(a) 30 August 2013 to 22 Nov 2013 and
(b) from the date of my post (23 Sept 2013) till 22 Nov 2013.
* 2-Wheeler and Tractor stocks were mentioned as ‘Monsoon Plays’ in the comment section of the same post on my blog.
(a) 30 August 2013 to 22 Nov 2013 and
(b) from the date of my post (23 Sept 2013) till 22 Nov 2013.
* 2-Wheeler and Tractor stocks were mentioned as ‘Monsoon Plays’ in the comment section of the same post on my blog.
Indian markets have shown a lot of volatility in recent times. The market rallied 15 percent (about 2,650 points) in 15 trading days between 28 August 2013 and 19 September 2013 on account of the fading threat of US military attack on Syria, steps announced by the new RBI chief Mr. Raghuram Rajan to address depreciation of the Rupee and liquidity constraints and also the dovish stance by Fed which postponed the anticipated QE taper and thus resulted in an increase in FII investment into Emerging Markets (EMs) like India. FIIs made Net Equity investments of Rs.11,138crs in September (till 19th September 2013) as compared to a net outflow of Rs. 6200crs in August 2013.
On behalf of entire team @ Anavaran, We wish you a Happy Diwali and a prosperous New Year.
May this festival of light bring peace and prosperity to you, your family and our investments.
Continuing with our past tradition, we today reveal a list of stocks that we believe are poised to yield decent return over long term (12-24 months) investment horizon.
After having largely refrained from taking high risk for past two years, we now believe risk-reward ratio to be titled in favor of risk takers.
Thus, this year’s Diwali Stock Picks contain couple of picks whose risk is assessed to be high.
To access detailed reports on these companies and to access more such multibagger stock picks throughout the year, please consider subscribing to our stock recommendation services. Annual plan begins from Rs930/-.
In case of any queries, please feel free to call us at 022 322 56579
Glimpses from the past
In March 2003, a leading business magazine carried a cover story titled “CAN THE SENSEX TOUCH 4000 in 2003?”. Now, that shouldn’t have been a question of so importance so as to reach the front cover, especially when markets had already crossed that mark 10 year back in 1992. Surprisingly, of all the experts surveyed for the masterpiece, no one dared to predict a humble 4K mark for the beloved Sensex. 3,800 was their most bullish projection.
For the record, the article turned out to be good luck charm for the market and Sensex registered a whooping gain of 89% in rather short period of 9 months. With the benefit of hindsight, it can be said that is was not just that year but a beginning of 5 year bull rally that culminated in January 2008 with Sensex breaching 21,000. Moral of the story, none of the market pundits, at least those in public arena, were able to predict the coming bull run in stock market. So, could be the case this time as well. Afterall, the Sensex had first time breached current levels of 17,000, 5 years back.
Back to the future
Feels good to see 5% upside in broader markets since upward revision in our market outlook from neutral to cautiously bullish. We continue to maintain our bullish stance on the market, but are becoming increasingly cautious with every point rise in broader market.
Series of bad news continued to flow in since upward revision in our market outlook of which petrol price hike, depreciating rupee and weak IIP numbers occupied maximum public attention. Market eyes are now glued to RBI’s decisions on interest rate on 18 June 2012. Given continued slowdown in industrial growth 25 bps cut in interest rate is almost certain and even 50 bps cut lies within the realm of reality.
Rate cut, rating cut
Mr Market’s excitement on probable rate cut by RBI is being subdued by S&P’s cautionary on potential rating cut on Indian debt below investment grade. Rating agencies have been behind the curve for the past decade with subprime crisis in US and sovereign debt related problems of PIIGS group standing epitome to their prowess. S&P’s caution note only reiterated those issues, policy paralysis and rising fiscal deficit, that were already known for quite long. Hence, we don’t foresee much impact of proposed rating cut signals on long term fundamentals.
Because of positive impact of RBI credit policy on interest rate sensitive sectors, falling crude oil prices and more because of the low prices that the stock are trading in current markets, we maintain our cautious but bullish stance on the Indian stock markets.
Grab these stocks before someone else
Please find below some of the stock that we like with investment horizon of more than 12 months:
For detailed access on these companies and more such multibagger stock picks, please consider registering for our stock recommendation services.
