Months after a May-June market meltdown to 9,000, Bombay’s Sensex Index recently nailed a new lifetime high above 13,000, surging past the 12,671.11 high of May 11, 2006. Now that the rally has sustained itself, I’m looking for heavy buy interest in small- and mid-cap names, especially those associated with e-commerce. Namely, Rediff (REDF: NASDAQ) and Sify (SIFY: NASDAQ).

But could we see 14K by year’s end? It could happen. Considering the strong corporate earnings, the strong overseas fund inflow, the positive news that India will spend $350 billion on infrastructure, and a confident Finance Minister Palaniappan Chidambaram who believes India could expand by 10% in “the near future and poverty afflicting millions be eradicated in the next 10-20 years,” according to FinancialExpress.com.

However, does the latest Sensex run through four psychological barriers that overvalue Indian stocks? Nope. The economy is running strong. Corporate earnings are good. And, considering the historical bull runs witnessed by the likes of American and Japanese markets, there’s no reason why the Sensex run couldn’t be sustained. Welcome to the Indian bull market…

According to TheInquirer.net, India is expected to see a 160% jump in Internet users, which should drive more traffic and revenue to Internet sites. And second, I believe Rediff and Sify are buyout candidates for Yahoo! or Google based on recent discussions.

Yahoo!, for one, just inked an $8.6 million deal with Bharat Matrimoney, an Internet personals site (the Indian online matrimonial market is worth an estimated $200 million), and is reportedly “hungry for more acquisitions and tie-ups,” according to BusinessWeek.com. Yahoo! is so hot for India that it’s already announced “plans to launch up to six new portals in regional languages, and acquire or enter into a partnership with an Indian company,” according to Business-Standard.com. In fact, a decision on a partnership and/or acquisition is expected over the next 6-10 months.

And, my Google assumption is based on an invitation on its Indian website for applications from people who can “identify and evaluate acquisition opportunities across existing and future market opportunities, drive management team decisions, lead deal execution, and help manage post-acquisition integration and performance evaluation in the South Asia region.” That tells me Google’s on the hunt, too.

REDF is a buy under $18. Visit: http://www.rediff.com
SIFY is a buy under $11. Visit: http://www.sifycorp.com

Good investing,
Ian
November 7, 2006

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