Apr 5, 2006|
Markets: What's hot? What's not?
The Indian stock market indices have had a record run. Given the record increase in assets under management of Indian mutual funds (MFs), liquidity is not a problem, atleast for now. Every word of caution even by the most experienced of players in the market has been proved wrong. With the above backdrop, let us now analyse the sectors leading the rally in the first quarter of the current year and what lies ahead.
||As on Jan 1 2006
||As on Mar 31 2006
|BSE Small Cap
As can be seen from the table above, the capital goods sector has outperformed by more than two times. India's need to focus on infrastructure is nothing new. This time, this has been fuelled by record growth in the topline and bottomline of infrastructure-related companies i.e. power, engineering and capital goods. The order book has been burgeoning with order book to sales for the sector, on an average, at around 2 to 3 times. These factors clubbed together resulted in capital good stocks figuring on the priority lists of all sections of the investor group.
For the FMCG sector, one has to remember that it is a play on 'India's consumption potential'. The sector is back on track and is on the path to recovery. Growth is being witnessed in urban as well as rural areas. With the implementation of VAT from 1st May 2005, it was a shot in the arm for organised players, as brands will become cheaper in times to come. Owing to this, smaller and unorganised players might lose the competitive edge, which in turn will benefit larger players. Organised retailing has brought a new lease of life to the FMCG sector. With income growth prospects looking strong, FMCG demand is likely to trace GDP growth in the next three to five years.
The auto sector also outperformed the BSE-Sensex. There are several reasons for the same. Demand for automobiles has remained robust (since September 2003). Internal restructuring by auto majors is also reflected in higher margins, despite cost escalations (operating margins in the December quarter expanded by around 200 basis points). What more, the FM reduced excise duty on certain cars, which has brought down the average price. However, a thumb rule followed by all developed countries is being ignored in our country. The rule says that for every 1 m vehicles sold, the road network has to be augmented by atleast 1,000 kms. Are we doing it?
The banking stocks underperformed the BSE Sensex due to several reasons. The December 2005 quarter saw the redemption of the India Millennium deposits, thus creating liquidity pressure. Interest rates are expected to harden, which could slowdown demand for credit. As has been the case in the last quarter, the net interest margins of the banking sector, as a whole, is likely to come under pressure in the next two years. Perhaps this explains the underperformance of the banking index.
We suggest investors to exercise extreme caution at current valuation levels. While we advocate selective equity investment from a three to five year perspective at these levels, one should have the appetite to withstand any sharp decline in stock prices in the near future. As somebody once said "there is always a second time in the stock market".
More Views on News
Jun 10, 2017
Forty Indian investing gurus, as worthy of imitation as the legendary Peter Lynch, can help you get rich in the stock market.
Aug 16, 2017
All across the country, the old gods become devils. New, gluten-free gods take their places...
Aug 16, 2017
And what it has in common with beating the stock market too.
Aug 16, 2017
Ensure your financial Independence, and pledge to start the journey towards financial freedom today!
Aug 14, 2017
Last week's correction is making a number of Super Investor stocks look a lot more attractive...
More Views on News
Aug 7, 2017
The data tells us quite a different story from the one the government is trying to project.
Aug 4, 2017
The small-cap space is full of small players that are clear proxies to great growth stories and Indian megatrends.
Aug 8, 2017
Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...
Aug 12, 2017
The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.
Aug 7, 2017
Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...
Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement. LEGAL DISCLAIMER:
Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here
. The performance data quoted represents past performance and does not guarantee future results.SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.
Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: firstname.lastname@example.org. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407