All the market gyan and investment theories on making money in stock market basically sum up to a four word surefire mantra:-
“BUY CHEAP, SELL DEAR”
However, Mr. Market has always been an ultimate contrarian to this simpleton’s logic.
From the roaring BULLS in Feb to everlasting BEARS in MAY, markets have almost turned a full circle in three short months. We @ Anavaran, feel rather satisfied with being just a bystander to this downward spiral, which cost 14% loss to benchmark indices and much severe pain for broader markets. However without being in a hurry to pat our backs for correctly predicting uptrend in December 2011 and subsequent downtrend from February 2012, we would like to confess that momentum of these trends did took us by surprise both the time.
Gazing the crystal ball
With austerity plans in Europe likely to be butchered on altar of populist politics, sovereign debt crisis is set to accentuate over the coming months. Moreover, United States, with its muted growth, is not in a position to provide much boost to the global economy. Closer to home, concerns on government’s fiscal deficit and policy paralysis have taken the Indian story into hibernation mode as reflected by low, and often negative, IIP numbers in early months of 2012.
No doubt, concerns on global and domestic front will weigh on the market sentiments but as John Rockefeller once said:
“The way to make money is to buy when blood is running in the streets.”
So while we don’t expect a lot of good news over the coming year, the economy is likely sail through FY2013 without any major mishaps. Amongst the factors that we believe will help in averting the doomsday are as follows:
• Monetary Stimulus: RBI is left with ample leg room to cut interest rates to boost economic growth. In our opinion, prevailing interest rate leave room for rate cut by over 250 bps in the coming year, if situation worsens on the growth front.
• Fall in crude oil price: With muted growth across the globe, energy demand and resulting crude oil consumption are likely to falter over the coming months which will mitigate India’s inflationary and trade deficit pressures. Consequent fall in subsidy bill will improve central government finances.
• Tailwind benefits: With inflation running in double digits for most of FY12 and industrial growth hovering from low single digits to negative territory and qualitative issues in sectors telecom, financials, mining etc largely accounted for, we expect tailwind benefits to accrue to economic growth indicators in FY13.
These factors, along with 14% fall in benchmark indices and more than 25% decline in broader markets from its February peak has driven upward revision in our market outlook from neutral to cautiously bullish. At the risk of being repetitive, it is pragmatic to reiterate that it is a medium to long term outlook. Over the short term, at any given point broader markets could fall over 10% in as small as a week time for all sort of apparent reasons, ranging from ugly ducklings to black swans.
Taking stock of stock picks
As with the market, most of the stocks under our coverage experienced extreme volatile during the past 6 months. Please find below some of the stocks that we rated a BUY from late 2011 to Jan 2012 period that attained their target price in early 2012 and are now trading subsequently below our calculated fair value price.
• Microtech: In August 2011 we estimated fair value of the company @ Rs180 per share compared to its prevailing market price of Rs110. The stock attained our target price in April 2012 and has fallen back to Rs142 since then.
• Onmobile Global: The stock formed a part of our Diwali pick, when it was trading at Rs57. The stock rose to as high Rs84 in March 2012 and reversed the trend to fall back to 3 year low of Rs48.
• Punjab & Sind Bank: One of top Diwali picks, the stock rose from Rs71 in October 2011 to Rs90 in early March this year. However concerns on loan defaults have taken a toll on stock price which currently trades @ Rs63.
• Nocil: Also a part of our Diwali stock picks, Nocil stock price breached Rs20 in Feb 2012, compared to Rs16 prevailing at time of recommendation. The stock currently trades Rs15.5.
• Sintex: Part of our medium term stock picks, we rated Sintex a BUY in mid Dec 2011 @ 63 with target price of Rs90. The stock breached our target price in early Feb 2012. Since then it has declined to Rs53 largely due to depreciation of Indian Rupee which increases impending cash outflow on repayment of dollar denominated debt, due for redemption in mid July 2013.
• JSW Steel: We rated JSW Steel a BUY in Dec last year with target price of Rs900. At the time of recommendation, the stock was trading at Rs510 per share. The company’s stock peaked @ Rs870 in Feb 2012 and has slided since then to close @ Rs620 yesterday. Rupee depreciation and concerns on iron ore supply are amongst the key concern for the stock.
