Enabling criteria for Bull Case Going Forward.

Last week saw mean reversion in financial markets. Whereas emerging equities fell in general after sharp rise of prior week, commodity rose after sharp fall of prior week. Nifty for the week fell by 2.43%, commodities went up. Copper by 2.7%, Zinc by 3.4%, Aluminum by 4.73% and Lead by 4.8%. This clear negative co-relation suggests either the relation that existed between commodity and emerging market equities for last 3-4 years is on the verge of getting broken or there is large dose of liquidity in global financial market system and in absence of high economic growth is getting indulged in speculative activity.  If the case is that of commodities remaining soft going forward than it favors bull case for Indian equities.  Our assumption of sustained upward move in Indian equities from here on depends on four enabling criteria. One – inflation in India though will fall going forward on cyclical issues but will gain structural proportion owing to global weakness in commodity and structural reforms in India in this direction. Two- interest rate going forward will see sharp downward reversal helping Indian corporate to report higher net profit margin. Third- that government will come out with a credible plan for fiscal consolidation in forthcoming budget and fourth that global environment will remain benign and that there will not be any sharp disruption in political and economic environment.


In terms of valuation, we are trading close to our fair value, that’s why tracking macro environment becomes important to decipher short term market moves. Though long term investors should ignore these macro noises as in a growing economy the fair value will keep drifting higher as time unfolds. Just for perspective, Sensex Earning per Share is 66% higher than what it was when Sensex made its prior high in early January 2008.

Going ahead, March will see three very important events. Election results, RBI credit policy and Union Budget. Short term traders should be very careful as market will have large swings induced by the outcome of these events.

Stock specific, we recommend IFCI as a strong long term investment BUY for 1-2 years time-frame. IFCI along with ICICI and IDBI were three large domestic financial institutions in pre economic liberalization era. Economic liberalization of 1992 had outdated the model of the three erstwhile financial behemoth of India. Though ICICI and followed by IDBI adopted the change faster in post liberalized era, IFCI struggled. It‘s net worth was negative till 2006 and with Gross NPA of 74%. But IFCI has undergone significant change since then.  For FY12 we expect net worth of IFCI will be upward of Rs 6,000 crores. Top-line of the company is growing at healthy 20%. Currently it is trading at attractive P/B valuation of 0.5 with expected FY12 ROE of 18%. IFCI has large investment book of Rs 8,400 crores which they will sell based on market opportunity whereas IFCI market cap is only Rs 3,200 crores.

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
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