Analysts see investment opportunities as stocks take a sharp beating

As the threatened withdrawal of support to the UPA Government by the Left Front approaches, the vast investor community in the country is left grappling with the question as to where the market is headed. The stock market has already been subjected to relentless hammering and the BSE Sensex that hit a peak of 21000-plus in the beginning of the current year has been on a downward spiral. Instead of predicting when the Sensex would breach the 25,000-barrier, as was the case early this year, the fear that stalks the investors now is when it would breach the 10,000-level. A host of factors has already led to the market downturn - the US slowdown triggered by the sub-prime crisis, the interest rate and inflation spike, the fall in property prices etc are expected to hit the domestic economy. The precipitous fall in the value of shares of even blue chip companies in the past few months has led to questions about whether the economy will be in the grip of a prolonged recession and whether the stock markets would face a situation similar to what prevailed in early part of this decade when even many Sensex stocks were available at low prices! The escalating political uncertainty has only compounded the misery of the investors. Healthier situation What makes the current economic and market scenario qualitatively different from what prevailed early this decade is that the economic situation, despite the threat of a slowdown, looks to be far healthier than what it was eight years ago. Even if the economic growth takes a pause in terms of percentage, the growth would not be insignificant because of the larger base. The all-round pessimism, which was prevalent in early 2000s when threat of job losses was looming large and other than IT most of the sectors were facing recession, is not present now. Another reason for the optimism is the sheer number of people who are young and who have high disposable income is much more now that it was ever in the past. The awareness about equity investment among the youth is high and this is not a risk averse population, like the earlier generation. Mr Satish Menon, Director-Operations, Geojit Financial Services Ltd, said the disposable income available with the younger generation now is more that what the same group had earlier and their number now is much more than the number of such people earlier. This group puts away a considerable part of the income for investment, of which some part comes into equities. According to him, it was "very evident that most of the young people are coming into the equities market through the mutual fund route and not directly". Many have taken to SIP or the ULIP routes also for investment. Sensex levels On whether the Sensex could ever reach the 21000-plus level, he said for the Sensex to reach that, the primary concern could be the `prices of crude oil, inflation and a stable government'. If crude oil price stabilised around $100 a barrel and the other overall sentiments (including economic scenario) improved, this could be possible in the next 12-18 months. Equities in limelight Mr Hitesh Agrawal, Head of Research at Angel Broking, said "while it would be difficult to time the bottom of the markets, considering that it is currently being driven more by sentiments than fundamentals, we believe that the issues being faced by the Indian economy would get gradually resolved over the next six-twelve months, which would bring equities back into the limelight". Asked whether the equity investors should wait for the second quarter results before taking investment calls, Mr Menon said the prices were attractive today itself and that second quarter results "may not be relevant"; with the assumption that corporate earning may be down by 2-3 per cent that is what is expected. He felt that some of the stocks have dropped by 80 per cent plus and it would be easy for these stocks to recover 50 per cent from these levels "whenever the market mood changes". The present downturn in stock prices also offers a great investment opportunity to investors to log on to some of the fundamentally good stocks because they have also announced bonus shares - Sesa Goa, Sundaram Finance, GAIL, SCI, Madras Cements, HDIL and L&T - to name a few, while DLF is to decide on share buyback. These counters would see heightened activity when the record date approaches even if the market remains volatile. Safe Picks Another option is to look for high dividend paying stocks like ACC, the Tata group companies, Madras Cements, ICICI Bank, Sundaram Finance, PNB etc. Though investors essentially look for value appreciation rather than dividend payout while investing in stocks, a high dividend payout reflects the health of a company even in a falling market. Mr Agrawal said "The correction in the markets have taken away the excess froth" and has factored most of the concerns at the current juncture. Further post-correction, the markets now trade at valuations which are below the 10-year average of about 15x, providing good opportunity for long term investors to build their portfolio. He was bullish on stocks from the IT, Pharma, FMCG, Media, telecom and banking sectors. Some of the financial/housing sector stocks such as Sundaram Finance, ICICI Bank, PNB, SBI, and HDFC have a lot of unrealised value because of their foray into general/life insurance and mutual fund activity. Agreeing with this view, Mr Menon said the current prices of these stocks are already attractive. He said the "current bad conditions are an opportunity to buy such stocks" and they will be re-rated when the companies go for unlocking the value, especially when the market is stable. Political turn Now, the question that would be uppermost in the minds of investors is what would be the market reaction when the political drama reaches its denouement this week. Will the market slip into an abyss if the Left Front withdraws support and will the Government get into a socialist mode jettisoning its investor friendly policies ahead of the Lok Sabha elections that may be bitterly fought? Mr Menon was at his optimistic best: "I don't think any government in this country can afford to have unfriendly investor policies in the long run." He said the market may have a knee jerk reaction temporarily if the Left withdraws support but overall the effect will be neutral in the medium to long term "as the market has already discounted the same".
(Business Line dt. 7.7.08)