• Allahabad Bank: Our first BUY of 2012. We rated the public sector bank a BUY in Jan 2012 with target price of Rs180. The stock rose from Rs114, from date of recommendation, to attain our target price in Feb this year. It has been amongst the few public sector banks that has maintained stellar earning performance despite rising loan default. The stock currently trades @ Rs143.
For updated target price, valuation, investment horizon and other nitty-grittties please feel free to contact us at firstname.lastname@example.org or chat with our online support reps
To access more such multibagger stock picks, please have a look @ our investment research services.
In all this doomsday prophecy of end of world in 2012, that has been too fashionable these days, we thought of commencing the new financial year on a positive note. So here is an endorsement on the long term prospects of investments in Indian stock market from one of the most respected figures in Indian finance – Deepak Parekh, the patriarch figure at HDFC and HDFC bank:
Interviewer: Supposing somebody came to you, youngish guy and said I have Rs 10 lakh, I don’t want to look at them for another 10 years, should I put them in the stock market, what would you say?
Deepak Parekh: I would say that if you do not put it in the stock market you are a fool.
Interviewer: Really you are that optimistic?
Deepak Parekh: But not in all companies in some companies where there are growth opportunities.
Interviewer: A 10 year horizon you put 10 lakhs, you should be okay?
Deepak Parekh: You should be okay.
Our long term outlook on the stock market investment remains broadly in sync with what HDFC Chairman said in the above interview. One might be bearish for months or year, but when it comes to decade there is no other signal but that of screaming a BUY.
But as with all things in life, investing in stock market has its own caveat. As Mr. Parekh said, “But not in all companies in some companies where there are growth opportunities.”
It is over here, that Anavaran can render its services in separating the flower from the weed. While our valuation service remains exclusive for our subscribers, here we reveal some of the investment themes and companies that we believe could yield good returns over the long run.
Mid Sized Public Sector Banks: Most of the public sector banks are currently trading below Price-to-bookvalue of 0.5x and PE range of 4-5. Impressive dividend yields, as high as 5%, further sweetens the deal. These PSBs have been growing at 15-20% per annum for the over the past 5 years. Being government owned, most of these banks have followed conservative lending practices thus keeping their NPAs under control. Given historical trends and fundamental precedents, we expect these banks to trade at PBV of 1.0x over the coming 2-3 years. While, rise in NPAs could keeps stock prices under pressure over the short term, we view these government owned financial entities as attractive investment proposition over the long run. Some of the banks we like in this category include:
Andhra Bank, Bank of Maharashtra, Central Bank of India, Corporation Bank, Dena Bank, Punjab and Sind Bank, Union Bank of India, United India Bank etc.
Housing finance companies:- An investment story similar to that of public sector banks with similar operations and ownership but with added advantage of lower operating costs, focus on single sector and rising trend in housing finance. We like Canfin Homes, GIC Housing Finance and LIC Housing Finance amongst housing finance companies. Feeling sad to exclude HDFC, whose stock prices we believe has run ahead of its fundamentals.
FMCG: Small is beautiful theme holds good here as well. While FMCG giants like Colgate, HUL, ITC, Marico, Godrej Consumer look aggressively overpriced trading at PE of more than 30. Smaller peers like Bajaj Corp, Jyothy Laboratories etc who have carved out a niche for themselves look much better placed to gain from rising consumerism in rural markets.
Consumer Durables: While Korean giants rule the roost in this segment, companies like IFB Industries and Mirc (maker of Onida) have invested a lot and could yield decent returns for long term investors.
Textiles: To be frank, except for S Kumar and Zodiac, we don’t like their operations a lot. It is more to do with their real estate assets that possess as legacy of yesteryears. Arvind, Bombay Dyeing and Century Textiles, could be the ABC of the theme. Others like Raymond might be beneficiary as well.
Land Banks: While textile hog all the limelight when it comes to embedded real estate value, but there are score of others who own land banks that could be monetized over the coming decade. Just to warn, its expected to be a lengthy process, a really lengthy one. Value hunters could have a look at Atul Ltd, Indian Hume Pipe, MTNL, Tata Communications etc to explore the theme.
