Monday, Sep 22, 2014

Taking Stock: Don’t fear volatility, think long-term

The imminent Budget would provide the first glimpse into the policy formation of the new government. The imminent Budget would provide the first glimpse into the policy formation of the new government.
Express News Service | Posted: June 30, 2014 2:11 am

Having hit a high of 25,725 earlier this month following the euphoria around the election results, the benchmark Sensex at the Bombay Stock Exchange retracted by 2.4 per cent over the last fortnight to close at 25,099 on Friday, as the markets await Budget announcements on the domestic front and unfolding of the geopolitical concerns surrounding Iraq. As the issues unravel, The Indian Express asked five leading broking houses in the country to demystify the current market situation and provide their advisory to retail investors:

ICICI Securities

The imminent Budget would provide the first glimpse into the policy formation of the new government. Markets would continue to have high expectations but once the initial euphoria settles down, critical evaluation of the government’s performance may lead to volatility in markets. In addition, the risk of below normal monsoon may not only dash the hope of rate cuts, but also delay an economic revival and recovery in cyclicals.

We continue to be bullish on quasi-defensive sectors like automobiles, cement and banks with healthy balance sheets. Moreover, we upgrade capital goods, power, infrastructure, metals and oil & gas to overweight on a clearer policy outlook.
With improving sentiments, most sectors that were being avoided have started to attract investors in search of higher alpha. We are underweight on defensive sectors like FMCG, pharma and IT, which would give way to high beta, capital intensive sectors.

Pankaj Pandey,
Head – Research, ICICIdirect.com

HDFC Securities

Markets have been rising since the last week of polling and picked up after the outcome. Over the past two weeks, however, the markets have been digesting gains and waiting for the big event — the Union Budget. Meanwhile, FII inflows have also cooled-off partly reflecting the Ukraine/Iraq related fallout and partly due to valuation concerns.
Near term concerns for the markets include strong YTD out-performance (20 per cent rise since January), monsoon related worries and its impact on GDP and inflation, rising crude prices, high and stubborn inflation and possible disappointment over the outcome of Budget.
The Prime Minister has warned of “tough decisions” over the next couple of years in a bid to improve the country’s financial health. While people at large may be impacted by them in the short term, the discerning investors (especially the foreigners) would much appreciate them especially if they are not rolled back often.

PSU, oil & gas, metals, capital goods and a broad range of mid-cap and small cap stocks could perform well going forward. Retail investors who hold stocks or have invested over the last couple of months can continue to hold them and also look to increase their exposure over coming weeks.

On the other hand, investors who have not had a good experience in the past in direct equity or are first time investors could look at investing continued…

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