[Attachment(s) from ekam ber included below]
ValueGuide: 2010: The year of consolidation?
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| | Investment Insights | | Our regular features on investments and equity picks for our investors. | | FROM SHAREKHAN'S DESK
2010: The year of consolidation? The year that had started with a whimper on weak global cues and the Satyam fiasco ended with a bang, with the Indian stock market reporting a whopping gain of ~80% for 2009. If we consider the market?s recovery from its March 2009 bottom of 8160, the gain appears even larger at an eye-popping ~113%. The gravity-defying move by the equity markets was driven by improving economic conditions and ample liquidity globally. Now as we are ringing in the new year, there is a sense of excitement mixed with apprehensions in the air. Will the good run continue in 2010?
MARKET OUTLOOK 2010: A tale of two halves -
Not about macro but micro now: After the unidirectional trends of the previous two years, 2010 is likely to usher in a period of volatility with the market moving in a broad trading range for the better part of the year. The focus would gradually shift from macro driven unidirectional market moves to stock-specific investment opportunities based on earnings growth and absolute valuations. Effectively, it?s going to be a stock pickers? market from hereon and the focus will shift to generating alpha through the ability to pick the right stocks. -
Hurdles in H1: The outlook for 2010 can be dissected in two distinct halves. In the first half, the markets could turn edgy as the Indian economy battles some of the key hurdles, such as the reversal of the interest rate cycle led by a spike in inflation, the adverse impact of the withdrawal of the economic stimulus, the fears of further fiscal slippage and the sustainability test of the global recovery. Moreover, valuations aren?t compelling anymore with the Sensex already trading at 17x one-year forward earnings, which is ahead of its long-term average multiple of ~15x. However, ample liquidity (both domestic and foreign) and relatively stronger economic revival in India will limit the downside risk, thereby resulting in higher volatility in a much broader range as compared to the range seen in the past two months. -
A more promising H2: As against this, the second half should see the focus of investors gradually turning away from the near-term issues to the long-term potential of the Indian economy and the strong corporate earnings beyond FY2011. In addition to the well-heralded long-term growth story of India, FY2012 (and beyond) would be a crucial period for the Indian both economy and capital markets due to (1) a surge in infra-creation across sectors; (2) booming domestic consumption (India?s own consumption J-curve); and (3) the restructuring of the tax code (direct tax reforms and the Goods & Services Tax reforms). -
Risk of an unforeseen event: The key risk to our thesis is a double dip recession in the developed economies or some other unforeseen event that could again flare up the risk aversion globally. Second, the Indian economy and markets are highly vulnerable to any speculation driven spike in the prices of commodities (especially crude oil) due to the country?s high dependence on imports and its already ballooning fiscal deficit. -
Investment themes for 2010: As investment themes for 2010 we prefer: Infrastructure and capital goods stocks (as the investment cycle picks up with a lag in consumer demand); urban consumption stories like media and retail (the improving economic trend would boost discretionary spending); divestment targets (public sector undertakings [PSUs] that are likely to announce follow-on public offers [FPOs]); and cement stocks (the dark horse that could surprise positively amid the pessimistic consensus view).
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- Orbit Corporation: Upgraded to Buy
- Orchid Chemicals & Pharmaceuticals: Lacks growth drivers post-deal; book out
- Shree Cement: Put on Hold; book partial profits
- Tata Chemicals: Rallis acquisition to lead to earnings upside
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- Zensar Technologies: Price target revised to Rs315
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| Regards,
The Sharekhan Research Team | |
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Please use your discretion before acting on the ideas expressed in the group.
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