There are scores of other themes and companies that we like, but thinking of saving some for our subscribers. After all there should be some incentive to register for our investment research services. For target price, valuation, investment horizon and other nitty-grittties please feel free to contact us at email@example.com or chat with our support reps.
Prologue: After a year of some analytical, but rather boring, articles, here is a memoir of finance professional that sheds light on working of financial sector on a rather lighter note to end the financial year. A must read for financial whiz kids on this Fools Day.
Every morning in the southern part of the country, mostly in my home state of Tamil Nadu, hundreds of astrologers sit below a shade, usually a tree and predict the future of their ‘clients’. Their tool is a caged parrot. The mechanism – the parrot when allowed to come out of the cage is trained to pick one booklet from many that the astrologer spreads out.
And based on the clues printed in that particular booklet the astrologer predicts the future of his clients. Mostly the questions are predictable – problems relating to cash flows, business, finance, health, children and of course marriage. Years of experience has taught the astrologer to give non-standard yet satisfactory replies to these standard questions even to the most intelligent clients. Interesting, isn’t it? Or is it mastery of the human psyche?
Cut to the metros. Every morning across the country, we the finance professionals begin our work as meticulously as the parrot-astrologers mentioned above, but with a crucial difference. Instead of the parrots we use laptops, and instead of the unsophisticated printed booklets, we rely on Microsoft office.
Without Excel spreadsheets and Power Point we will instantly be rendered hors de combat. Ask us any question about anything we will answer you only through these tools – even if it means introducing ourselves, our company or our services. We will use jargons or acronyms even for silly things. We have our own grammar for our operations.
The idea is to bamboozle our clients and give them an impression of being in a hurry. If a client is a multi-product company we would advice them on de-merging and concentrate on core competencies. If it is a single product company we would ask them to diversify to de-risk themselves. Never mind, in both cases we are actually experimenting with our clients at their cost.
And should a client have a rupee term loan we would advice them on a foreign currency loan and exactly the reverse should they have a forex loan. For the former we would predict the depreciation of the dollar, for the latter, the appreciation of the dollar. Who said cheese for the goose is cheese for the gander?
If we find a non-finance professional on the other side of the table we reckon that they are lambs to the slaughter. When we encounter fellow finance professionals on the other side, things are no different. After all, he would be compassionate to our cause, understand our jargons and empathise with our constraints.
In effect, others’ ignorance (or their negligence) is our strength. We sell from the mundane to the complex, in the process warranting far above what we can deliver, causing much more havoc than what the clients could have ever imagined and charging much more than want is apparent. Welcome to the world of finance professionals and consultants.
You dream, we make money
We understand the fundamental human psyche far better than any other professionals with the sole exception of the parrot astrologer. We know the proclivity of businessmen to make quick money and the power of greed. We love such people. In fact, we encourage them to dream big, bigger and better. After all when you dream it is money for us.
Most of you don’t waver. But if some of you do, we have the ready quotes of Shiv Kheras and Robin Sharmas of the world to motivate you, chosen with outmost care to be quoted out of context. Added to these are the real life stories of Narayana Murthys and Aziz Premjis. And when all these weapons are used, most of you fall. Only the extremely lucky escape from the heady brew that we concoct.
So, to a small timer we will recommend public issue. From being a partner of a small firm or to a private limited company, we play on his psyche and encourage him to go for a public issue. If his capacity today is 1000 MT, we easily work his profitability for 100,000 MT, never mind the availability of raw materials or ability of the person to market or any other fundamentals. Naturally profits one-hundred times the present levels can excite even a saint. Why talk of lesser mortals?
Surely, Excel spread sheets has made life easy for us. But to make life far simpler we have ready made templates, of course, with the usual disclaimers to cover our backs should something go wrong. Yet we occasionally goof up by denominating steel in litres or some liquid chemicals in meters. Our clients are very understanding – they do not find fault with us. How can they when we have bamboozled them in the first instance?
Our fundamental mantra is to calculate the earnings before Depreciation, Interest and Tax. Then we extrapolate such calculations to the next few years adjusting the prices to what we think is ‘reasonable’, never mind that the commodity prices are gyrating by the hour. If we decide, a four per cent variation can be serious. In the alternative a 40 per cent can be immaterial.
