Fw: ValueGuide: Perils of timing the market

 

 

Sharekhan ValueGuide [March 05, 2012]  Summary of Contents EQUITY FUNDAMENTALS THE STOCK IDEAS REPORT CARD FROM SHAREKHAN'S DESK Perils of timing the market The equity markets continued to build on the gains of January 2012 in February also. Many common investors missed out on the rally because they were waiting on the sidelines either in a bid to time the market or because they were simply petrified by a slew of negative news flow globally.   MARKET OUTLOOK Policy push needed for the next leg up March cluttered with events-poll results, budget, RBI policy: This March has several key events like election results (March 6, 2012), the Reserve Bank of India (RBI)'s policy review (March 15, 2012) and Union Budget (March 16, 2012) in addition to the usual liquidity pressure driven by the advance tax payment. The high turnout in the Uttar Pradesh elections and media surveys suggest a possible gain in vote share by Samajwadi Party (SP) and Congress Party at the expense of the ruling Bhahujan Samaj Party (BSP), which could lead to an alliance of the Congress Party and SP at the state level and a possible extension of the same at the Centre. This would reduce the ruling United Progressive Alliance (UPA)'s dependence on Mamata Banerjee's Trinamool Congress (TMC) and enable the government to push forward reforms. Though no fireworks are expected from the budget, the key triggers to watch out for are: a credible roadmap for fiscal consolidation and some definitive steps to boost the investment cycle. Inflation and economic growth moderate sharply but firm crude prices cast a shadow on the trajectory of monetary easing by RBI: The sharp run-up of 17% to $125 per barrel in the crude oil prices since January this year, fuelled by the rising geopolitical tensions and easy liquidity conditions globally, has brought back the fears of its damaging impact on inflation and economic growth globally. India's dependence on imports for its crude oil needs and lack of reforms in its oil sector make it more vulnerable in such a scenario and could result in the reallocation of funds by foreign investors away from India to resource-rich countries (like Brazil, Russia, Indonesia) within the emerging markets. Moreover, the RBI could delay the much-awaited policy rate cuts in view of the inflationary pressure emanating from the rising crude oil prices. Q3 earnings growth below expectations but pace of earnings downgrades slowing down: While the Q3FY2012 earnings growth was in low single digits, the revenue growth momentum remains strong driven by a healthy growth in volumes, better price realisation and a favourable currency. Since April 2011 the Sensex' earnings estimates have been downgraded by 7.5% and 14.8% for FY2012 and FY2013 respectively. But the pace of the earnings downgrades has slowed down considerably with a marked improvement in the earnings upgrades/downgrades ratio in the third quarter of FY2012. However, the revival in the corporate earnings upgrade cycle is possibly still a couple of quarters away and would depend on the RBI and the government's policies.  Short covering blip behind us; fundamentals would come to fore again: The BSE small-cap index appreciated by 25% compared to the 14% upmove in the benchmark indices. The short covering in view of the surge in the market has resulted in more than 50% rise in many debt-laden high beta stocks. This has provided an opportunity to churn portfolios in favour of quality stocks, not necessarily from the defensive sectors. With the technical blip behind us, we expect the fundamentals to come to the fore again.  Need policy push for further re-rating of multiples: After the recent run-up, the Sensex' valuations have expanded from around 12x to close to 14x FY2013 earnings estimate which is close to its long-term average multiple. The global scenario is much more conducive now with the injection of huge liquidity through the Long-Term Refinancing Operation (LTRO) in Europe and improving economic data points in the USA. However, for the liquidity-driven rally to sustain, there is a need for domestic triggers in the form of adequate support from the government policies (in power, infrastructure, subsidy, foreign direct investment [FDI] etc) accompanied by monetary easing from the RBI. Our base case assumption is a likely consolidation phase around the current level before another leg of the rally unfolds. SHAREKHAN TOP PICKS Sharekhan top picks  STOCK IDEA Gateway Distriparks: Ahead of the pack STOCK UPDATE Andhra Bank: Price target revised to Rs140 Bharti Airtel: Price target revised to Rs450 CESC: Price target revised to Rs405 Eros International Media: Stellar performance in a seasonally strong quarter GlaxoSmithKline Consumer Healthcare: PAT largely in line with expectations India Cements: Price target revised to Rs105 Ipca Laboratories: Strong traction in international business ISMT: Price target revised to Rs36 Madras Cements: Price target revised to Rs138 Mahindra & Mahindra: Price target revised to Rs740 Marico: Price target revised to Rs186 Orbit Corporation: Price target revised to Rs70 Pratibha Industries: Large order win translates into strong revenue Provogue India: Deep value-maintain Buy; price target revised to Rs62 PTC India: No respite on SEBs' woes, price target revised to Rs71 Ratnamani Metals and Tubes: Strong revenue performance State Bank of India: Price target revised to Rs2,400 Sun Pharmaceutical Industries: Taro jacks up growth; price target set at Rs692 Tata Chemicals: Downgraded to Hold Unity Infraprojects: Price target revised to Rs107 SHAREKHAN SPECIAL Monthly economy review Q3FY2012 earnings review THEMATIC REPORT Switch from HDFC Bank to HDFC SECTOR UPDATE Fertilisers: Consumption shift toward cheap fertilisers VIEWPOINT Tata Motors: Firing on all cylinders  EQUITY TECHNICALS  Sensex: Out of the Channel  EQUITY DERIVATIVES  Derivative view: Gains magnified  COMMODITY FUNDAMENTALS  Macro-economy Crude oil: 15-20% supply risk premium in prices Precious metals: Silver outperforms gold on catch-up play Base metals: Limited upside Major economic events in March 2012   COMMODITY TECHNICALS  Gold: Bears attack Silver: About turn Light sweet crude oil: Heat is on Copper: Fibonacci is the key Natural Gas: Bearish triangle Nickel: Next leg down  CURRENCY FUNDAMENTALS  Currency market: Asian currencies mostly lower INR-USD CMP: Rs49.50 INR-EUR CMP: Rs66.01 INR-GBP CMP: Rs78.92 INR-JPY CMP: Rs61.15  CURRENCY TECHNICALS  USD-INR: Tumbling down GBP-INR: Bears warmed up EUR-INR: Bearish potential JPY-INR: Sell on rise  MUTUAL FUNDS DESK  MF PICKS Sharekhan's top mutual fund picks (equity) Sharekhan's top SIP fund picks EARNINGS GUIDE Click here to read report: Sharekhan ValueGuide Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a postition in the companies mentioned in the article. Regards, The Sharekhan Research Team myaccount@sharekhan.com Manage your newsletter subscriptions