If I have noticed anything over these 60 years on Wall Street, it is that people do not succeed in forecasting what's going to happen to the stock market.
BENJAMIN GRAHAM, LEGENDARY INVESTOR

The four most dangerous words in investing are, it's different this time.
JOHN TEMPLETON, ANOTHER CELEBRATED INVESTOR

Yes, goes one refrain on d-street, things are different this time. Actually, at one level, it would seem so. Given the unexpectedness and the ferocity of the 1,111.70 point fall in the Sensex on Monday, May 22, it is evident that investors and players alike are clueless. Should they buy at every fall as market mavens suggest? Or should they sell and cut their losses?

And at another level, nothing is different. The world over, stock markets are fuelled by fear and greed. In the Sensex's euphoric ride to 12,000 and beyond, it was greed that ruled all the way. And in its intra-day fall to 9,826 .91 (on May 22), it was fear that did. There are enough things to fear (see The 'F' Factor). And small investors, especially those out to make a quick buck, are panicking at the slightest hint that things could be turning.

The experts themselves are divided. When the Sensex was at 12,200, S. Ramesh, Executive Director, Kotak Mahindra Capital Company, believed that valuations weren't, at 18 times 2006-07 earnings (a price-earnings multiple of 18, on the basis of current price and expected earnings in 2006-07) and 15 times 2007-08 earnings, very expensive. At the same level N. Sethuram, Chief Investment Officer, SBI Mutual Fund, believed the "market was fairly valued".

Black Monday has come and gone, but chances are no one is any wiser. If there is one thing that looks permanent now, it's volatility. "We have to learn to live with high volatility," says C.J. George, Managing Director, Geojit Securities Ltd. In the week between May 15 and May 19, the Sensex yo-yoed by between 400 points and 800 points, and between May 22 and 24, by between 500 points and 1,300 points. "This is not a market for new investors to swim," warns Sethuraman. The man is right: the Sensex has gained some 300 per cent since May 2003. It took the index a mere 48 days to move from 10,000 to 12,000, a gain of 20 per cent. "Valuations don't have any meaning at these levels," says the Chief Executive Officer (CEO) of a private sector mutual fund.

As this story goes to press, the p-e multiple of the Sensex (stocks) is 18.62, higher than the 15-something levels it was at last year (see Sensex P-Es: All Was Well...), but lower than the 22.15 to which it had risen when the Sensex touched its recent peak closing of 12,612 on May 10. Even today, at relatively more rational levels, the ability to pick the right stock is critical. "The ability to distinguish the men from the boys has become increasingly important now," says Kunj Bansal, Chief Investment Officer, Religare Securities.

So, what should investors do?

How can they, if they still believe in the larger India story (and there is no reason not to), leverage it to their benefit by investing in equities (after all, in the long run, these return more than any other investment-vehicle)?

Arpit Agarwal, CEO, Dawnay Day AV Financial Services Ltd, sums it up best when he says, "Buy stocks the way you buy gold or invest in real estate (read that to mean: very very carefully)." For those in need of direction (in these manic times, who doesn't?), here are 10 commandments to live by.

I Don't Panic

And don't sell. On April 18, the Sensex experienced an intra-day volatility of 533 points. On May 22, it did 1,316 points. In the first instance, the index ended the day at 11,851.93 points, recovering all the losses and closing in the positive territory with a 16.91 point gain over its previous close. In the second, it did recover, but closed 456.84 points down at 10,481.77 points. Such volatility usually results in panic, which, in turn, causes investors to download their stocks. "Don't sell in panic," advises Dawnay Day's Agarwal. "That's the first lesson for any investor." On the contrary, a sudden dip may actually be an opportunity to buy.

II Average Costs

Every portfolio has them, stocks that are fundamentally good, and where the investor understands the mindset of the company and the management. A volatile market is a good time for investors to buy more of these stocks. That would reduce their average cost of acquisition. And what for investors whose portfolios lack such stocks?

Well, this may be a good time to identify some good stocks, and take the plunge.

