Which asset class has performed the best so far this year? There are several likely candidates, with stocks clearly being the front-runner. Other contenders that come to mind readily are commodities, which are supposed to be doing very well, thanks to demand from the rapidly growing economies of India and China; crude oil, for the same reason; gold, which is a favourite during times of trouble; and agricultural commodities, the rising prices of which have been stoking inflation.

Here go the results. For Indian investors, equities have done very well indeed, with the Bombay Stock Exchange’s (BSE) benchmark index, the Sensex, up 44% year to date. Retail investors, with their fancy for small-cap stocks, have done even better, with the BSE Small Cap index up 73.8% year to date. Compare that with the 9% or so being offered on bank fixed deposits and it’s a wonder why more small investors are not thinking of adding some exposure to stocks in their portfolio. Returns from bond funds have been around 10-11%.

Crude prices on the New York Mercantile Exchange (converted to Indian rupees) have risen by 24.9% this year. The rise in the MCX Energy spot prices has been 24.5%. But metal prices have been hammered down on worries of a US recession. Aluminium prices on the London Metal Exchange (LME), for instance, are down 14% this year, while LME copper prices are up a mere 7.4%. (Prices have been converted into Indian rupees to adjust for the depreciation of the US dollar.) However, Indian metal stocks have done much better, with the BSE Metals index (which has a large weight for steel stocks) up a hefty 108.2%. If investors had concentrated on capital goods stocks, they would have done even better, with the BSE Capital Goods index up 111.5%. Real estate has also been a big gainer, with the BSE Realty index up 60% in the five-and-a-half months since its inception.

Despite all the uncertainties about the credit crisis and the growth slowdown in the West, gold prices have gone up a modest 13.6% (in Indian rupees). Among currencies, the British pound has been the biggest gainer against the rupee, rising by 10.1% so far this year. The dollar, in contrast, is down 10.9%. The NCDEX Agri spot prices have increased by only around 10.4% year to date. International wheat prices, however, have risen sharply, with the Chicago Board of Trade (CBOT) wheat prices up a huge 81.6% year to date.

Jain Irrigation Systems

A six-fold rise in net profits in the nine months to September of its Israeli subsidiary NaanDan sent the Jain Irrigation Systems Ltd stock up 3.8% to Rs647.90 on Monday. Earnings before interest, depreciation and tax rose a commendable 82%. Jain Irrigation has adopted an aggressive stance on global acquisitions and its NaanDan stake has worked out well, but the NaanDan growth numbers show that the big potential in the industry continues to be in India. Among the countries in which NaanDan operates, India’s growth rates were the highest.

At about Rs648, the Jain Irrigation stock is trading at between 24 and 28 times FY09 projected earnings per share, depending on various analyst estimates. But that hasn’t stopped the scrip reaching new highs this month, probably because the company makes more than half the country’s irrigation systems and is the second largest global player in the field, so it’s entitled to a premium valuation.

The company has also announced that it plans to acquire global makers of irrigation accessories such as valves and filters in FY09. Funding will be through $75 million (Rs296.25 crore) in debt and the rest through internal accruals and contribution by promoters. A few months ago, the promoters had announced a preferential issue of warrants convertible within 18 months at Rs485 per share. The fund infusion through these warrants will be more than enough to offset any increase in debt during the next year, while conversions of warrants and an FCCB (foreign currency convertible bond) issue would lower the debt-equity ratio. True, there would be a dilution in equity, but that would be offset to some extent by lower interest costs as a result of reduced debt.

Jain Irrigation’s September quarter results showed that its PVC sheet business has been hit because of the housing slowdown in the US. But that is a relatively small proportion of its overall business, and the company is expected to maintain a growth rate of 70% this fiscal for its main microirrigation business. Also, the renewed focus on agriculture and irrigation in the 11th Plan and in the state plans will keep Jain Irrigation’s order book full.

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