Hello readers,
This is very interesting
times for the Indian market with the markets (Sensex and Nifty) touching new
highs in recent times (22700 and 6800) with gloom and pessimism being replaced
by optimism and hope. The NAMO victory is already discounted in the market
prices and any negative surprise with NDA winning less than 200 seats could
upset the markets leading to 10-15% declines in the short term. Strong victory
with > 220 seats for NDA could result in 4-5% uplift in the market with Sensex
going near 24000 in short term.
My predictions at the start of the year(in my last blog on 15th Jan), when we were at 21000 that we will cross 24000 this year should come true soon, if we don’t see a negative surprise in election results.
My predictions at the start of the year(in my last blog on 15th Jan), when we were at 21000 that we will cross 24000 this year should come true soon, if we don’t see a negative surprise in election results.
While the market have
gone up by 7% in 2014 till date (after clocking growth in Q4 of 2013), its still
has some steam left as many investors (mainly the retail investors and Domestic
institutions) are still waiting at the sidelines for the results and reforms.
Any strong and stable govt. at the center will quicken the pace of reforms and
project approvals which in turn will help to pick up the GDP growth to >6%
in FY15 and kick start the investment cycle. The recent good news on inflation
(with CPI dipping below 9%) and CAD(current account deficit) dipping below 1.5%
is going to put a decline pressure on the interest rates which in turn will be
a powerful booster to the investment/ growth cycle. However , since the market
has already reached peaks , we will have to be more cautious in picking up fundamentally
strong blue-chip business/ stocks through a thorough bottoms up analysis in few
sectors which are linked to interest rate and investment cycles(mainly Banking
and Finance, Auto, Infra, capital goods etc). Any wrong selection based on general
euphoria could be disastrous.
Let
me refer to my last blog dated 15th Jan 2014 with title “My 2014 Top
stock picks and 2013 portfolio performance” where I had recommended the
following 15 stocks for 2014 portfolio
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I had provided the following logic and
rationale for selecting the stocks/businesses in the referred blog
“The portfolio is heavily loaded towards
Banking & Finance, Infrastructure/ Power, Energy and Auto sectors. These
sectors are primarily interest sensitive and capital intensive sectors. Though
the market (Sensex) has attained new peaks and have shot up >15% in last few
months, this rally has not been broad based and has been limited to few sectors
like IT, Pharma, consumer/FMCG and export driven businesses etc. However, other
sectors like interest and capital intensive sectors have been left behind in
the rally and we can still discover value in these sectors.
My favorite sector is Banking and Finance as I
feel that this sector has bottomed out and will start looking up in next 6
months as the interest rate cycle reverses itself and investment cycle picks up
after elections. The over-reactive market has hammered even the best banks and
Finance companies with solid balance sheet, growth and NPA records with the
same short sighted brush as the weak B&F businesses. Consequently solid
B&F businesses like Axis Bank, ICICI bank, BOB, LIC Housing Fin are still
available at attractive prices below their intrinsic values. Infrastucture/
Power sectors are going to benefit once the investment cycle picks up in second
half of 2014 after the elections . The recent fast pace of clearance and
approvals of about 3.5 to 4 Lac crore worth of projects by CCI(Cabinet
Committee of Investments) and the new minister of Environment &
Forest(Mr.Moily) will play a key role in starting this investment cycle. With
this the best blue chip businesses among these sectors like L&T , IDFC, REC
and Power grid which are available at very attractive prices will register very
decent gains. Auto sector will again benefit from reversal of interest rates
,pick up of GDP growth and pick up of rural demand due to good monsoons in the
second half of of the year and hence have picked up the safest and defensive
bets in these sectors(M&M and Bajaj Auto) which have a good rural exposure
too. Energy will always be an ever green sector in energy starved country like
India and have therefore picked up the best businesses like Reliance, GAIL and
Coal India again. Lastly picked up an IT sector stock(HCL Tech) as this sector
will continue to grow in 2014 and 2015, especially HCL because of its strong
growth track record, attractive price/ value equation and exposure to
Infrastructure management where it a clear global leader.”
Good news is that my 2014
portfolio has shown good results in the last few months , clocking a growth of
11% in 2014 till date with respect to 7% growth in Sensex. The key growth
drivers are Bank of Baroda(20.5%), L&T (21.5%), Axis Bank and ICICI
bank(15%), LIC Housing finance(16%) ,IDFC(13%). Bajaj Finance(12%) . The only
business which showed a dip was Coal India(-1.4%).
This has reinforced my
view and prediction that best businesses in few sectors like Banking and
Finance, Infra, capital goods, Auto etc. will do better this year as the investment
cycle and interest rate cycle starts showing signs of positive reversal.
These are solid
businesses with sustainable competitive advantages and strong balance sheets
run by excellent managements, linked to sectors which have been steadily
battered and hammered by over-reactive markets in last few quarters due to
macro and industry specific issues , through these businesses specifically didn’t
have any significant issues. They will continue to do well in the year and next
year giving an annualized growth of 20-30% per year. The key is to pick the
right businesses in the right sectors and stay with them for few years so that
they reach their true potential in terms of their intrinsic values.
I would like to end
the article with few quotes from my gurus in investing.
Benjamin Graham (Guru
of Warren Buffet and father of Value investing) once said that “ the market is
a voting machine in short term and weighing machine in long term.” The markets are unpredictable like voting machines
in short term and make pricing mistakes but eventually recognize the true
value/ intrinsic value of the business/ stock in long term like a reliable weighing
machine. So , the key is to pick the right stocks and show patience and
conviction.
Warren Buffet once
said that “ Be greedy when everybody is fearful and be fearful when everybody
is greedy” . Since the markets have reached new peaks , we should be cautious in
picking the right businesses in right sectors through solid fundamental/ value
based analysis. I don’t think that we need to be fearful yet as the market and
select sectors have some steam left for an upward surge and we are definitely
not in “euphoria” state of 2008.
Happy investing
Cheers
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