gfiles magazine

April 19, 2011

‘Buy on corrections’ is the new mantra

THE way the markets have shrugged off serious concerns emanating from the developments in Japan and Libya, rising oil prices and inflation has compelled investors to rethink their strategy about Indian markets. The strength shown by the markets has again opened up the debate on decoupling of the Indian economy. Also, analysts believe that most of the negatives have already been factored into the prices and things can only look up now.
The recent correction and the underperformance of the Indian markets have made the valuations look reasonable when compared with the peers in emerging as well as developed markets. Also, if advance tax data is any indicator, the top corporates are likely to record a robust performance. With the domestic demand remaining strong, corporate India should report strong growth in the top and bottom lines.

It is not a bad idea to buy good stocks from the rate-sensitive sectors that’ve been hammered down by 30-40% since the interest rate cycle may soon peak out.

So far as oil prices and inflation are concerned, the Indian economy is better equipped to handle them than most others. Inflation is otherwise seen to be sobering out – a fact that enhances the comfort level of investors. Though oil prices rising to a level of $115 a barrel and rocketing food prices may again make matters worse. The former may even end up throwing the global economic recovery off track. This may become reality if the recent nuclear disaster in Japan makes policymakers in countries such as China seriously rethink their nuclear programmes, putting further pressure on oil as the major source of energy.
India is now emerging as the fastest growing economy, forcing investors worldwide to take note of it. Warren Buffet’s visit reinforces the faith foreign investors are likely to place in the Indian economy and the markets. In the short term, things are therefore looking good. The only strong negative is the political scenario that does not present a happy picture. The deep-rooted corruption and exposing of a number of scams are likely to take a heavy toll of political stability. The developments have also not been conducive for the next phase of reforms, that have already come to a grinding halt.

Stock Shop
(CMP Rs 45)

THE company manufactures and sells tensile fasteners and its products include bolts and screws, pins, nuts, allen keys, anchor bushes, hammers, wedges, studs, axles, cambrake, shafts, and PAN heads with washer assembly. It serves the wind energy, locomotives, automobiles, agriculture equipment, machine building, and industrial sectors. The company exports its products primarily to the United States, Australia, Canada, Denmark, Dubai, France, Germany, Hong Kong, Indonesia, Japan, Malaysia, Singapore, South Africa, Switzerland, and Sweden.
The company announced a phenomenal rise in standalone net profits for the quarter ended December 2010 wherein the net profits rose by around four times to Rs 15.76 million as compared to just Rs 4 million in the same quarter in the previous year. The total income also jumped by more than 47% during the same period. The company has an uninterrupted record of paying dividends for the last several years. The fact that the current market price discounts the trailing 12 months EPS by a PE of merely 5.4 and the book value of Rs 80 make it a highly safe stock at these valuations. With increasing applications of its products, the future outlook of the company looks quite promising. Investment with a time horizon of 2-3 years will give decent returns.

In a nutshell, the market view for investors has changed from selling on rallies to buying on corrections. Investors can therefore start taking exposure to good scrips in a phased manner. It is not a bad idea to buy some of the good stocks from the rate-sensitive sectors such as real estate, banking and auto that have been hammered down by more than 30- 40% since the interest rate cycle may soon peak out.

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 with Dr Sood’s name in the subject line.

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