RECENT times have witnessed a lot of portfolio adjustments happening in both foreign and domestic funds.
After the PN episode some of the funds have pruned their portfolios whereas oth- ers have been waiting either for a correc- tion or for their registration formalities to complete. With the global financial markets facing a crisis and emerging markets’ equi- ties, including those in India, commanding a huge premium compared to developed markets – the fund-managers are in a real dilemma.
Opinion seems to be clearly divided. Those who are committed to these markets are still invested on the premise that whereas these economies are growing at an 8 per cent plus rate, the US is growing at 2 per cent and most other advanced economies at 3-4 per space which are in growth sectors, have excellent managements and are available at very attractive valuations. I was, therefore, not surprised when the small cap index closed above the 10,000 level recently. With the volumes in many small and mid cap stocks also increasing tremendously, the latter’s indices have out performed the broader indices.
But what really worries me is the massive run-up in the prices of stocks of unknown, unheard-of companies with dubious man- agements. Many left-out investors have, out of panic, ignored the fundamentals and entered these stocks out of sheer herd men- tality. These stocks are more susceptible to manipulations because of the small size and low public float. However, there are good investment opportunities in small and midcent. Others feel that since markets like India have become most attractive destina- tions, it is but natural that they have been getting more connected with global markets and trends, and events across the world now have a decisive influence on the perform- ance of such markets. They cite the current volatility in the markets as a case in point.
Back home, an interesting trend that has emerged in recent times is a big fancy for small and mid cap stocks, especially by retail investors. The trend has two very sig- nificant interpretations – and I am not sure which one I should bet on. One is that since large cap and frontline stocks have already had a massive run-up, there is a need to look beyond them. There are a large number of companies belonging to mid and small cap cap segment, provided proper research is done. Buying purely on the basis of rumours (popularly called tips) is a strict no no.
Also, retail investors are not advised to fol- low the markets aggressively in an attempt to make big gains by following momentum stocks. Even if they are successful in timing the markets, the cost is likely to be very high in terms of side effects in the form of anxiety and high blood pressure. Moreover, entire gains may wipe out in a matter of a few trad- ing sessions when the market sentiment changes suddenly.
Choosing stocks carefully, that too at an index of around 20,000, requires a very care- ful and cautious approach. The choice should be heavily guarded more against the downside than for getting quick upsides.
Nahar Industrial Enterprises (CMP Rs 88)
This Ludhiana-based company was incor- porated in 1983 as Oswal Fats & Oils Ltd & changed its name in 1994. The company is an integrated textile manufacturer engaged in spinning, weaving and processing ready- made woven garments in India, besides hav- ing interests in sugar and steel. Though the financial results for Q2 were not encourag- ing due to commitment of expenditure on its new retail venture, the stock is still available at a PE of 6.6 to its trailing 12-month EPS of Rs 13.50. Despite the textile sector being completely out of favour, the stocks in retail space such as Pantaloon, Koutons, Vishal Retails are commanding a huge premium in the market with mind-boggling discounts given to them with a PE ratio of 90, 64 and 60, respectively.
Its fully owned subsidiary, Nahar Retail Limited, has about 200 outlets across the country and is fast expanding its network with a well established brand by the name of Cotton County. The company is in for a major expansion of its textile facilities and is in the process of setting up a 54-MW power plant besides making forays into the real estate sector by developing surplus land in Ludhiana for residential and commercial purposes. An investment in the stock with 6 months to a year’s time horizon can give decent returns