But if you still understand what we do, we will talk in terms of IRR, cash flows, MAT, dividend tax, tax-shield, leverage etc so as to flummox anyone. Management of most corporates wastes millions of precious man hours to check and recheck all these as if it were Bible, Koran and Veda all rolled into one. When all these happen, no wonder, we chuckle in front of you and have a hearty laugh behind you!
The next step is to approach banks for financing or other non-conventional lenders viz. venture capitalists and Private Equity. Here it is very easy for us. Since we have our own people on the other side of the table speaking our language, jargons and lingo, it becomes so easy. As we try to sell the dream of our clients, the finance professional sells his ‘products’. And it takes two to a tango. Isn’t it?
For us short term is few hours. Long term is a few days. And when something goes wrong we blame everyone from Bush, Iraq, Oil, Pakistan, Taliban and for that matter everyone except ourselves. And when people succeed we ensure that media covers the same adequately. On such occasions naturally we act with extreme alacrity and appropriate the credit.
Our relationship with these lenders means that it only we who can get you the funds or the facility. And when things go bad, it is only we who can bail you out. It is only our restructure package that will be accepted by these lenders. In tennis parlance – it is game, set and match for us. In chess, it is check and mate.
Horse multiplied by an ass is equal to a pig
The earnings of 30 companies that determine the BSE index is approximately Rs 1000 crores. We multiply the same with a price earning (PE – the Holy Grail) multiple of say 12 or 15 or even 21 to arrive at the BSE index. Much as all this is voodoo economics, when it is a bull market we point to markets that have a higher multiple and justify such higher prices. When it is a bear market we point out to markets with lower PE multiples to justify the market prices of shares. Either way you will lose.
Worse still, we move from channel to channel and from columns to columns using charts and what not to justify either the rise or fall in stock markets. And for the past six months we have first suggested resistance to NSE at 5,800, then at 5,400, then at 4,800, subsequently at 4,400.
In the process we had encouraged every small investor to stay invested. When all these levels have been broken, we have now suggested 3,700 little realising that an umbrella is of no use when you face a tsunami. Yet we continue without any shame or remorse to pontificate. How can you shame the shameless?
And when people survive all these, we tutor them to repurchase their shares or better still de-list. And should they have surplus cash even for a movement we move in silently as the big cats move in for their kill and make the gullible invest in commodities, real estate or some other exotic markets.
Better still, we advice on mergers or amalgamating with some other companies or better still sell the stake to others. Yes, in all these transactions we are interested.
And on all these, whether you make profit or loss, we would ensure that we make money first-up. Naturally, we see money in every transaction, why every part of a transaction. We would encourage one set to sell and other set to buy, and broker the deal both ways. Of course we do profit both ways. Did I hear that dirty word called ethics? Remember, we see value in everything except in values themselves.
But what is surprising is that despite what we do blatantly remains beyond the comprehension of many. Consequently as a class we remain un-critiqued. No wonder as the cliche goes, what is obvious is usually the most oblivious. This allows us, like the astrologer in the streets of South India, to endlessly play on the psyche of men and their greed.
Disclaimer: No copyright, left or center.
Ignorance is bliss, so is inactivity many a times. Same has been true for our research desk which has largely been in hibernation mode since mid Jan 2012. As legendary investor Warren Buffett said,
“Stock market is designed to transfer wealth from active to passive investors.”
Since our last article Stand Against Thundering Herd, when analysts @ Anavaran took a contrarian stand against the raging bull, Sensex have slided nearly 10%. Bounce back favorites like BHEL, Sintex, JSW Steel, Educomp, have fallen more than 20% from their February highs sheding nearly one third of their gains in 2012. The fall offers decent opportunity for value investors to accumulate stocks of fundamentally strong companies for the long run.
Short term vibes
Short term prospects continue to be hazy at best. Hence, it would be prudent to defer taking fresh investment position ater the budget. Over the coming weeks markets are likely to remain range-bound as excitement over budget will largely be offset by ruling party’s dismal performance in recent assembly elections, particularly in Punjab and Uttar Pradesh.