III Think small

A 800 or 1,100 point fall in the Sensex presents an opportunity for investors who missed the bull run to enter the market. The caveat: buy in small lots, diversify your portfolio, and keep your cost to the minimum. "(Buying) several stocks from several sectors may even out any steep variation across sectors," says SBI Mutual Fund's Sethuram.

IV Shun IPOs

Or, for that matter, even rights offerings. Irrespective of whether the Sensex is at 10,000 or 12,000, there can be no denying the fact that valuations are very aggressive. Worse, issues are typically priced on the basis of current p-e multiples. And several recently listed stocks are available well below the offer price.

V Avoid Small-caps

In today's context, that would mean companies with a market capitalisation lower than Rs 1,000 crore. Not too long ago, small-caps and mid-caps were all the rage on the Street. Now, however, everyone, including foreign institutional investors (FIIs), is moving away from them. Typically, investors know less about small- and mid-cap companies than large ones (which lends credence to the theory that investment-plays, not fundamentals, are behind most such investments). "Investors should stay away from companies or businesses they do not understand," says Geojit's George.

VI Seek Steadiness

In stocks, that is. It is highly unlikely that a stock that stays steady in a falling market is a bad buy. Some stocks are punted up to stratospheric levels by speculators. "At lower levels, it is time to look for stocks that have been rock steady," advises Dawnay Day's Agarwal.

VII Remember Dividend Yield

For long, conservative investors have believed dividend yield to be a foolproof way of picking stocks. Dividend yield is the dividend per share divided by the price per share, and the higher this number, the better (with the only caveat being that this approach works better while assessing large-cap stocks; some small- and mid-cap stocks could boast dividend yields that do not accurately reflect their fundamentals). With dividend season around the corner, this approach offers investors an opportunity to buy high-dividend yield stocks and hold on to them for three to six months. Several mutual funds have had considerable success with this approach over the past few years and investors could well study their portfolios to pick companies in which to invest.

VIII Track NAVs

Avoid stocks altogether, and opt for mutual funds. Investors could pick existing schemes with not too high NAVs (net asset values) and a consistent track record, or they could pick close-ended funds with diversified portfolios (50-70 per cent in equity and the balance in debt). "Investing a big amount in one go in the market doesn't make sense," warns N. Mohan Raj, CEO, LIC Mutual Fund, who believes the best way for new investors to test the market is through systematic investment plans (sips) in existing schemes and new ones with a small exposure of between Rs 500 and Rs 1,000 a month for a one-to-three year period.

IX Pick Lies

And pick them apart. Several companies, especially small- and mid-cap ones have started making desperate announcements, related to growth, acquisitions, and the like. The motive: to keep their stock prices high. "Any stock that is rising without any clarity on performance should be avoided," says Religare's Bansal.

X Learn To Be Contrary

There are several specific contrary investment strategies investors can adopt. The thing with contrary strategies is that, the minute they work, everyone adopts them and they stop being contrary. One contrary strategy they can adopt is to look, as a Merrill Lynch report dated May 3, 2006, suggests, at stocks that are inexpensive from a historical perspective and under-owned by foreign institutional investors (that way, heavy selling by FIIs wouldn't affect them), and at laggards in buoyant industries. Both are sound strategies in a volatile market.

NEWS ROUND-UP

Should you book profits in Biocon?

Stock position: Half-full or half-empty?

