Expert tips: How to trade next week?
Published on Saturday, May 23rd, 2009 at 11:26 AMAuthor: admin (5507 Articles)
The Indian equity markets closed the week on a high. It was a marquee week that made headlines around the world. It all kicked off with that phenomenal Monday — riding on the spectacular election result last weekend — when the markets rose about 20% within a span of a few seconds to get locked in a circuit and seeing trade halted, the highest ever rise witnessed in any index ever in history. After that, the markets played around a bit but mostly consolidated. It was the week that brought the capital markets back into the nation’s imagination — the buying interest, volumes and the double-digit percentage gains in most stocks bear testimony to that. (Read weekly highlights, gainers and losers on next page)
On Friday, the 30-share BSE Sensex closed 150.61 points or 1.1% higher at 13,887.15 while the 50-share NSE Nifty closed the day’s session at 4238.50, up 0.66% or 27.60 points.
With the Cabinet formation taking place on Saturday, Monday promises to be eventful too. How do the experts see the next week panning out? The keys to watch out for: who will hold the key posts?
Valuations catching up
“We couldn’t have asked for anything better with regards to a significant rally,” Ajay Loganadan, Head – Investment Advisory Group Private Banking, HSBC Private Banking, said. “However, once the euphoria starts to die down — it already is — what is built is high expectations from the new government with regards to reforms and what can be expected from the Budget [in June-July].”
However, Loganadan says post the stupendous rally, valuations have caught up with historical averages. “Given this run-up, this morning we downgraded India from ‘overweight’ to ‘neutral’. We are trading at 15.5-16 times forward earnings. So it starts to put India a little bit ahead of itself from a perspective of valuations,” he says. “Having said that, from a long-term perspective of three to five years, the view hasn’t changed. We are still bullish and overweight on India.” The key events to watch out for ahead, he says, are the Cabinet formation and the Budget. “Over the next couple of months, we would probably see volatility, maybe a market that trends sideways for sometime, consolidates and then after few months we see what happens.”
Loganadan says that during the 2008 correction, midcaps got hammered and didn’t run back up as much when the market rallied. “However, they have been the stellar performers over the last few trading sessions, the last week or so. If you look at midcap space selectively, there continues to be value and good stock selection is a key going forward.”
Sectors one can buy
Loganadan says he is overweight on capital goods and infrastructure — on expectation of reforms in the Budget — apart from energy and telecom. His advice for someone who has missed the rally: “Our year-end target for the Sensex is about 14,000, so valuations are fair. I always believe that if valuations are fair to cheap, one needs to be fairly fully allocated to the extent of their risk appetite and their allocation to equity,” he says. “We are advising our clients to buy in a phased manner, rupee cost averaging is probably the best way to enter the markets right now. As long as valuations are reasonable one needs to continue to invest.”
Sectors to be underweight on
“From the sectors that we cover, irrespective of what we can expect from the Budget, we remain neutral on cement. Demand for metals in the developed world will continue to remain soft irrespective of the run-up they have seen,” Loganadan says. “Real estate has had a phenomenal run up, some of the companies have been able to raise capital but I think the stress is going to continue and it is going to be a difficult environment for them in the near term.”
Weekly highlights:
- The Sensex rose 14% while the Nifty rose 15.5%
- Midcap and smallcap stocks came to the party: The CNX Midcap Index rose 22.8%, the BSE Small Cap Index 29% while the Nifty Junior was up 24% — all outperforming even the benchmark indices.
- All sectoral indices ended in the green barring the IT Index
- All sectoral indices gained at least 15% barring healthcare and FMCG
Top weekly gainers:
- Reliance Capital: up 52%; Unitech: up 38%, Reliance Infra, Reliance Communication up 36% apiece; ONGC: up 28%; DLF: up 29%, Reliance Power: up 27%
Index losers:
- Infosys: down 4.5%; Cipla: down 3.5%; Wipro down: 2.3%
Other gainers:
- Among capital goods stocks, Larsen & Toubro. ABB and Siemens were up between 24% and 31%
- Metal stocks like Tata Steel, SAIL and Nalco up between 26% and 34%
- Bank stocks like SBI, ICICI Bank and HDFC Bank were up between 15% and 32%.
Buy Tata Metaliks, Riddhi Siddhi: Mudar Patherya
Investment Analyst Mudar Patherya says buy Tata Metaliks
“A very interesting company and to a large extent pretty well glossed because everybody thinks its commodity but that’s one of the reasons why this stock is available at a bargain. The second reason is perhaps very critical. In the Q3 of last fiscal year, the company reported a near Rs 220 crore loss. They couldn’t have made that money and lost it all in one quarter. But there is some remarkable stuff in this company and it needs a very serious look in. From a governance perspective, any company that has the guts to take a Rs 220 crore write off in one quarter deserves at the end some kind of an appreciation salute for its sheer corporate guts.”
Buy Riddhi Siddhi, says Patherya
“Riddhi Siddhi Gluco Biols will require a lot more patience because it is not just your earnings increase. Last fiscal year 2008-09 would have been very bad for the company because the rupee went up to 52. They finance their Pantnagar (the Uttarakhand plant) operations with Forex debt. So when the rupee is weakening they are in the cooler but something is interesting. Despite a bad year 2008-09, I would reckon if you go by the extrapolation of your quarterly results, they should report a topline of somewhere around Rs 520 odd crore as opposed to Rs 330 in the previous year.”
Ashish Chugh’s hidden gems: JVL Agro, Gulf Oil Corp
Ashish Chugh, Investment Analyst and Author of Hidden Gems, says JVL Agro looks undervalued. “The undervaluation of JVL Agro becomes even more evident if one compares it with peer companies like KS Oils and Sanwaria Agro Oils. At the current price to earnings ratio about 2-2 ½ the stock looks grossly undervalued.”
“Gulf Oil is a Hinduja Group company. This is a company is a multi business, multi location company. This company is into Lubricants, industrial explosives, mining services, real estate as well as specialty chemicals. The company has got its lubricants plants which are located in Silvassa. This company has its industrial explosive divisions located in Hyderabad, Rourkela and Bhiwandi. The plant which is in Hyderabad is located on 821 acres of land and as far as company sources this is the second largest detonator manufacturing facility in the world. Last year there has been a slow down in the automobile sector because of which the lubricant business of the company has not logged on much growth. The growth is almost flat as far as the lubricant business is concerned. But the company is seeing good growth in the industrial explosive and mining services business.”
Source : MoneyControl
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