Budget continues to be an overrated exercise which attracts undue attention from financial media. With elections over, budget will be the key point of talk for experts over the coming weeks. With contraction in political space and growing unease amongst alliance partners, the coming budget is likely to be more populist than that of earlier years. Reforms are likely to receive a lip service. Little else concrete impacting overall economy or any particular sector is expected to be announced.
Gazing the crystal ball we foresee following features to be likely incorporated in budget:
Our research desk which has been in hibernation mode for most of 2012 is back in action and is in process of revealing several such stock picks.
Glimpses of our stock rating
Despite being bullish on the stock markets @ the turn of the year, the speed of liquidity driven rally did surprise us with most of our stock picks attaining our medium term target price during the first 45 days of 2012. These include Allahabad Bank, Sintex, BHEL, JSW Steel etc. Our Diwali picks did remarkably well with Onmobile reaching 83 levels, a tad below our target price of Rs90, before retracing below 70. Several others like SIntex, BHEL etc breached their target price and faster than expected pace before subsiding back.
Take for example example, Sintex. We rated the stock a BUY with medium term horizon in late 2011 viewing it as a Black Gold. The surge in stock prices surprised us and we reversed rating to SELL in mid Feb when stock crossed 100 mark. The stock is currently hovering below 80.
Rise of the fallen angels
We are in process of valuing fallen heroes like Sintex, BHEL, IFB Industries, S Kumar and several other of our medium term calls with a longer investment horizon. As said, Good dates end with dinner, better ones end with breakfast.
Our list of evergreen Sells continue to grow as we continue to grill the financials of more and more companies. Some of the Mr.Market’s favorite on our SELL List include: Avon Corp, Pipavav,Jupiter Biosciences, Southern Ispat, Cals Refineries, KS Oil, Karuturi and many more.
To end the rather long note, here is an ode to those who dare to ride such make belief stocks in hope of quick gains:
A lady from Niger,
Went to a ride on a tiger
They came back from the ride
With the lady inside
& Big smile on the face of tiger.
Taking stand against a herd though often threatening for the short term, could be highly rewarding over the long run, for those who survive the initial onslaught. The correlation becomes stronger when one is faced against a thundering herd on the stock market.
Research desk at Anavaran dared to be ‘cautiously greedy’ when fear was in high demand on the Dalal Street. In December 2011, market were at sweet spot offering high upside potential with limited risk of downside. However, nearly 20% rise in benchmark indices and more than 50% surge in some of the fallen heroes of yesteryears have bridged the price-value mismatch prompting a change in our outlook to ‘prudently neutral’ as we saw an end to Great Indian Share Sale.
As stated in our last article we still see money making opportunities in the stock market and would not like to be branded a bear, at least not as of now. Since then, Sensex have risen over 8% to cross our base case target of 18,000. Sensex is now inching towards the top end of our forecasted range of 12000-20000 for 2012. However, it would be prudent to reiterate that there are lesser profitable investment avenues than those available at end of 2011 and even these require longer investment horizon of at least 18 months to materialize.
Games that Mr. Market Plays
To get a feel on the market, let us have a look at the investment strategies employed in the share market. In our opinion, at any given time, there are three games being played in the share market; that of investment, speculation and gambling. In investment, gains come from increase in size of cake, while in speculation and gambling usually one persons gain comes from other persons loss.
Value style of investment, a philosophy that we @ Anavaran adhere to, seeks to find disparity in underlying value of a company and price of the stock. The time horizon is the same time horizon it takes to work out the company’s strategic plan and business cycle to complete, usually 2-3 years.
From Diwali to Christmas of 2011, share markets were ideal for value style of investments. A value investor could find oceans of price value disparity during this period. Some of these stocks that we rated a BUY during this period include Sintex, JSW Steel, Onmobile, Nocil, Punjan & Sind Bank etc.These ocean of disparities narrowed down to rivers in Jan 2012, (BUY-Allahabad Bank) and such disparities are not more than rivulet streams currently. While we like companies such as Atul Ltd, Aditya Birla, Tata Chemicals, Sandesh we think price is not correct to enter these stocks.