There is, as any prudent investor would surely be aware, a larger question that needs to be answered, but with that being addressed elsewhere on this page, is our recommendation (for, it is always merely that, never a directive) a 'yes' or a 'no'? Some history first: Biocon debuted on the Bombay Stock Exchange at Rs 435, a 35 per cent premium over its issue price of Rs 315. Two years since, the company's stock is trading at Rs 405 levels (as on May 24), not too far off the Rs 404 it fell to on May 22, the day the Street wept. Some analysts reckon that this is a good time for investors looking for short-term gains to exit. "Biocon's stock has been a stark under-performer in an otherwise bull market and for investors locked into this stock, this may be a good time to exit," says one analyst. That may be one way of looking at it. Another is that the current price levels may be as low as can get for the stock. Mumbai-based brokerage Motilal Oswal, for instance, has retained its 'buy' on Biocon in a report dated April 20, 2006, and has set a target price of Rs 520. Biocon is currently valued at 19.3 times FY07 (projected earnings for the year 2006-07) and 16.2 times FY08 earnings and aside from any adverse development from the Simvastatin opportunity, we believe there is little downside to this stock at current levels, states the report. The brokerage's reference to Simvastatin (a statin is a generic name for a cholesterol fighting drug) has to do with declining prices, something that Biocon has always maintained, its long-term supply contracts insulates it against. And although the company's revenues, at Rs 793 crore in 2005-06, grew by 9 per cent, those for the quarter ended March 31, 2006, (its last quarter) grew 22 per cent; the corresponding net profit figures were a decline of 6 per cent for the full year and a growth of 11 per cent for the last quarter. Those numbers could be read as showing that Biocon has crossed the hump. Long answer to short question, then: No, hold on to the stock if you are in for the long haul.

-Rahul Sachitanand

Should you exit any stock at these levels?

Leaving now? Well, the party isn't over

The larger issue (although this been addressed to some extent in the lead piece of this section; see Thou Shalt Stay Calm on Page 126) is this: should you exit any stocks at all at a time when the Sensex is swinging in its finest imitation of a possessed yo-yo? The quick answer: No. The long answer: If you invested when the Sensex was climbing to 10,000 (which would mean you invested some time back), and you spot some real gems waiting to be picked up at attractive valuations, then, sure, go ahead, reshuffle your portfolio by selling stocks where you believe there isn't much of an upside, even were the Sensex to touch 15,000 over the next 12 to 18 months, which it well could. If, however, you invested after the Sensex crossed 12,000 and are seeing stocks plummet to prices well below those you acquired them at, take a deep breath (and maybe a vow not to look at stock-tickers for the following 30 days), and stay invested. A year down the line, you are unlikely to have cause to regret the decision.

Glitter Bug
More people are buying gold as bars from purely investment motives.
By Shivani Lath

A year ago when 55-year-old Sudha suggested to her husband (on the basis of a discussion she had with other housewives in her neighbourhood) that he invest in gold bars, he thought the lady had found a new way of spending his money (and vetoed the move). Since then, gold prices have increased to such an extent that Sudha's husband can only look shamefaced when she sulkingly reveals the story to everyone who comes home. Gold prices have shot up from Rs 6,168 per 10 gm on April 1, 2005, to Rs 8,445 on March 31, 2006, and Rs 9,369 per 10 gm on May 24.

Call it idle gossip, call it fetish for the yellow metal, call it what you will, but Sudha and her friends got it right. They understood that it didn't make sense to pay a premium for jewellery when they could get pure gold for less. What they didn't know, perhaps, was that they were part of a larger trend in gold investment.

Last year (2005), more people bought gold for investment purposes than the corresponding number in 2004. According to the World Gold Council, in 2004, investment-led buying accounted for sales of 100 tonnes of gold. The corresponding figure for 2005 was 135 tonnes. In contrast, the figures for jewellery were 518 tonnes and 587 tonnes. "Today, about 75 per cent of global consumption of gold is in the form of jewellery and about 11 per cent is for investment," says Sanjeev Agarwal, Managing Director, World Gold Council's India operations. "In India, about 80 per cent of consumption is in the jewellery form and about 12 per cent is in investment."

One reason for this, according to analysts, is that the Sensex has run up to a level where investing in equities is tough. Investments in gold, however, help diversify the investment portfolio and are relatively safer because the price of the metal isn't linked to the performance of the economy. Other reasons, according to Agarwal, include improved purchasing power, the weakening dollar, and increasing oil prices.

