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 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
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