid the wild swings such large-scale capital inflows would cause.
"With all this money flowing in, we are going to see an inflation of price-earnings ratios," said Robert Ruttman, emerging equities strategist at Credit Suisse.( the bottomline is grab stock having low p/e as they will have a long way to go...from low p/e to average p/e and then inflate p/e and I have not to mention which can be those!)
"It is important to watch earnings growth relative to volume of funds coming in."
So far he says valuations are looking fair around 11.5 times one-year forward earnings or a 13 per cent discount to developed stocks and a 10 per cent below their own historical average.
If earnings keep up, emerging markets could justi- fy a premium to developed markets on a P/E basis, ana- lysts say.
"A bubble implies there is not a fundamental under- pin to the price," Wang said. "At the moment this is not the case."

My Comments:
I think everything is there to read.I have already highlighted it......what one needs to do is just take the clue....for is written about Pension Fund....having $23 trillion asset globally and even 1% will bring in $230 bn!
So read this post properly and take clue.......


  1. Rajeev ji , wht to interpret from this news ?
    when Reliance mediawork was recomended here price was 279 . CMP is 221.. shud we buy / ss ?
    also if you can explain how to interpret on my own, if such news has +ve/-ve impact , it wud be great.

    Reliance Mediaworks makes counter offer for Fame
    Published on Mon, Feb 22, 2010 at 08:10 | Updated at Mon, Feb 22, 2010 at 10:26 | Source :

    The takeover battle for multiplex chain operator Fame India seems to be impending with Anil Dhirubhai Ambani Group (ADAG) making a counter offer for the company. The offer has been made by Ambani’s film-making and distribution firm Reliance Mediaworks & PAC, i.e Reliance Capital Partners and Reliance Capital.

    The open offer is for 2.16 crore shares or 62.08% stake at Rs 83.40 a share, a 63.5% premium to rival Inox's offer price. On successful counter bid, ADAG will hold 74.22% stake in Fame.

    The counter offer is subject to regulatory and statutory approval.

    The offer size is 2.16 cr shares or 62.08% of issued equity. ADAG already holds 42.24 lakh shares or 12.14% stake in the company.

    Earlier, INOX Leisure had acquired 50.48% of Fame's issued equity and its open offer was at Rs 51 a share for 82.31 lakh shares.

    ICICI Securities is the offer manager to Reliance Capital while Enam securities is the merchant banker for Inox, which already holds 50.48 percent in Fame India.

  2. Dear Mr Rajeev

    What is your advice regarding United bank IPO

  3. nirash,
    United Bank IPO looks good but don't expect immidiate run from it...after listing

  4. Dear Rajeev,

    230B USD$ is huge amount if it will be delpoyed in emerging market. But my first question is "Are there any more countries than BRIC in this list?" and second question is "Out of 230B USD how much amount may arrive here in India?". In any condition if we get even 40-50B USD$ then can I make a guess that we will cross 25K in sensex easily.

  5. Dhiman,
    We have to take clue.If I know that,then what to say....

  6. Hi Rajeev Ji,
    need your expert view on my earlier query of Reliance media work. please enlighten us.


  7. Om,
    The reason I didn't reply to you was your first sentence was " Reliance mediawork was recomended here price was 279 . CMP is 221.. "
    Same thing happened with Stride Arcolab when you asked about it.
    See, stock goes down and up.That I can't control.For every downward movement if u r going to ask me a query then I will not reply and that is for sure.
    I have always written , this blog is not for ST next time when u ask me a query and I do not reply then take a hint that I do not want to answer.....

  8. Hi Rajeev

    What's your view on Amtek India (CMP 63 and BV of 120+). Good FII participation. In Auto ancillary space. Is it a value buy?