Internationally, several new instruments for buying and selling gold have made it more convenient and cost effective for institutional and individual investors to invest in gold. The World Gold Council launched the first gold mutual fund at the London Stock Exchange two-and-a-half years ago and followed it up with similar funds in New York, Australia, South America and Europe. Now, there are some mutual funds working on a gold mutual fund in India.

In India, the council has worked with ICICI Bank and HDFC Bank to set up a structure to retail gold across their branch networks. Other banks that retail gold at select branches now include Indian Overseas Bank, Corporation Bank, Indian Bank and IndusInd Bank. And the council has launched a scheme called I Gold targeted at high net worth individuals where investors can buy between 100 gm and one kg of gold on the MCX (Multi Commodity Exchange of India) through a commodity broker (the transaction is converted into physical gold at the end of a week), and take delivery or park the metal in a demat account on payment. "If at some point he wants to sell, he can do so seamlessly," explains Agarwal.

Branded jewellers, however, believe such investment-led buying hasn't come at the cost of jewellery. Mehul Choksi, Managing Director, Geetanjali Gems Ltd, says his sales have increased 50-70 per cent over the last year. "In India, people don't buy gold for investment, they buy it as jewellery. If gold prices rise, there might be a lull in business, when people wait for a correction. If they don't see a correction coming, they just go out and buy anyway."

On Your Marks

Don't put off your tax planning. Get into an Equity Linked Saving Scheme now and you won't have cause to regret it come next March.

By Mahesh Nayak

On February 28, 2005, finance Minister P. Chidambaram, while announcing his Budget for the year 2005-06 removed a ceiling of Rs 10,000 on investments in equity linked savings schemes (ELSS) that would be allowed as part of the Rs 1,00,000 that individuals could invest in tax-saving instruments (the ceiling was part of Section 88 of the it Act that was scrapped and replaced with Section 80C).

That meant they could invest the entire Rs 1,00,000 if they so desired in ELSS. The scrapping of Section 88 also meant individuals with a gross annual income higher than Rs 5,00,000 were now eligible for similar benefits. Ravikant Koshy, a Mumbai-based investor (his name has been changed on request), is one of several thousands that have used this change to advantage. He upped his investments in ELSS to Rs 30,000 and saw that grow to around Rs 55,000 (which shouldn't surprise anyone; in 12 months ending March 31, 2006 ELSS returned an average of 87 per cent).

The assets under management (AUM) of ELSS have surged by 330 per cent in the same period, to Rs 7,155 crore from Rs 1,663 crore. And their contribution to the total assets managed by mutual funds has increased from 1 per cent to 3 per cent.

Better Than The Rest

Investors will discover that ELSS enjoy several advantages over other tax-saving instruments. Apart from claiming deductions under Section 80C for up to Rs 1,00,000, the lock-in period for such schemes is the shortest when compared to other tax-saving instruments such as investments in public provident fund (PPF), RBI bonds, and National Savings Certificates (NSC). Long-term capital gains on investments in equity funds and the dividend received on these is also tax free, as against interest from RBI bonds (8 per cent) and NSC that are taxable. Then, there is also the small thing about the earning potential of ELSS, much higher than those of other tax-saving instruments (see ELSS Vs Other Tax-saving Instruments).

These, though, do not make ELSS the ideal tax-saving option for everyone. "It completely depends on the risk-profile of an individual," says Sandeep Shanbag, a Mumbai-based investment advisor. "You cannot ask a 55-year-old man to invest his complete savings in non-assured returns schemes such as ELSS." However, most investors do seem to have realised the merits of opting for an equity-linked tax-saving instrument. "People have understood that to beat inflation and get consistent returns over the long term, equity has to be part of their portfolio," explains Hemant Rustagi of Wiseinvest Advisors, who sees a shift towards ELSS.

Understanding Risk

The quantum of an individual's investment in tax-saving instruments is a function of his or her appetite for risk. While past returns from such schemes may encourage investors to put their little (or sizeable) all into them, that wouldn't be the prudent thing to do. High returns equal high risks. The ideal way to enter ELSS (as indeed, any other mutual fund scheme) is through a systematic investment plan (SIP). This does away with the need to time the market. Better still, it reduces the strain on finances at the end of the financial year when most investors move into tax-planning mode.

