Everything that could have gone wrong went wrong this year

Year 2011 is coming to an end- Its time to reflect back and frame strategy for the New Year. The best way to describe Indian equity market performance for 2011 is- Everything that could have gone wrong- went wrong this year. 

Year till date Nifty has fallen by 23.4%.  Even bad has been the performance of mid and small cap companies. EW Mid Cap index fell by 31% and EW Small Index by 37%.  Rupee depreciated 18% versus dollar. 

 Global economy for the large part of 2011 was working under uncertainties related to EU debt crisis and tepid growth in US. Though, as we close the year, EU debt crisis looks a lot constrained.

Coming to India, apart from global issues - unlike 2008 we also had to face tough domestic issues. Inflation has been persistently high. During 2011, interest rate has been raised by over 225 basis points over and above 200 basis points raised already in 2010. Policy paralysis and vicious atmosphere of scam and political uncertainties eroded investment climate in the country as well. Indian equities have seen continuous earning downgrades.

But there is enough silver lining – we are not facing in structural issues like Europe. Everything related to policy paralysis, high interest rate, lack of investment atmosphere etc. can be get away with just few executive decision of central government. 

Also with the fall of 2011, our valuation multiple has fallen sharply. In terms of relative valuation we now trade at lower relative one year forward P/B multiples than other emerging markets. Lower not only in comparison to 2010 but also 2009. And going forward this lower valuation level should help us have a base on which new bull market in India can build its place.

 Coming to our short term view on the market- we believe current upswing in Indian market is primarily on the back of robust year-end rally happening globally. We have not seen higher volume accompanying this upswing. Also bears are refusing to leave the grip on the market. There had been no reduction in open interest in stocks like State Bank, Axis Bank, Lt, BHEL where bears have high open interest. Technically in the short term till market does not close and stays above 4848- this rally is corrective in nature

But these lower levels also provide opportunity to accumulate good quality Indian corporate.  We recommend buying ICICIBANK around current levels for long term investment.  The bank has under- gone sharp restructuring over last three years. CASA of the bank has improved from sub-20% levels to 39%. Post, bit- of- more restructuring, company’s balance sheet will look a lot better. Also Management looks focused on improving ROE of the bank. And though being second largest bank of India, it is still trading at attractive valuation multiple of 1.4 times P/B.

Investment Updates & Perspectives

  • Budget 2016- A Disciplined Action

    Amid all the news, views and counter views around acchey din, it is a fact that BJP government has initiated some strong structural measures to improve Indian economy since coming to power in 2014.

    Jan 2 2016
  • Indian Equity Market- 2014

    Post recent electoral mandate stock market has joined the party with all key indices trading at all time highs. Now that the dream mandate has come, specific question in minds of stock market participants are whether they should book profit or reshuffle their portfolio?

    May 17, 2014
  • Indian economic recovery will be of U shape with long trough period

    Post 3rd quarter results and poor GDP numbers, we have made changes in our Sensex EPS and market assumptions. We have reduced our FY14 Sensex EPS assumption by 3% to 1329. This changes our fair value Sensex estimate for calendar year 2013 from 22, 627 to 21,930.

    Mar 06,2013
  • Indian Equity Market - 2013

    At the beginning of 2012 our basic view was the Indian Stock Market was trading at a cheap valuation of 13 and a rally was evident at that level of valuation. Indian Equity Market are now trading close to Sensex 19,500 levels and is up by 27% in 2012.

    Jan 6,2013
  • Has Risk-Off entered in a Bubble Zone?

    Lately there been a headline shocker here in India, when Q4FY12 growth came at 5.3%. Though for market, it was an anticipated event and so market reaction to the news was highly indifferent. As we have said in the past, market movement at least in near term will be influenced globally by events happening in Euro-Zone.

    Jun 2, 2012
  • India- The most leveraged bet on global risk-on and risk-off

    Last month, RBI was full in its policing action in Indian financial markets to introduce liquidity and contain the Rupee depreciation; RBI took a bold step and bought around US$2.3bn of government bonds.

    May 30,2012
View all Investment Updates
Untitled document