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:
- Deterioration in railway’s financial will drive hike in fares, for both goods as well as passenger.
- With rising deficit and falling popularity government is likely to increase taxes, not impacting major segments of society like service tax.
- This one is bit risky one. Tax burden on IT sector can be increased as it is amongst least taxed sectors of the company. And the risk of losing votes is also minimal over here.
- For Personal Income Tax, government’s delicate finances leave little room for raising the tax-free income bracket to 3 lakh as recommended by recent parliamentary panel. A moderate rise in tax exemption limit seems for feasible and probable at the moment.
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.