There are no fixed prescriptions as to how much of an individual's portfolio should be made up of ELSS (in investing, there is no one-size-fits-all rule), but there are some rules of thumb. An individual's investment in equity should be 100 minus his age (thus, for a 30 year old, it should be 70 per cent of his investible surplus). The proportion of this dedicated to ELSS will be a function of the individual's age, risk-profile and financial commitments. For instance, an individual who has just started earning and has no financial commitments can invest 100 per cent of his investible surplus in ELSS. This won't just save tax but help him or her build a good portfolio. The mandatory three-year lock-in period serves as a boon, helping the money grow (although if the individual wants a regular income, he or she can opt for the dividend option). Generally, however, most investment advisors are of the opinion that ELSS are among the better ways for an individual to invest in equities.

SIP, Don't Gulp

With systematic investment plans in ELSS, the lock-in period starts on the day the first investment is made. For instance, in 2005-06, if an investor had started investing in an equity linked savings scheme from April 2005 by way of sip, his investment of Rs 1,00,000 over the year (at Rs 8,334 a month) would have grown to around Rs 1,81,000 (assuming an average return of 87 per cent). If he had, however, made the Rs 1,00,000 lakh investment in March 2006, it would have grown by a mere 5.22 per cent to Rs 1,05,220, and the lock-in period would have started only in March 2006. For the record, if the investment had been made in April 2005, it would have grown to Rs 1,87,000, but the investor would have carried enormous risk.

Investors opting for ELSS would do well to remember that the instrument shares the characteristics of equity. "It is only over the long term that equity has the potential to outperform other comparable assets," says Rustagi. There is another benefit: with investors not being able to redeem their units for three years, fund managers have the luxury of plotting a medium-term strategy. And if investors believe that this luxury can be misused by fund managers, the very fact that outflows are a continuous process in open-ended ELSS should prevent fund managers from opting for illiquid stocks.

If all this isn't enough, look to fund houses that offer ELSS clubbed with insurance cover. Kotak Mutual Fund and Reliance AMC do, for instance, and a three-in-one benefit is not something to be scoffed at.

House Full
Occupancy rates have zoomed but so have stock prices. Right time? Wrong time?

By Shivani Lath

Tried booking a hotel room in Bangalore recently? Or Delhi? Or... Several factors-the economy is on a roll; zoning regulations make it all but impossible for a luxury hotel to come up just about anywhere; and the gestation time for a hotel project is long, around 24-36 months on an average-are behind this demand-supply imbalance. This year, the number of business travellers and tourists visiting India is expected to touch 6 million; that of domestic travellers, 350 million. The comparable figures for 1991 were 1.7 million and 66.7 million.

Expectedly, occupancy rates and room tariffs have zoomed. Hospitality industry analysts claim that premium hotels (read: five-star hotels) registered a 30 per cent increase, year-on-year, in revenue per available room in the period between April and December 2005. In the same period, occupancy rates rose to over 71 per cent and average room rentals, by over 27 per cent. Revenues too have risen across the industry, as have profits (see The Numbers Game). Hospitality stocks have benefitted from the boom. The stock of Indian Hotels zoomed from Rs 634 on April 1, 2005 to Rs 1,358 on March 31, 2006 and currently (May 24) trades at Rs 1,102; the corresponding figures for that of Hotel Leela Venture are Rs 161, Rs 347, and Rs 341.

