STOCK DOCTOR | gs sood
Be wary of sentiment, buy selectively
SENTIMENT is the mother of all factors influencing the markets and may alter with even the slightest change in the way we look at future events despite the fact that current fundamentals remain unchanged. Sentiment gets hurt the most when the markets face uncertainties – especially the kind of current scenario. The internal and external environments both have thrown up new challenges for the Indian economy.
The stubbornly high rate of inflation, the danger of increasing fiscal deficit, rising interest rates, declining industrial and capital goods production, a likely slowdown in corporate earnings, political uncertainties due to uncomfortable coalitions and coming state elections not allowing the stalled reforms to make headway are some internal challenges.
Liquidity has also become a matter of concern with many of the long-term projects being largely financed through short-term deposits and borrowings – leading to the possibility of asset-liability mismatch. Further, bank credit is growing at a faster pace compared with growth in low cost deposits. This has forced many banks to raise interest rates on term deposits to more than 9%, ultimately signaling a higher cost of borrowing, at least in the short term. This may adversely impact the consumption pattern also.
The geopolitical uncertainties in the Middle East and North Africa (MENA) region coupled with continuing sovereign risk in some European countries and high fiscal deficit in some advanced nations not only pose a risk to global recovery but the rising crude prices may weigh heavily on the Indian economy, already reeling under high inflationary pressure. Crude, which recently touched $120 per barrel, may throw the Indian economy out of gear. If the forecasts are to be believed, crude price may touch $200 due to potential supply shocks. India, which imports more than two-thirds of its requirement, will be worst hit due to its already high current account deficit. Though a sharp rebound in exports has moderated the widening trade deficit, continued uncertainties in developed markets, rising oil import bill, falling surplus in services trade and lower FDI inflows could make matters worse. The RBI has also raised serious concerns over the widening current account deficit and the same being financed by short-term capital flows remains the biggest risk to India’s growth.
The very sentiment that till date stretched valuations to unjustly high levels may now be threatening to take them to unjustly low levels with the Sensex touching 16,000 or even lower. The bull bear cycles will get shortened, thereby posing serious challenges to the buy-and hold strategy that is likely to yield disappointing returns. Stocks will periodically get over- or under-valued to suit the strategy of “buy on decline and sell on rallies”.
Some of the mid- and small-cap stocks have, in fact, been beaten down by 30-50% of their recent highs and are a compelling buy. A selective buying approach is sure to give decent returns in the near future.
Stock Shop
BY RAKESH BHARDWAJ
Asian Granito
(CMP Rs 44)
THE company is engaged in the manufacture, sale and export of ceramic wall tiles, vitrified tiles, Aquart products, ceramic floor tiles, and marble and quartz stones, exporting its product to 12 countries in Africa and the Gulf, and the US. An ISO 14001:2004 and ISO 9001:2008 company, Asian Granito has won many awards for product excellence and is one of the largest producers in its segment with five state-of-the-art manufacturing plants in technical collaboration with SACMI, Italy. The company, with a wholly-owned subsidiary, Asian Tiles, will soon have a total manufacturing capacity of 23,000 sq m a day. Currently, the company and its subsidiary offer ceramic and vitrified tiles across the country through more than 250 dealers and distributors and more than 3,000 business associates. The net profit of the company rose 17.86% to Rs 4.95 crore in the quarter ending December 2010 as against Rs 4.20 crore during the quarter ending December 2009. Sales rose 16.72% to Rs 126.77 crore in the quarter ending December 2010 as against Rs 108.61 crore during the quarter ending December 2009. The current market price discounts the trailing 12 months’ EPS of Rs 10 by a PE of just 4.4 as against the industry PE of around 9 with the unmatched product range. With a book value of Rs 98, the stock is grossly under priced and offers immense scope of appreciation from current levels with negligible downside risk.
The author has no exposure in the stock recommended in this column. gfiles does not accept responsibility for investment decisions by readers of this column. Investment-related queries may be sent to gfilesindia@gmail.com with Dr Sood’s name in the subject line.