  9. Hi Rajeev..
    It is only from last some days I am following your blog… Wish I have been following it from before!! 
    You are awesome.. Hats off to you..
    Well I have question on Ion exchange and Cranes Software..
    One of the key announcements Rail minister did is:
    “Railways to start six water bottling plants in places like Ambala, Thiruvananthapuram, Farakka, Amethi and Nasik to provide clean and cheap drinking water to passengers.”
    If I am not wrong Rail Neer which we get in Indian Railways is in collaboration with Ion exchange. Do you think is it the right time to buy the stock? Am I thinking on the right lines or it is not making any sense? Also as you know RJ also have investment in the company.
    Also I want to know about Cranes Software. This company seems to be good if we consider the products (including some tools which are used in nanotechnology) they have but I guess they are going through some difficult times and making year lows each day.. Is it an opportunity to accumulate the stock? Warren Buffet says buy good companies when they are in temporary problem; though I am not very sure whether this company is a good one. I am holding some stock of this company @ 36; though it is too late but please suggest whether it is time to book loss in the company.

  10. Hi rdb,
    Well, I do not track Cranes at all so can't say anything about it.
    But I would like to point one thing here.
    Cranes Mcap is 216 cr.It is 2 paidup and 18 so 10paidup and 90.
    It is in data service and many IT co do this.
    I am no expert in IT sector nor in any type of sector.I just go by simple basics.
    So try to look elsewhere in same sector and see if you are getting same Mcap or around and same Mcap/sales ratio or even cheaper Mcap/sales ratio and price is same...I think u will definately find 3-4 stocks very easily and most of them I must have recomended here.
    The key is picking right stock at right time.If one ends up picking wrong stock adhering Wareen Buffet principle then I think one may lose.US market and Indian market are totally 2 different markets and returns expected are also totally different from each of them.

  11. rdb,
    BTW, if you will look at sales is decreasing every qr for Cranes.One need to see that as well.
    It was 97 cr in Dec 08,72 cr in Mar 09,48 cr in June 09,37 cr in Sep 09 and in Dec 09 is 20 cr.
    So that is also one need to look at it.....that is a very ominous sign for any stock.Decreasing sales is not a good scenario perticularly when other Co in same sector sales is increasing by leaps and bound.

    Well ,Cranes can make a comeback but imagine what time it will take to comeback to same sales level...!

  12. Hi Rajeev

    Can you reply to my query, If possible?



  13. Amit,
    Do not track Amtek so no view....

  14. Hai ,

    You talked about Jindal Steel around last April when you were talking about large cap holds. Any new views about the company particularly since their sales is not growing that much and the eps due to enlargement of equity is now appearing very miniscule. Though Jindal power ipo which is proposed to come may bring some value do you still think the company can produce the results due to high implementation risk in the various projects it is or will be undertaking.


  15. Dear Rajeev,

    I have read your opinion on rohit ferro and that you would want to see the rights issue getting over. However what would be your long term view on it?

    Sales have increased.EPS of 2 for dec qtr. Expansion plans in full swing. Ferro Chrome prices are stable, Captive power to kick in nxt year and promoter holding is decent.

    Hoping that the world economy shows slow progress over the next two years, can we expect Rohit to become a multibagger by that time ?

    Thanks in advance

  16. Hi Astro,
    I do not track largecap that much.That was just a general view for Jindal Steel at that time.
    My domain is Midcap and Smallcap, the gems undiscovered.......but what I can say about Jindal Steel is it is a great gr and hence it will deliver....

  17. Mitz,
    I do not track Rohit Ferro that much.
    Try to have a look at Cronimet Alloy Ltd.....

  18. hi RAJEEV, how r u?u have mentioned a stock CRONIMET ALLOY , r u sure of the spelling, because I could not find any stock by that name.bye for now ,take care.


  19. Hey Kitty,
    That is what I wanted to know?The spelling is correct.Now I wanted to find out how many readers find it out.....How many readers do the basic thing to find it out?That is what I wants to know....See these are important things I would like to know...from fellow readers...this will tell me whether they are just doing nothing by themself and wholly depending on my diggin........Try again......Best of Luck.....