Is this a good time to buy? "At these levels one has to be cautious," says Devina Mehra, Director and Chief Global Strategist of First Global Finance. "Investors must understand that the hotel industry requires high investments." However, she adds that "macro economic fundamentals continue to look good." Some analysts believe that although the upside from current levels may not be significant, hospitality stocks offer investors a good defensive play. Others, such as Rajeev Thakkar, Director and Senior Vice President (Investment Research), Parag Parikh Financial Advisory Services, believe that "the industry is cyclical in nature" and that "over a period of time, it hasn't delivered good returns to investors." There are takers for both schools of thought. Reliance ADA Group and investor Rakesh Jhunjhunwala recently acquired around a 19.5 per cent stake in Viceroy Hotels which is embarking on a Rs 800-crore expansion drive across South India. And IDFC Private Equity exited its 8.139 per cent stake in Hotel Leela Venture in March 2006, about a year after investing in the company, for an-over-100 per cent return.

Industry players, meanwhile, are upbeat. "With improved performance of the existing units and expansion, we expect tremendous growth," says Vivek Nair, Vice Chairman and Managing Director of The Leela Palaces and Resorts. According to estimates provided by HVS International, a hospitality industry focussed consulting firm, the number of hotel rooms (branded chains) in the country's top eight markets is set to increase from 24,842 today to 54,208 in 2010. "There will not be a situation of supply exceeding demand for the next four years," says Premal Zaveri, a consultant with the firm. Our recommendation: go for it.

Take A Second Look
In today's car mart, how smart an idea is it to buy a used car? Check out if the numbers make sense.

By Nitya Varadarajan

Last year, Indians bought 1.2 million new cars, and, by some estimates, some 700,000 used ones. This year, the corresponding figures are expected to be 1.33 million and 800,000, respectively. In several cities across India, including Chennai, Mumbai and New Delhi, the used car market is easily double the size of the new car market. Churn, or the simple phenomenon of car owners (could be new cars, could be used ones), wishing to upgrade, is one reason for the continued flow of used cars into the market, although there are other factors that could be contributing to it, including, in certain parts of the country, a large population of techies that is highly mobile, moving cities, even countries, and often disposing off a car before it does. Everything on four-wheels is available on the used-car market, as are cars of every vintage. The most popular ones, however, are cars that are three to four years old (2002 and 2003 models are the most popular).

The Money Aspect

Time was, when it was difficult to find someone to finance used cars. While that has changed, the differential between rates on new cars and used ones continues to exist, although it has narrowed some. For instance, two years ago, the difference was around 6-7 per cent. Now, largely driven by an increase in the rate for financing new cars (up to around 10 per cent on a diminishing basis), it has come down to 4 per cent. Today, a five-year loan on used cars comes at an interest rate (flat) of 8 per cent while the corresponding figure for a new car is around 5 per cent to 5.5 per cent. In EMI (equated monthly installment) terms, that translates into Rs 2,500 per lakh as compared to Rs 2,076 for a new car.

Used cars, however, are rendered attractive, in part, by the fact that the lifetime road tax on them, as well as insurance to date, and sometimes for as much as 12 months after the sale, have been paid. That's a significant sum of money, and, new car buyers have to usually fork this out themselves (financiers rarely fund this). "This leads to a greater initial outgo on the part of the new car buyer," says Preena Sherene, Managing Director, Carsales India.com, a website dedicated to used cars. The insurance and tax on a Maruti 800 would add up to around Rs 20,000. On the flip side, financiers generally offer extended financing for new cars.

Kicking The Wheels

One reason for the increased interest in used cars is, well, the cars themselves. New-age engines boast a life of at least seven years (without having to be opened up and tuned). "In a reasonably well maintained car, the life of an engine can be as long as seven years," says K. Mahalingam, a partner at TS Mahalingam & Sons, one of Chennai's leading used car dealers.

Another is the emergence of company-led and dealer-driven initiatives in the space, such as Maruti True Value and Ford Assured where the companies themselves check vehicles and refurbish them. Some independent used-car dealers allege that the price tags on cars that are sold through such channels is usually higher than they should be.

The companies themselves have a different point of view. Maruti, for instance, guarantees the odometer reading and offers three free services and a warranty. "We ensure that our buyers get only peaches not lemons," says Ravi Bhatia, Sales Support (True Value Business), Maruti. Ergo, customers can restrict themselves to a less taxing due diligence of documentation, the customary kicking of the tyres, and the ritual checking of the odometer.

