TIA Article – 090916

Few Words on Market – Tamilnadu Investors Association – TIA

090916: Sensex has doubled in just around six months, memories are short, many investors have forgotten the pain they faced in 2008 and fact is many are now disappointed that why they didn’t be greedy and buy when everyone was fearful. The media was recently showcasing the first anniversary of Lehman Brothers fall as a historical event. Those who stood to fight the crisis period have learnt many lessons be it investors, intermediaries or even large corporations. Certain events prove to be good in long term! We have been contemplating our positive opinions since the crash and hopefully the views have been of use to the readers. Last month we had given a medium term target on Sensex at 16600 – 17000 and the high it has hit today is 16700.56 as we right this page.

There has been extra ordinary buying interest in the market on back of global cues and improving fundamentals in India. The IIP number this time has registered a growth for the third consecutive month and majority of the sectors have also grown during the period. Though late there has been rainfall in many areas as per the MET department which has reduced the deficit figure and thus may help the economy to some extent. The property prices seem to have stabilized though there may not be large takers still. Reappointed FED chairman has been signalling towards end of recession which also is supporting markets worldwide.

The recent leg of boost to the benchmark indices and to the broader market has been the higher Advance Tax payments by the companies pertaining to the September quarter. The advance tax numbers reflect positive future and the body language of various managements have changed dramatically over last few months, they seem to be more confident now about the future of the businesses.

The recent IPO’s in the market and the subscription numbers show the revival in primary market interest among the large investors, but the retail investors are still circumspect about the valuations the companies are offering their shares. No wonder the recent IPO’s are trading below or just near their issue prices. It is a good lesson for the companies and the bankers for all future offerings. The fact that a PSU IPO is trading below its issue price should send a stern message to all those looking at primary market offerings.

Markets generally discount the future and at present we are discounting 2010 earnings. Sensex is now trading at around 19 times the estimated earnings of 2010 and hence investors need to be cautious now. Liquidity can drive the markets higher and the silver lining that economies are back into recovery mode can still take them further higher but at some time or the other people will start looking at the valuations. We are already in our target range of 16600 – 17000 and if the range is broken then the next bigger resistance point comes at 17600. Long term investors can now wait or invest in a systematic way so that the advantage of corrections if any can be taken as well.

We have been focusing and have been recommending stocks from Banking and the sector has seen a run up recently. The advance tax numbers from this sector also looks encouraging and may further benefit as the economy progresses. The negative can be if the interest rates firm up. The RBI will have to find a balance between curtailing rising inflation and growth. The Infrastructure sector looks good in long term and in case of corrections as the same has run already.

Keep booking profits on the way up. Corrections and recovery may be V shaped in the future. Chances of consolidation do not look much and hence advantage in V shape movements can be taken only when we have cash ready to be invested. Midcaps look more attractive than large caps at this point of time.

Disclosure:- It is safe to assume that the author may have interest in the sectors recommended in this news letter. Seeking personal advice from your Financial Advisor is recommended before acting on any of the substance given herein. The numbers, figures, etc., presented may have been taken from various sources.

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