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Tuesday, September 19, 2006

Amaranth Won't Scare The Markets

Any fallout from the recent losses suffered by a pair of hedge fundsthat came out on the wrong side of a bet on natural gas prices probablywon't include a ripple through the financial markets or a governmentrush toward more regulation.

More likely, the onslaught of moneythat's been poured into hedge funds over the past four years--roughlydoubling their assets to over $1 trillion, according to the Hedge FundsIndustry Association--may slow down a bit as investors take a breathand pay closer attention to their funds' strategies and their managers'styles.

"You've got to know your fund manager," says investmentadviser John Mauldin, who publishes a newsletter that tracks the hedgefund industry. "So many investors just look at past performance, whichis not a reason to buy a fund."

His comments come in the wake ofreports that Greenwich, Conn.-based Amaranth Advisors, a fund with anestimated $7.5 billion in assets, has lost 35% of its value this yearthanks mostly to a recent drop in natural gas prices. Amaranth'stroubles come on the heels of those of MotherRock, LP, an energytrading fund that has suffered big losses since June and plans to shutdown. Funds that trade energy have been through volatile times lately,with natural gas prices off 20% since the beginning of September andcrude oil down to $64 a barrel from $78 last month.

Industryexperts say hedge funds have been taking greater risks of late, tryingto chase the 15% to 20% returns of a few years ago, which have mostlydried up recently. The average hedge fund returned 8% last year,according to industry tracker Hennessee Group, in line with the averagemutual fund.

But in the investment world, the hedge funddepartment is where the big boys play. And the territory is generallyfilled with experienced people who appreciate the risks involved andwho know how to take their losses. A one-sided bet on natural gas orany other energy product is going to produce big gains orlosses--exactly what a hedge fund investor expects.

"Investorsare supposed to understand the risks, assuming they're properlyqualified," says attorney William Natbony, a senior partner in thefinancial services group of Katten, Muchin Rosenman in New York.

Anda failing fund isn't very unusual. About 5% of the estimated 7,500 to9,500 hedge funds fold every year, the Hennessee Group says, largelybecause impatient investors with a lot of choices don't offer much of agrace period to managers who bring home lackluster returns. Even a bigloss by a fund like Amaranth is unlikely to have much of a trickle downeffect, according to Natbony.

A 35% loss "still means that 65% of the assets are in place, so the fund is properly collateralized," he says.

Thefallout of the two funds may serve to bring back voices calling formore SEC regulation of the industry. Just yesterday, Rep. Mike Castle(R-Del.), spoke out in support of more transparency while calling for astudy to examine hedge funds' impact on the economy. But Mauldin saysthat regulation would produce little value, since any new rulesprobably wouldn't take direct aim at a fund's particular assets.

"Aregulator can tell them to play by the rules, but won't tell them whatthey can or cannot invest in," he says. Fraud cases in hedge funds, hesays, are pretty minimal compared with public companies, rendering morerules largely useless.

Kotak - Everest Kanto

Kotak recommends a BUY on Everest Kanto

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India's Architectural Wonders

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India's forthcoming wave of slick contemporary architecture, even beyond offices, symbolizes the Asian nation's rocketing economy, which first began to open up 15 years ago. Via a series of superlative skyscrapers, shopping centers, and residences that are the tallest, the largest, the "greenest," or the first of their kind, the country is quickly presenting itself as a 21st century global power.
In 2005, for example, Infosys Technologies opened its $65.4 million Global Education Center in Mysore. Located on a 270-acre, $119 million campus, the facility is the largest IT training center in the world, accommodating 4,500 trainees at any given time and hosting up to 15,000 per year. The center is being expanded to handle double the number of employees. While its glassy, futuristic design might evoke corporate buildings in Silicon Valley, the campus also features an Indian touch: a cricket pitch.

A MODERN TOUCH.  Software, engineering, and management-consulting giant Wipro commissioned Indian architect Vidur Bhardwaj to design an office in Gurgaon based on the traditional structure, the haveli (a house built around an open-air courtyard). Meanwhile, Tata Consultancy Services, a division of mega-conglomerate Tata Group, will soon see a sprawling, $200 million campus in Chennai designed by noted Uruguayan architect Carlos Ott (a nod to Tata's expansion into Latin America).

Buildings will feature a step-like structure recalling those found in centuries-old South Indian temples—only these are rendered in ultra-contemporary glass. It's scheduled to be completed next year and will boast the tallest tower in Southern India.

"By proposing to build their offices referencing Indian architectural design in this age of globalization, Indian companies are sending several messages," observes Islamabad (Pakistan)-based Saeed Shafqat, who teaches courses on South Asia at Columbia University's School of International & Public Affairs, in an e-mail interview.

"They're saying India has a heritage that is coming of age. And that Indians are taking genuine pride in their history, culture, and architectural contributions even in the modern era," Shafqat continues. "Finally, they are saying that Indian multinationals are a force to be reckoned with. [The new architecture] suggests economic self-confidence and strong national identity."

PROCEEDING WITH CARE.  But some experts believe architects and corporations should proceed with caution when planning structures with obvious Indian references. Plans for brand-building via recognizably Indian design motifs could seem simplistic or theme-park-like in their approach.