Used Or New?

There are times when and people for whom it makes sense to go in for a used car. For instance, there are some companies that offer their employees low-cost loans that usually have a ceiling. If the individual concerned is unwilling to take on an additional loan responsibility, he or she should just buy a used car, outright. Then, there are individuals who can afford a mid-sized car or a small one, but would like to drive around and be seen in a large or mid-sized one. In most parts of the country, a two-year-old Skoda Octavia can be had for the price of a new Honda City.

Generally, it doesn't make sense for customers to buy a one-year old car; the price differential between this and a new car is unlikely to be significant and can probably be set off as the cost of warranty.

-additional reporting by Shaleen Agrawal, Kushan Mitra and Rahul Sachitanand

Oil-On-Boil Stocks
With dire predictions of oil breaching the $100 (Rs 4,500)-to-the barrel shortly, here is our pick.

India, much like the rest of the world, is on the lookout for renewable and alternate sources of energy to power its economy. So, is this the right time to invest in alternate energy stocks? Yes, but only if you are willing to invest for the long term.

Wind: In terms of wind power capacity, India bettered most analysts' expectations with 1,200 MW coming online in 2005 alone. In fact, India has surpassed Denmark and is now ranked fourth in terms of total installed wind capacity. Turbine manufacturer Suzlon, whose IPO (initial public offering) saw it float as the highest valued wind turbine manufacturer in the world (in terms of market capitalisation), has global ambitions and is touted as a good pick. It recently announced that it would set up a $60 million (Rs 270 crore) wind turbine generator manufacturing facility in China. Most analysts, however, feel that the scrip already trades way above its earnings and is, therefore, vulnerable to sharp corrections in the market.
Top pick: Suzlon Energy

Ethanol: The emergence of ethanol as an alternative to petrol can affect sugar production and prices. Last year, India produced 20 million tonnes of sugar, just enough to meet demand. Therefore, even a small increase in ethanol production, say analysts, would mean a significant increase in sugar prices and this will augur well for the industry in general. Companies like Bajaj Hindusthan, Balrampur Chini and Triveni Engineering are in the process of building up capacities and are good picks. Another good pick is technology leader Praj Industries. In April this year, venture capitalist Vinod Khosla acquired a 10 per cent equity stake in Praj, setting off an exponential rise in its share price.
Top picks: Bajaj Hindusthan, Balrampur Chini, Triveni Engineering, Praj Industries

-Aman Malik

Value-picker's Corner

POWER TRADING CORPORATION; PRICE: RS 63

Power trading corporation is the de facto power exchange in India. It makes a commission of 4 paise on every unit of power it trades in (for power generated and sold locally) and 2.5 paise on power imported from Nepal and Bhutan. In 2005-06, the company traded in 11 billion units, some 2 per cent of the total power requirement of India (it closed the year with Rs 3,108.5 crore in revenues and Rs 40.6 crore in net profit). The thing that makes the company a good buy is its emphasis on long-term contracts. "The change in business mix towards long-term contracts extends volume- and margin-visibility (read: it makes the business more predictable)," says Satyam Agarwal, an analyst at Mumbai-brokerage Motilal Oswal, who has a 'buy' recommendation on the stock with a target price of Rs 104.

-Mahesh Nayak

Trend-spotting

Of India's total software exports of $12 billion (rs 54,000 crore) in 2005-06, telecom software accounted for $1.56 billion (Rs 7,020 crore). "With areas like remote network management and product development moving to India, the industry's share could increase from 13 per cent to 18-20 per cent (of exports)," says Kasturi Bhattacharjee, Principal Consultant, PricewaterhouseCoopers. The beneficiaries: Wipro, TCS, Infosys, Patni, Subex, Sasken, Datamatics, Megasoft and Mahindra British Telecom. "The $1.3 trillion (Rs 58,50,000 crore) communication convergence industry will continue to grow," says Rajiv Mody, Chairman & CEO, Sasken.

-Pallavi Srivastava