Clifton Desilva is an investment expert and a Director at Altina Securities.
In the new calendar year volatility in the stock markets appear to have eased a bit. The level of uncertainty that prevailed in the markets last year also is easing out. At the global level the US economy is showing signs of recovery while in the Euro Zone economies which were shrinking are now stabilizing. On the domestic front most of the factors that contributed to the uncertainty have been addressed to and clarity appears to be emerging. The twin deficits, the fiscal deficit and the current account deficit appear to be under control. The rupee which had seen a steep depreciation in the month of august has also stabilized. What is still a concern is inflation and that too food inflation, but the data released last week shows a cooling down of food inflation. Now what remains as a major concern is the outcome of the general elections which will determine the direction of the stock markets. Till some time back the markets were betting on only one of the two parties gaining majority – i.e. the NDA or the UPA but with the success of the Aam Admi party the uncertainties have increased with fears that the Aam Admi Party may split votes which could then allow a third front to assume power and which could lead to the stalling of reforms.
Nevertheless, still the uncertainties clear and clarity emerges investors should focus on quality blue chip stocks as and when these stocks show a temporary decline. It would be prudent for an investor as of now to focus on the stocks that are part of the index. (Nifty). In the private banking sector the stocks that can be considered for building a long term portfolio are ICICI Bank, Axis Bank, HDFC Bank, Indus Bank, and among the pubic sector banks State Bank of India, Bank of Baroda and Punjab National Bank appear good buys. Yes bank is not part of the Nifty but nevertheless appears a good long term investment
In the two wheeler segment Bajaj Auto and Hero Corp are good bets while in the four wheeler segment Tata Motors, Mahindra and Mahindra and Maruti Suzuki are investment grade stocks. In the Information technology sector TCS, Infosys, HCL Technologies and Wipro are good long term investments, but they have witnessed a sharp run up in the last few months and could be considered on corrections.
In the pharma sector stocks that are worth considering are Sun Pharma, Lupin Labs, Dr. Reddy Lab, Cipla and Ranbaxy. Here too purchases could be considered on corrections as most of these stocks have seen a sharp appreciation. In the Refinery segment – Reliance Industries and Bharat Petroleum are safe bets while in the Power sector, NTPC. Power Grid and Tata Power also appear safe bets.
In the oil and gas exploration sector, ONGC and Cairn India could be considered for investment while in the mining sector NMDC and Coal India are good long term investments. In the Cement sector, ACC, Ambuja Cement and Ultra Tech could be added to the portfolio while in the steel sector Tata Steel and Jindal Steel are good bargains, In the mortgage finance – HDFC is an excellent long term investment and same is the case with ITC in the cigarette segment while in the FMCG segment Hindustan Unilever is a good long term investment. L&T and BHEL could emerge long term winners in the Engineering sector.
There are many stocks which do not form part of the index both in the large cap as well as medium cap segment which also have potential to generate substantial gains to investors but since the markets may operate in a range till clarity emerges, building a portfolio of blue chip companies at corrections would be rewarding in the long run.