Markets were a bit volatile this month, with some concerns over the economic growth, but finally finished marginally positive. The government continues to tighten interest rates in an effort to slow down excesses in the system. For example, with economic growth so strong, a bag of Cement is being sold at Rs 220 / bag compared with Rs 150 / bag a year back. Such high pricing is more because of stronger demand than supply, rather than cost pressures. To build a new capacity takes longer now because the engineering companies are too busy to delivery new capacities within 16 months. Such pressures are best corrected by slowing down growth and waiting for some capacities to catch up.
Despite the markets being strong, we are seeing several companies at attractive valuation. Some of the companies are available at valuation that was last seen in 2003. This polarization in the market seems surprising and likely to correct in the coming months.