Be wary of sentiment, buy selectively
SENTIMENT is the mother of all factors influencing the markets and may alter with even the slightest change in the way we look at future events despite the fact that current fundamentals remain unchanged. Sentiment gets hurt the most when the markets face uncertainties – especially the kind of current scenario. The internal and external environments both have thrown up new challenges for the Indian economy.The stubbornly high rate of inflation, the danger of increasing fiscal deficit, rising interest rates, declining industrial and capital goods production, a likely slowdown in corporate earnings, political uncertainties due to uncomfortable coalitions and coming state elections not allowing the stalled reforms to make headway are some internal challenges.
Liquidity has also become a matter of concern with many of the long-term projects being largely financed through short-term deposits and borrowings – leading to the possibility of asset-liability mismatch. Further, bank credit is growing at a faster pace compared with growth in low cost deposits. This has forced many banks to raise interest rates on term deposits to more than 9%, ultimately signaling a higher cost of borrowing, at least in the short term. This may adversely impact the consumption pattern also.
The geopolitical uncertainties in the Middle East and North Africa (MENA) region coupled with continuing sovereign risk in some European countries and high fiscal deficit in some advanced nations not only pose a risk to global recovery but the rising crude prices may weigh heavily on the Indian economy, already reeling under high inflationary pressure. Crude, which recently touched $120 per barrel, may throw the Indian economy out of gear. If the forecasts are to be believed, crude price may touch $200 due to potential supply shocks. India, which imports more than two-thirds of its requirement, will be worst hit due to its already high current account deficit. Though a sharp rebound in exports has moderated the widening trade deficit, continued uncertainties in developed markets, rising oil import bill, falling surplus in services trade and lower FDI inflows could make matters worse. The RBI has also raised serious concerns over the widening current account deficit and the same being financed by short-term capital flows remains the biggest risk to India’s growth.
The bull-bear cycles will get shortened, thereby posing serious challenges to the buy-and-hold strategy that is likely to yield disappointing returns.
The very sentiment that till date stretched valuations to unjustly high levels may now be threatening to take them to unjustly low levels with the Sensex touching 16,000 or even lower. The bull bear cycles will get shortened, thereby posing serious challenges to the buy-and hold strategy that is likely to yield disappointing returns. Stocks will periodically get over- or under-valued to suit the strategy of “buy on decline and sell on rallies”.
Some of the mid- and small-cap stocks have, in fact, been beaten down by 30-50% of their recent highs and are a compelling buy. A selective buying approach is sure to give decent returns in the near future.
Stock Shop
BY RAKESH BHARDWAJ
Asian Granito
(CMP Rs 44)
THE company is engaged in the manufacture, sale and export of ceramic wall tiles, vitrified tiles, Aquart products, ceramic floor tiles, and marble and quartz stones, exporting its product to 12 countries in Africa and the Gulf, and the US. An ISO 14001:2004 and ISO 9001:2008 company, Asian Granito has won many awards for product excellence and is one of the largest producers in its segment with five state-of-the-art manufacturing plants in technical collaboration with SACMI, Italy. The company, with a wholly-owned subsidiary, Asian Tiles, will soon have a total manufacturing capacity of 23,000 sq m a day. Currently, the company and its subsidiary offer ceramic and vitrified tiles across the country through more than 250 dealers and distributors and more than 3,000 business associates. The net profit of the company rose 17.86% to Rs 4.95 crore in the quarter ending December 2010 as against Rs 4.20 crore during the quarter ending December 2009. Sales rose 16.72% to Rs 126.77 crore in the quarter ending December 2010 as against Rs 108.61 crore during the quarter ending December 2009. The current market price discounts the trailing 12 months’ EPS of Rs 10 by a PE of just 4.4 as against the industry PE of around 9 with the unmatched product range. With a book value of Rs 98, the stock is grossly under priced and offers immense scope of appreciation from current levels with negligible downside risk.
The author has no exposure in the stock recommended in this column. gfiles does not accept responsibility for investment decisions by readers of this column. Investment-related queries may be sent to gfilesindia@gmail.com with Dr Sood’s name in the subject line.
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