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Where to invest in Current times
By siliconindia
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Tuesday, 16 August 2011, 00:39 IST |
1 Comments
Recent correction in markets due to global and domestic factors has made Indian market attractive in terms of valuation. Sensex is currently trading at 13.87x 1- year forward earning which is lower compared to the long term historical forward average earnings of 15.5x. Currently in the short term, markets are more likely to be affected by global rather than domestic factors.
On macro basis, Sector which one can avoid are Commodities (possible global slowdown affecting their demand and price), IT (possible slowdown in US & Europe -which are the major market for IT companies), Real estate (higher price and higher interest rates which affect demand for houses). However there are few pockets even in IT, Real estate and commodity stocks which can provide comfort and surprise in earnings. Few companies like TCS, HCL Tech, Mindtree and Hexaware are doing well in challenging environment vis a vis their competitors (Hexware and Mindtree are not actively covered by Sharekhan). Investor can consider adding to their portfolios, TCS and HCL Tech on declines.
On Macro basis, Sectors that look relatively attractive in the current scenario are Fertilizers, Telecom, FMCG and Banking.
Fertilizer stocks are looking interesting as the Empowered Group of Ministers (EGoM) has approved a proposed urea subsidy policy whereby the government will provide a fixed subsidy on urea, while companies will have the freedom to determine retail prices hence, prices are likely to rise to Rs 5,840 per tonne in the first year. The move will be marginally positive specifically for the companies having presence in Urea space. Companies which stand to gain from this move are TATA chemicals (Urea capacity 1.25mtpa). Tata chemicals stand to gains the most owing to the fact that it has high & efficient capacity. Other beneficiaries can be RCF, Chambal fertilizer and Nagarjuna fertilizer. However we do not have active coverage on the latter three stocks.
Telecom sector have been relatively stable in falling market. Idea and Vodafone have selectively increased the prepaid tariff rates by 20% from 1 paise per second to 1.2 paise per second, in line with the similar hike undertaken by Bharti Airtel. This may lead to return of pricing power to the telecom players and improve their ARPU (Average revenue per user) going ahead. Investor can consider adding market leader Bharti Airtel on declines to their portfolio
FMCG stocks are defensive in nature and provide relatively better portfolio protection in falling markets. The FMCG juggernaut, which has outperformed the market this year, is expected to remain steaming hot on the back of strong revenue and profit growth in the April-June quarter. Investor can look for stocks like ITC, Godrej consumer and on sharp declines Hindustan Unilever for investment. The recent slow down and global turmoil may help to reduce commodities price, which augurs well for FMCG players and will help them to reduce their input cost and maintain margins
Banking sector has witnessed significant correction in their valuation because of RBI's tightening measures on account of persistent inflation. We believe there is lot of higher growth possibilities in private sector banks like Axis Bank, ICICI Bank, Yes Bank and valuation comfort in midsize PSU banks like Allahabad Bank & Bank of Baroda. Hence investors can look at this stock for investment
I would like to summarize that rather than adopting sector approach it would be beneficial for investor to adopt stock specific approach. But for this little ground work would be required. If that is not possible, they should seek the assistance of professional advisors. Investor should use current market corrections for construction of diversified portfolio in a staggered way. This will definitely go long way in wealth creation as India is the place where one should be for the years to come.
The author Dharmesh Pancholi is the Senior Manager - Advisory at Sharekhan.
