X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Equities: Think long-term... - Views on News from Equitymaster
 
 
  • PRINT
  • E-MAIL
  • FEEDBACK
  • A  A  A
  • Jun 1, 2004

    Equities: Think long-term...

    The last one month's performance of the sectoral indices could make even the optimistic investors have a re-look at their investments. With the change on the political side and changing views in the markets vastly influenced by factors such as disinvestment and reforms, the BSE Sensex has shed over 10%. Lets' analyze as to what went wrong that the once fundamentally sound scrips are now facing the brunt.

    PSU Index: The worst hit during the period was the PSU index with losses to the tune of 20% during the month. A lot of sentimental value had been added into the PSU (mainly energy) stocks on account of disinvestment and reforms. To put things in perspective, HPCL, which was trading at Rs 226 a year earlier, touched a high of Rs 542 on the news of disinvestment. However, with the change in the government and the new government's clear stance on not privatizing the company, the stock has come back to Rs 299 levels. On the other hand, GAIL and ONGC have been suffering due to the uncertainty as to whether these upstream companies shall continue to take the burden of the subsidies on account of under-recoveries of LPG and kerosene.

    Although fundamentally sound business profile, the two majors have lost 30% and 26% over the month. We would like to state that fundamentally, GAIL has huge business potential and that with increasing volumes of natural gas (thanks to Petronet LNG) and increasing demand for LPG, growth prospects are promising. On the other hand, with every US$ 1 increase in crude oil prices, ONGC adds Rs 9 bn to the revenues. Although we believe oil prices might soften, given that India imports 70% of crude oil, the company is heading in the right direction by acquiring oil equity abroad.

    BSE Bankex: The previous government had shown clear indications of bringing down the government stake in PSU banks to 33% while increasing the FDI limits. However, with the current government in no mood of increasing FDI limits or selling off its stake, the money is going out of banking stocks. At the current juncture, we would like to re-iterate that disinvestment is just one of the sentimental factors and should not be held as the only criteria to buy a stock or not. There is a lot more to it than just divestment. Having said that, as we have maintained in the last three to four months, we remain cautious about the growth prospects of the banking sector. Issues like a possible rise in interest rates, the consequent impact on retail credit demand and other income are of significance.

    BSE Tech: Surprisingly, tech stocks have maintained their positive run during the month with a gain of nearly 3%. This is one sector, which shall not be affected much with the change in the government. Software companies in India are largely affected by international events such as outsourcing backlash rather than domestic policies, which have been indicated to continue at the same pace. India is fast becoming a hub of software outsourcing and in order to consolidate further, we need to climb the value chain. Strong numbers reported by the software majors have re-imposed the faith in the outsourcing story. But arguments like the 'defensive' nature of the sector by experts, in our view, are overplayed.

    Given the above view, we believe the markets have over-reacted to the political factors letting the fundamentals take a backseat. The new government has been in place for just about a week and it needs to be given the time to bring in some clarity on its economic agenda. At this point, we would like to quote Mr. Ajit Dayal "The buying opportunity has begun...". But plan your investment in equities in a staggered manner. We believe that at current valuation levels, equities continue to remain an attractive investment avenue for the long-term on a relative basis. We re-iterate what we said earlier on our website.

    1. Look beyond 'disinvestments'. There are fundamentally sound companies in the PSU sector as well from a long-term perspective. Yes, there is uncertainty over the rise in crude prices and the impact on the same on profits, if petroleum product prices are not raised. But for how long? Rationality will prevail at the end (be it the government or the investing public).

    2. Services contributes to 50% of India's GDP. Will Indian software and pharma major be affected because of the new government? Are these companies hiring at a slower rate? The answer is No. Having said that, we believe that these sectors being portrayed as 'defensives' by experts is overplayed. But yes, the fundamental story is intact.

    3. There could be some impact on consumer demand for durables and cars if interest rates were to rise (which is expected). So, one has to exercise caution in sectors like automobiles and related sectors.

    4. Yes, there will be impact on the infrastructure related companies (power, engineering and cement) if the new government repeals/softens some bills/initiatives that are already passed.

    5. But the new government has been constantly talking about providing a fillip to the agricultural sector (70% of the population and 25% of the country's GDP). Are investors overlooking this sector?

    The point we are trying to make is that stock markets always take time to reward performance. Keep in mind that stock prices tend to follow the long-term profit growth prospects of any company. It is just a matter of looking beyond who is selling and why is he selling?

     

     

    Equitymaster requests your view! Post a comment on "Equities: Think long-term...". Click here!

      
     

    More Views on News

    How to Ride Alongside India's Best Fund Managers (The 5 Minute Wrapup)

    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.

    Dear PM Modi, India is Already Land of Self-Employed, and It Ain't Working (Vivek Kaul's Diary)

    Aug 21, 2017

    Most Indians who cannot find jobs, look at becoming self-employed.

    Here's What Driving Gold Prices Up These Days (Outside View)

    Aug 21, 2017

    PersonalFN explains the chief factor pushing gold prices up of late.

    How Unique Are the Companies You Invest In? (The 5 Minute Wrapup)

    Aug 21, 2017

    One of the hallmarks of successful investing is to look out for companies that have a unique and enduring moat.

    You've Heard of Timeless Books... Ever Heard of Timeless Stocks? (The 5 Minute Wrapup)

    Aug 19, 2017

    Ever heard of Lindy Effect? Find out how you can use it to pick timeless stocks.

    More Views on News

    Most Popular

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    The Most Profitable Investment in the History of the World(Vivek Kaul's Diary)

    Aug 8, 2017

    'Yes, it looks like a bubble. And, yes, it's like buying a lottery ticket. But there's something happening that has never happened before. It's an evolutionary leap in money itself.'

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    Bitcoin Continues Stellar Rise(Chart Of The Day)

    Aug 10, 2017

    Bitcoin hits an all-time high, is there more upside left?

    More
    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: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407
     

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms

    S&P BSE SENSEX


    Aug 21, 2017 03:37 PM

    MARKET STATS