The speculators, who mostly rely on technical analysis and charts, don’t care a lot about the underlying value of the company. They are largely concerned with the underlying demands of buyers and sellers in the stock. They are looking at the beauty contest aspect of the stock market -wiil people the stock and bid it up or not. It’s judging human nature. There playing field spans from fundamentally strong companies to those which are mostly dubious in nature. PSB which was more of a value play in late 2011, has turned out to be speculators favorite since news of LIC buying 5% stake in the company hit the markets.
Last and also the least are great gamblers of the share market who are just speculating on the speculator, making a wager because they feel they have got a instinct that knows what’s going on in the market. The stigma of converting the share bazaar to satta bazaar lies on them. With their perpetual search for GREATER FOOL, Evergreen SELL stocks like Avon Corp, Pipavav, Jupiter Biosciences, Karuturi Global, KS Oil and hordes of other empty promises are gambler’s favorite bet in share market.
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Season sale ends at Dalal Street!!!
The leap year brought the much needed upward leap to share markets. In our New Year Investment note, when Sensex was hovering around 15500, we had highlighted change in our outlook from neutral to ‘cautiously bullish’. Fall in price as well as appearance of green shoots at inflationary and currency fronts were the key reason for the positive stance.
While the economic front hasn’t changed a lot since the turn of the year, with nearly 15% jump in benchmark indices share market has largely bridged the price-value mismatch gap. Stock prices of some of the companies we liked have risen over 50% from their recent and most of them have breached our bear case target price. The surge has proven to be a double edged sword. While the surge in share prices has surely improved the aggregate return of our recommendations, it has raised the necessity of treading with increased caution henceforth. With the end of Great Indian Share Sale, making money would be much more difficult, though not impossible from hereon.
With bear case target of Sensex, 16500 breached we believe factors like euphoria on budget, tax savings driven investments, easing of inflation and currency rates (purely due to higher base effect) will provide a fillip to benchmark indicies over the coming months. Despite, high probabilities of Sensex attaining our base case target of 18000 by end of this fiscal year we believe it is wise for retail investors with short term horizon to stay away from the markets.
Glimpses of our stock ratings
One of the peculiar features in making investments has been a passion to BUY at high prices and SELL at low. When market was trading around 15500 financial media buzzed with doomsayers and now the same financial community is screaming a BUY at nearly 20% higher prices. Same people who flock at Season sale at malls and bazaars get repelled by low prices in investment arena.
Going by our 2012 investment strategy of “Aiming for 20 thousand for Sensex, but prepared to face 12 thousand. 20-12” We foresee upside from current levels looks limited to 20,000 for Sensex. On the downslide, Sensex could slide to 12000 levels in the worst case scenario and there is string of events in the making which could make this doomsday like scenario come true. Being prudently neutral at the moment we take learning from John Templeton’s following quote:
“Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria”
For investment opportunities, Small is beautiful still looks good, especially for mid-sized public sector banks. With most of the trading at price-to-book value of and P/E of 0.5x and 5x, their stock prices are poised to double within 2-3 years. Research desk @ Anavaran has been bullish on these banks since October 2011 and has BUY rating on many of these, of which Allahabad Bank and Punjab & Sind Bank are in public domain.
Many of mid-cap IT companies, which formed part of our Small is Beautiful investment theme, have seen sharp rise in share prices prompting us to moderate our positive outlook. Of our BUY calls in IT space, Patni Computers has risen nearly 80% since our BUY rating in August 2011 to attain our target price of Rs475 in Jan 2011.
Onmobile Global, which formed part of our Diwali picks has increased 30% since our BUY call and still offers 20% upside from current levels. Similarly, Nocil’s stock price has risen over 20% and has potential to further rise 30% and more over the coming year.
Outlook on FMCG, a sector we liked for most of 2011, underwent change from positive to neutral largely due to growth in share price. We reversed our rating on HUL from BUY to SELL on 08 Jan 2012.
We have been having a relook at our past ratings like S Kumar, IFB etc of 2009-2010 era who have fallen more than 50% from our previous target price and look good at current level. Hoping to rediscover some cats with nine lives over there.
Right Company, wrong price: Atul Limited, Aditya Birla Chemicals
Pat on the back
“Anavaran seems to be one of the few analysts who have not fallen for promoters hype.” – A moneycontrol user, yardman’s, comment on Anavaran’s article on Pipavav.
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