The markets have corrected by approximately 30 per cent from the peak achieved in January 2008. Since then, it has been a period of great turbulence – the markets witnessing a very high degree of volatility brought about by “uncertainty”. The only thing that the markets dislike is “uncertainty” for they neither expect it nor are they prepared for it. Anything that is predictable is usually discounted by the market which then goes on to take its definitive direction. Let us see what has happened in the recent past or may happen in the near future, causing such uncertainties.
Earlier, the markets and the experts were propounding the theory of decoupling of the Indian economy. But most of them forgot that, while the Indian economy may be fairly insulated from outside shocks, the Indian markets are not. The crisis in international credit markets is responsible for our market witnessing sustained volatility in disregard of domestic positive news. The US economy and its future course will significantly determine what course of action the FIIs take. The sustainability of any upward movement is therefore dependent on how the global scenario unfolds. The liquidity seems to have completely dried up and the scenario may continue for a couple of months more to be followed expectedly by a significant recovery. This is simply because the valuation of the Indian market looks fairly attractive now with leading blue chips shedding almost 50 per cent from their peaks seen recently. However, any incoming adverse news on the subprime crisis of the likes of Bear Stearns or the US recession may have a future negative impact on our markets.
Coming to the domestic scenario, what the markets may not like is the uncertainty surrounding the nuclear deal and its political fallout. The markets have already adversely reacted to the farm loan waiver and other such unreasonable political statements made by senior political leaders. While the central banks of leading economies led by Federal Reserve have cut interest rates to avert a credit crunch and liquidity crisis, it has not yielded desired results. Whether the RBI will also follow the same in its forthcoming credit policy is a mute question. After this, the market focus will shift to quarterly numbers and then to the monsoon followed by elections. All these uncertainties are causing jitters in the market.
The economic fundamentals of our country are well in place. The growth in corporate profitability is likely to slow down a bit with some concerns on inflationary front, which seems to have already been factored into by the markets. The Union Budget and Pay Commission report are expected to give a boost to consumption. With 35 per cent plus rate of savings, things are not looking that bleak. The present crisis is more of an overreaction to certain events than the adverse fundamentals.
The advice for small investors remains the same. Never try to time the market and use every sharp dip to add a few fundamentally strong scrips to your portfolio. You will realize by the end of this year that the strategy worked to reap decent returns.
Orchid Chemicals & Pharmaceuticals (CMP Rs 113)
Orchid Chemicals & Pharmaceuticals is an exporter of generics, operating in the niche segment of antibiotics such as cephalosporins, penicillin, betalactams, etc. The company’s profits have grown by a compounded annual growth rate of 28 per cent in the last five years. Orchid is looking to launch three cephalosporin-based products every six months for the next two years in the overseas markets.
The company’s profits
have grown by a com
pounded annual growth
rate of 28 per cent in
the last five years
At the current price of Rs 113, the stock discounts the company’s earnings for the trailing 12 months by less than four times. Orchid’s drug discovery initiative is carried out under its wholly-owned subsidiary, Orchid Research Laboratories Limited (ORLL). The company spends about 6-7 per cent of its sales on R&D. ORLL has filed 162 patent applications for new drugs and other innovative products. With major drug companies spinning off R&D units, ORLL could also turn out to be a possible candidate for the same and can give a further trigger to the Orchid stock. An investment in the stock with a one- to two-year perspective can give handsome returns.