  20. Dear Rajeev,

    When it comes to digging I can give you some company too. You can lead i will follow.

    I will study gmr fero alloys late in the day and get back to you.

    Have a Great day

  21. Hi Rajeev,

    Thanks for your suggestion on Cranes Software. Make sense. I am waiting for your reply on ion exchange.Thanks in advance.


  22. hi RAJEEV. tried digging into the above said company & found out some info,

    previously GMR ALLOYS & IND LTD.
    name changed to CRONIMET ALLOYS LTD from 20-12-2009.

    BSE CODE-52990



    2009/03 SALES=102.73CR

    TTM SALES=99.74CR

    IND PE=11.5,BV=22.62

    YR HIGH=44.45,YR LOW=20.15



    GMR Ferro Alloys & Industries Limited was incorporated on March 23, 2006. The registered office of the Company is situated at. The Plant is located at Tekkali, Ravivalasa Village, Srikakulum District in Andhra Pradesh

    The Company is engaged in the manufacture of high carbon ferro-chrome for use in the stainless steel industry. The Target Company’s plant has an installed capacity of 25,000 MT with one 6 MVA and one 9 MVA furnace. The Target Company manufactures two standard grades of ferro chrome i.e. high silicon and low silicon.




    RAJEEV, now can u throw light on the CATCH here because nothing seems compelling here based on all these figures.


  23. Rajeev Ji,
    I have been tracking your posts from moneycontrol days. Without a doubt you are a too good. I have added your recommendations like Yashraj, CCAP, PSL, Supreme Petro, SRF. Do you track GMR Infra. If yes what are your views.

  24. Mitz,
    I do not want to diggin what u give.I know u r super smart then me and hence you will come out with more stocks then me...I don't have time to look each and every stocks........

  25. Kitty,
    I am surprised to see that u find nothing compelling in Cronimet.
    The earning has become positive since last 2 qrs.The new management has bot stake a big as 70%.Cronimet is a MNC in chrome alloy with Chrome mines.
    last 2 qr eps comes to 6 and hence full year it could be no less then 10 and hence available at 3.5 p/e....what else one go ahead andd buy it....

  26. sorry RAJEEV,thats the the reason am an ordinary investor & u r a master,mistook the TTM EPS as 2.5 as reported in MONEYPORE,will definitely look into it seriously for investing in sometime as am fully invested & left with no surplus,anyways I was not doubting the veracity of ur call,sorry if I sounded annoying,bye for now take care.


  27. Dear Rajeev,

    My god looks like you mistook my statement.

    When I said 'COMPANY' i did not mean any new company that i have discovered. I meant i will follow you and get as much information as i can AFTER YOU HAVE DISCOVERED A GEM.

    I do not consider myself anywhere even close to your abilities in discovering Hidden Gems. All i do is read your blog and gain knowledge.

    I have missed a lot of wonderful stocks mentioned by you and am still figuring out how to improve myself.

    Infact you are doing the most selfless job of mentioning all the stocks that you find good while people like me just follow some of the stocks where we have vested interest.

    In any case sorry for the misunderstanding

  28. Dear Rajeev,

    Is My Apology Accepted ?????

  29. Ajay,
    I do not track GMR Infra.....

  30. rdb,
    Ion Exchange , as u said RJ also holds.So there no dobut it will move but I am not sure it will move in ST.The earnings are still not coming nor sales.
    Ion Exchange is good as a water purifier play with water scarcity coming on in the world....

  31. Mitz,
    U don't need to apologize....

  32. Hi Rajeev,
    I am a newbie of this blog and
    your picks are awesome.
    I am sorry to ask you the meaning of 1 paidup, 2paidup as I couldn't get that.
    Is there any stock that you think is a potential candidate in the Education sector?

  33. Hi Rajeev,
    I am a newbie of this blog and
    your picks are awesome.
    I am sorry to ask you the meaning of 1 paidup, 2paidup as I couldn't get that.
    Is there any stock that you think is a potential candidate in the Education sector?