Markets: US fears recede

There is a silver lining to the sub-prime story for global bourses.

On hindsight, it appears that the US Federal Reserve's move to cut rates by 50 basis points was all that the world needed to tide over the sub-prime crisis. Or, that is what the global stock markets are indicating.

That India and other emerging markets would attract capital on the back of their domestic consumption story is a reasonably sound explanation for the market rally in India. Contrary to expectations of a possible recession in the US, the Dow Jones closed at a new high on Monday, which led to a similar reaction in other global markets.

The positive sentiment is being driven by expectations that the Fed may cut interest rates further as manufacturing activity was below analysts' estimates last month. Investors also seem to believe that the worst of the credit problem is behind us.

Negative surprises on earnings, which will start next week for the September quarter, too seem to be factored in, especially for the financial sector, which will report lower profits due to the credit problems.

It seems that investors are willing to take more risk once again.

And this has resulted in the same contagion of share buying across many markets. Australia, China, Hong Kong and Brazil are on a new high as well. European markets are also rising, but lower than earlier highs of 2007.

According to Emerging Portfolio Research, the flows in emerging market equity funds have hit an 85-week high in the fourth week of September, with more than half the funds flowing into Asia. With a changed view on equities, fund flows in stock markets will continue.

The Indian markets too should be going up further, as long as earnings do not give negative surprises.

Kavveri Telecom: Irish call

On Monday, Kavveri Telecom Products announced the acquisition of technology, intellectual property rights (IPRs) and patents from Sigma Wireless, an Irish design and manufacturing company for cellular and telecommunication antennas, owned by Nasdaq-listed PCTEL Inc. The acquisition will add products and technologies with a ready presence in the European markets.

In addition, the company aims to expand its presence in North America using this technology. The company's current product portfolio includes microwave and radio frequency products, antennas, coverage solutions for CDMA and GSM service providers and solar photovoltaic systems.

According to the Kavveri management, the acquisition will be funded through internal accruals and debt, and is expected to add anywhere between $12-15 million (approximately Rs 47-59 crore) to Kavveri's consolidated FY08 top line, which is likely to be in excess of Rs 100 crore.

Thanks to the massive investments by mobile players, Kavveri has grown at 40 per cent a year over the past three years. Profitability too has been on a rise "� operating profit margin went up from 11 per cent in FY06 to 16 per cent in FY07. Net profit margin has also doubled to 14 per cent. Going forward, the margins are likely to improve further as the company adds new IPRs to its kitty and added capacity, resulting into better realisations and economies of scale.

Earlier this year, the company had made two acquisitions in Canada "� DCI Digital Communications and Til-Tek "� adding telecommunication filters and specialised antennas to the company's product portfolio. Kavveri boasts an impressive clientele including the likes of Alcatel-Lucent, Bharti, BSNL, Ericsson, Nokia, Reliance Communications, Tata Teleservices and Vodafone.

The stock price has nearly doubled over the June-September period, trading close to its recent 52-week high. However, considering the prospects, at Rs 159, it does not appear expensive at 8 times FY08 earnings.