"Culturally specific motif application is not new. To some extent, it is an easy way to refer to the notion of cultural context," observes Vishakha Desai, President of the Asia Society, the nonprofit organization founded 50 years ago by John D. Rockefeller III to foster deeper understanding between Asian nations and the U.S.

She points to structures such as SOM's Jin Mao tower in Shanghai, completed in 1999 and known for its pagoda-like details, as an earlier example of too-obvious, recognizably "Asian" architecture.

MOVING BEYOND MOTIFS.  "The real challenge for contemporary Indian architects is to understand the historical principles of Indian architecture and design, as well as the specific materials used traditionally and appropriately in the climate," says Desai, who holds a doctorate in Indian art history. "They need to think beyond the quick, knee-jerk reaction of simply adding an 'Indian' motif."

Some architects commissioned to design projects to be completed within the next 10 years are doing exactly what Desai suggests. New York architects Tod Williams and Billie Tsien, for example, have designed a new Bombay campus for Tata Consultancy Services (to be completed by 2010) that incorporates elements such as a jali, a traditional carved screen used for centuries as both sunshade and ventilated wall.

Williams and Tsien's jali is more angular and contemporary and less florid than screens of the past. But it serves as a nod to Indian architectural history as well as providing an eco-friendly way to keep offices cool using natural shade and ventilation.

Sustainability is now a real consideration within Indian architecture. The country, which is highly dependent on coal for energy, is widely known to be one of the world's most polluted.

A study published in June, 2006, by the Community Environmental Monitors (CEM), an independent environmental health agency, indicated that millions of Indians in both urban and rural environments were exposed to up to 32,000 times more than the globally accepted standards for 45 harmful chemicals and 13 carcinogens.

As if to combat such disturbing images of India's polluted landscape, Indian and international architects commissioned to design edifices in India are increasingly producing "green," or eco-friendly architecture.

Sharekhan Eagle Eye (equities) & Derivatives Info Kit for September 19, 2006

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Fedders Lloyd


Dewan Housing



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Sharekhan Investor's Eye dated September 18, 2006

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Cluster: Apple Green
Recommendation: Book out 
Current market price: Rs67

Book out
MRO TEK is a cash rich company and does not have any significant requirement for capital expenditure in the coming years. Consequently, the dividend policy is likely to remain liberal that would result in a decent dividend yield at the current level. However, the inability of the company to grow in the robust demand environment would continue to act as a drag on the stock's valuation. We advise booking out of the stock.

Sundaram Clayton
Cluster: Apple Green
Recommendation: Buy 
Price target: Rs1,550
Current market price: Rs1,040

Annual report review

The key takeaways from the latest Sundaram Clayton Ltd's (SCL) annual report are mentioned below.

  • Good performance in FY2006: SCL delivered a strong performance as its top line rose by 17.3% to Rs629.3 crore in FY2006 as both the die-casting and brakes divisions rendered good performances. The net profits for the year marked an increase of 39.8% to Rs74.5 crore in FY2006. 
  • Improving operating metrics: The company continued to generate strong cash flows, while the return ratios also marked an improvement during the year as the return on capital employed (ROCE) improved to 27.8% as compared with 26.7% last year while the return on net worth (RONW) grew to 23.7% as against 21.9% last year.
  • Both divisions perform well: The brakes division performed well in FY2006 and the outlook remains bullish with the implementation of the norms such as IS 1852-2001 and the implementation of the anti-lock braking systems (ABS). The revenues from sourcing to WABCO are also expected to rise in the coming years. The die-casting division also showed a remarkable volume growth and the exports prospects for the division are quite bright.
  • Capex: For FY2007, SCL has lined up a capital expenditure (capex) of Rs49 crore for the brakes division and that of Rs75 crore for the die-casting division. 
  • Reiterate Buy: At the current market price (adjusted for value of investments) the stock trades at 11.1x FY2008E earnings and 9.2x FY2008 earnings before interest, depreciation, tax and amortisation (EBIDTA). We maintain our Buy recommendation on the stock with a price target of Rs1,550

PN Vijay Financial - BSEL & Suzlon

Suzlon still a buy? and what about BSEL?

Thanks Akash

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Trent should declare an Eps of Rs 30 for Fy 07 and Rs 45 for Fy 08. Available at a trailing PE of 36 times and growing at 50% each year Trent is an excellent pick for a risk averse investor who wants to play the Great Indian consumer story. Also a company with a market cap of Rs 1000 crores raising money to create
a war chest of Rs 400 crores menas that they have something up their sleeve?

Thanks Akash

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Gitanjali Gems

Gitanjali trades at a current year PE of less then 10 compared to Titan's (Tanishq). PE of 32.The RoE is how – ever very low but that could be because the IPO
proceeds are yet to be deployed. There is a scope for a PE re-rating and the stock could handsomely reward shareholders. The stock also trades at a
market cap to sales ratio of less then 0.5 for the current year. It could therefore be categorized as a growth cum value play which coulkd be a
significant multibagger in the making.

Thanks Akash

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