Lack of Trading Interest Sign of More Pain Ahead or Sign of Limited Downside

Last week, Nifty fell by 1.8% and closed at 5209. Noticeable development was on Thursday. Last Thursday was F&O expiry day and on that day market remained range bound and difference between high and low of Nifty was mere 36 points on that day. It clearly shows how much trading interest has got reduced.

  1. retail investors has already lost interest as market has not given meaningful return in the last five years and
  2. with unfriendly tax measure in budget this year, FII too seem to have lost at least trading interest in the market.

On first glance, this looks very negative for the future of the market. But we must remember that hectic trading activities takes place near top of the market, while low activity is sign of market trading around bottom levels. Hence current gloom is an excellent time for prudent long term investor to buy and build solid equity portfolio.

In terms of investment opportunity, we see stable earnings growth, free cash flow generation and rising ROE for companies that have strong brands.

This is primarily on account of two factors- rising per capita GDP of rural India and hence rising rural aspiration level and secondly rising market share of organized players in all consumables, be it foods & beverages, soaps & detergents or even consumer durables.

We have observed that since FY00, per capita GDP in rural India has grown at 6.2% versus 4.7% in urban India. Rural is generally equated with agriculture, but is no longer true: agriculture is now only one-fourth of rural GDP. In fact, from 1999 to 2009, 75% of all new factories came up in rural India, and 70% of all manufacturing jobs were created there

The ‘rural story’  is now less dependent on the vagaries of the Indian monsoon, but gets linked to national economic cycles, to which it was more or less immune so far. Gap between rural and urban wages is narrowing.

As large-scale investments are difficult to come by, the broader indices may continue to languish. On the other hand, as wage growth at the lower end stays strong, goods in the ‘new urban’ consumption basket like two-wheelers, building materials, tobacco, healthcare and media should see robust demand

ITC, Hindustan Unilever, Marico, Bata India are our top bets on this theme.

Coming to overall Nifty levels, technically it remains in the range. Upside potential emerge either if Nifty gets close to 5000-5100 or crosses 5343.

Amongst results declared last week,

TCS, ICICIbank, AXISBANK and Siemens reported results above market expectations while Idea and Wipro’s results were dismal.

It is important for us to note , Banks’ have restructured their assets on account of major corporate lending. % of restructured assets to total Asset has been the high in case of AxisBank  and ICICI bank while for HDFC bank  it is minimal.

Inspite of more restructuring done by ICICI bank, still we rate it as buy on account of its stellar performance of 30% pat growth.  ICICI has a Price target of Rs1210.


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