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Markets: Repeat performance? - Views on News from Equitymaster
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  • Mar 27, 2003

    Markets: Repeat performance?

    Markets seem to be repeating last year's performance. After the Sept 11 terrorist attacks on the WTC, Indian bourses pulled back smartly and climbed to 3,800 levels till the budget day in February 2002. Sentiment again weakened after the budget in 2002 only to recover after Infosys numbers. There was a brief three-month rally.

    This time too, post budget, markets have been on the decline. Both in the last year as well as this year, the macro environment has been unnerving for investors. Last year, riots in Gujarat took a toll, while this year, it is the US-Iraq conflict. Going forward, with a drought situation affecting fourteen states, markets are likely to remain range bound. This is because agricultural output is expected to decline by 3.3%, which will impact industrial output.

    Thus, it is unlikely that companies that are dependent on the domestic economy will bring relief to the bourses. Already two-wheeler majors like Hero Honda and Bajaj Auto have indicated of sales slowing down and are launching new models to counter the slowdown in sales. Thus, prospects for the next few months (at least till the monsoon is over) seem pretty challenging. And therefore, markets are likely to remain range bound.

    However, as far as the domestic economy is concerned, structural changes have taken place at a steady pace. Consequently, post liberalization, the operating environment for businesses has improved dramatically. This is in terms of lower cost of capital, better roads and lower turn around time in ports. Though a lot needs to be done, increasingly, global majors are considering India as a manufacturing hub. Recently, Telco won a deal from Rover to export Indica to market is UK. In the two-wheeler segment, Bajaj Auto has inked a deal with Kawasaki to manufacture motorcycles.

    It is but natural for investors to keep away from the markets when all the news they hear is negative. Further more, in India, retail investors have been cheated almost every time they have chosen to invest in equities (in fact by the supposedly most 'trust'worthy organisations). However, ignoring the structural changes in the Indian economy and the opportunities that lie in the waiting for Indian business would be mistake.

    TELCO 157 3.4 46.2 GUJ. AMBUJA 158.5 10.9 14.5
    HDFC 340 10.0 33.9 L&T 186.6 14.2 13.1
    INFOSYS 4,255 137.3 31.0 ZEE TELE 69.8 5.6 12.4
    GLAXO LTD 294 10.5 28.0 ITC 626.0 54.3 11.5
    NESTLE 530 20.8 25.6 BHEL 221.3 20.0 11.1
    ACC 139 5.7 24.2 BAJAJ AUTO 497.0 52.9 9.4
    DR. REDDY'S 899 44.3 20.3 ICICI BANK 135.3 15.1 9.0
    COLGATE 120 5.9 20.3 RELIANCE 284.2 34.9 8.1
    HLL 157 8.0 19.7 HPCL 299.6 39.1 7.7
    RANBAXY 621 32.6 19.0 HERO HONDA 215.5 29.1 7.4
    BSES 215 12.3 17.5 HINDALCO 550.2 75.8 7.3
    CIPLA 742 43.8 16.9 GRASIM 336.1 48.7 6.9
    HCL TECH. 162 10.1 16.0 TISCO 137.7 23.6 5.8
    CASTROL 190 12.4 15.3 MTNL 96.0 17.9 5.3
    SATYAM 200 13.3 15.1 SBI 281.5 57.0 4.9

    What further strengthens the case for investing in equities are the valuations. Due to negative sentiment, investors have kept away from equities since 2000. At the current market capitalisation, the Sensex trades at a P/E of 11.6x based on trailing twelve-month earnings. Investors have to make call whether this valuation given by the markets truly reflect the growth potential of India on the move? We feel India Inc has a lot more steam.



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