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 support@anavaran.com or chat with our online support reps
To access more such multibagger stock picks, please have a look @ our investment research services.
