Vikram Samvat 2069 began on a lackluster note, with a downward bias and the question on everyone’s mind is; where will the money go this year? Manik Kumar Malakar puts across this obviously dicey question and gets a few experts to share their insights and forecasts…
Against the generally uncertain economic backdrop, analysts still feel that the reforms being undertaken by the government will give equities a boost. “The new Samvat brings with itself, hope of a better future,” says Dipen Shah, Head of PCG (Private Client Group) Research, Kotak Securities about the New Year. “I am personally optimistic about the coming year. I think the market will give better returns this year compared to last year,” says Motilal Oswal, CMD, Motilal Oswal Financial Services.
However, be cautioned that a lot hinges upon governments, both domestic as well as global. “The government is in a mood to bring the economy back on the high growth path and that, according to us, can be a big positive, if the Government carries out with further reforms,” says Shah. The “Market may touch an all time high provided we see RBI going in for rate cuts and the government continuing its action on the policy front,” says Oswal.
Another plus point from the global perspective is the US elections that saw incumbent Barack Obama continue as President of the US. This ought to ensure continuity in policy and disruptions if any will be at a minimum.
Already, the Indian equity market has become the third biggest after China and Hong Kong in the Asian region,’ says Mehta Equities in an overview of the Indian Capital Market. But make no mistake; global factors will weigh in upon India both from the equity as well as the economy standpoint. ‘Investors continue to perceive US bonds as safe havens while lack of alternatives and risk-off trades led to record low yields on German bunds, a rise in dollar index, Swiss franc and gold,’ says ICICI Direct.
‘Fears of moderating growth in China led to commodity sell-offs including in crude, a blessing in disguise for India,’ they continue. That is the general economic thrust.
From the equities viewpoint, the perspective is this. The US Fed (their Central bank) is committed to supporting their economic recovery by infusing a massive amount of liquidity into that economy, till the job market improves in the US. Specific figures mention an amount of 40 billion dollars every month. A similar effort has been made by the European Central Bank.
“Such commitments and efforts by the two central banks representing the world’s most developed economic regions have eased liquidity conditions by a massive magnitude, reduced risk around the world and spurred market sentiments across the globe, including India,” says Dinesh Thakkar, CMD, Angel Broking in a Diwali Special Market Strategy.
From a historical viewpoint, foreign investors had pumped in approximately 20 billion dollars in each of the fiscal years of FY 09 and FY 10 into India. “Considering that the government is doing its part to draw foreign investment through implementing reforms and other directed measures, foreign fund flows into India is expected to continue,” says Thakkar.
So, in the last four months, we have received almost 9.7 billion dollars of inflows. “Going forward, equities in emerging markets which have high growth potential such as India, are likely to remain attractive for foreign investors,” Thakkar of Angel Broking continues.
But remember there will be heartbeats fluttering thanks to erratic equities. “No doubt, there will be periods of uncertainty and anguish and concerns,” says Shah.
There may be corrections in markets. The fiscal cliff in US is expected to be the first big test for global equities. EU chiefs will also have to keep on working hard to avoid catastrophes. “And more importantly, the Indian policy-makers will face a big test in the ensuing winter session. The last budget before 2014 elections will also be important,” he continues.
“However, we are hopeful of a much better Samvat 2069,” says Shah of Kotak Securities. “Small and midcaps will outperform the large caps,” is a specific prognosis from Oswal of Motilal Oswal.
‘We now expect the Sensex to trade in the range of 16484 (13x FY13E Sensex EPS of 1268) to 20146 (14x FY14E Sensex EPS of 1439, upside of 15%),’ says ICICI Direct.
They base this on a bull case target multiple that is in line with the historical average multiple of 14x while their base case Sensex target now stands at 18707 i.e. 13x FY14E EPS, an upside of 7%.
The parallel levels on the Nifty, ICICI Direct inform are 4950 on the lower side and 6050 on the higher side., ‘On overall basis, we expect the markets to be in the range of 18000 to 22000 levels for the year 2012-2013 (estimates),’ says Mehta Equities.
Top Picks from…
Havells India Target: Rs 675
Investment Rationale: On the back of increased brand building and new product launches Havells’ Consumer business is likely to post strong growth in FY13.
Risk & Concern: The company likely to face higher pressure on its margins due to rising raw material prices and the competitive intensity for almost all products.
India Cements Target: Rs 110
Investment Rationale: The company is looking at the possibilities of exports to Sri Lanka and South African countries. The company is expected to start exports probably to Sri Lanka this fiscal.
Risk & Concern: Due to a steep rise in costs, driven by higher raw material prices and rise in distribution and freight costs profit margins likely to remain under pressure.
IndusInd Bank Target: Rs 425
Investment rationale: IndusInd Bank (IIB) has low exposure to risky segments such as power, infrastructure, airlines and commercial real estate, which provides comfort on asset quality. We believe asset quality would remain stable and expect credit costs of 55-60bps over FY13-FY14.
Risk & Concern: A sharp increase in interest rates could affect NIMs due to lower- than-expected demand growth and low CASA.
Kajaria Ceramics Target Rs 260
Investment rationale: Of the number of players who sell vitrified tiles in the Indian market, only a few own manufacturing facilities. Kajaria is the major beneficiary of the growing demand due to its own manufacturing facility in India.
Risks & Concerns: A fall in demand from user sectors could impact the growth of the company.
Titan Industries target Rs: 320
Investment Rationale: The company plans to open many more stores in the second and third quarters of which most of its network expansion is franchise-led.
Risks & Concerns: Factors like high inflation, a weak rupee and poor monsoon are likely to have an adverse impact on its targeted growth.
Swaraj Engines – Expected Value Rs. 527
Bayer Cropscience – Expected Value Rs. 1402
Bajaj Corp – Expected value Rs. 247
GMDC - Expected value Rs. 264
Karur Vyasa Bank - Expected value Rs. 574
HDFC - Expected value Rs. 947
Havells India - Expected value Rs. 715
BASF India Target Price – Rs. 779
GIC Housing Finance Target Price – Rs.160
Jaiprakash Associates Target Price – Rs. 163
Nesco Target price –Rs. 1,046
Tech Mahindra Target price – Rs. 1,200
Equities and alternatives
“As is evident, the real estate sector is still totally unorganised, retailing too is so unorganized, so it’s given that corporate profits will continue to grow at 15-17% (as is the case even now) and so will returns on investment. So equities will in the longer run give 15-17% returns to investors,” says Dinesh Thakkar, CMD, Angel Broking. ‘Indian investors are shifting focus towards the bond market,’ notes Mehta Equities.