The markets have recovered almost 20 per cent from the July 16 low of around 1250. The two major reasons commonly cited for the steep recovery are: fall in the price of crude and improvement in the political scenario in the country. Crude prices have fallen from a high of $147 a barrel on July 11 and are now hovering at around $114 – a fall of more than 20 per cent. The political scenario has considerably improved with the withdrawal of support by the Left and the subsequent winning of the trust vote by the UPA government with new-found allies who look to be more reforms-friendly. With this there has been optimism around the key reforms being pursued by the government especially with regard to pensions, banking and insurance as also the disinvestment in public sector enterprises. Moreover, the uncertainty with regard to early elections being held in November-December also seems to have dissipated with the allies apparently not in favour of it.
From nothing wrong with
the Indian story six months
back to everything wrong are
the two extremes everybody
is talking about whereas
there is a lot between
these two extremes
But the biggest question that investors are asking is: will this rise sustain? There are issues like the Iran-Israel tension, the impact of full write-offs in the US sub-prime crisis which may take more than a year and possibility of oil prices rocketing back. More serious are concerns on the domestic front such as high inflation (12 per cent plus), high interest rates, currency volatility, looming fiscal deficit, slowing earnings growth of the corporate sector, declining Index of Industrial Production and so on.
However, on comparing these fears with the fall the market already had, one would conclude that they have been discounted in a far more disproportionate way. The market should therefore be looked at with caution more than fear. From nothing wrong with the Indian story six months back to everything wrong are the two extremes everybody is talking about whereas there is a lot between these two extremes. To say that the worst is over may not be entirely right but how many of us actually perfectly time the market especially when investors are spread globally and the scenario may change overnight.
While the short term may not appear too rosy, the long-term opportunity cannot be ignored. The country may not be able to achieve the growth rate of 9 per cent plus it has been achieving in the past, but in most conservative estimates the rate may not sink below 7.5 per cent. This would still be one of the highest globally. Given a 35 per cent plus savings rate and disposable incomes likely to increase further partly due to the timely implementation of the Sixth Pay Commission recommendations, the demand scenario in the country is not likely to turn gloomy. The latest tax collection figures and top-line growth in the corporate sector has further belied any major slowdown in the economy.
The valuations with the sensex trading at a modest 13-14 times FY 09 earnings look compelling. This, in fact, is on a par with the valuations in 2003 – the year that marked the beginning of the five-year Bull run. If one can select the right stocks, the returns over a period of 2-3 years could be phenomenal. This has recently been proved when the sensex rose from around 12,500 to 15,000 with a number of stocks giving returns of over 50 per cent in just three weeks. In fact, the stocks that were beaten down the most performed the best. This gives enough hints to a small investor when it comes to selecting a stock without losing sight of fundamentals.
(CMP Rs 26)
Founded in 1962, this Ghaziabad-based company manufactures and sells a diverse range of home furnishing, fashion accessories and yarns in India. It also offers a range of architectural products under the brand name ‘Vista’ and fashion accessories under the brand name ‘Le-Pashmina’. The company also exports its home furnishings to North America, Europe, South Africa, and Southeast Asia. It has completed various expansion projects in spinning, weaving and processing well ahead of schedule. In January 2008, it announced the establishment of a wholly-owned subsidiary – Alps Energy Pvt Ltd to make investments in various energy projects.
The company earned a total income of Rs 205 crore in the June 2008 quarter as against Rs 195 crore the previous quarter, ie March 2008. Operating profits were at Rs 29.64 crore against Rs 17.53 crore, giving an OPM of 14.6 per cent as against 9 per cent for the same period. Net profit stood at Rs 7.43 crore as against a loss of Rs 16 crore (due to some exceptional expenditure incurred). The EPS for the quarter was Rs 2.15 on an equity base of Rs 34.51 crore. This gives an estimated annualized EPS of Rs 8. With a book value of Rs 84, the stock is a steal.
At current price, it is down almost 70 per cent of its price in early January. With expansion projects implemented, the company’s earnings are likely to witness a quantum jump. Keep on buying this stock at these levels. I will not be surprised if it multiplies 4-5 times in a span of 2-3 years.
