The markets have crossed yet another landmark when the Sensex crossed 16000 and the bull run appears not to be receding. But a correction usually comes when it is least expected. The continued flow of positive news from abroad and within the country has further bolstered sentiment. The positive US economic data coupled with good IIP numbers and now the advance tax data suggest that corporate earnings are likely to be robust for the September quarter.
India is seen to be recovering faster than other emerging markets with GDP estimates for the country being regularly revised upwards by most international agencies and leading experts. This, coupled with a definitive agenda for economic and other reforms being pursued by the government vigorously and increased financial openness, has made the Indian market more attractive for FIIs. Moreover, low growth in the West with loose monetary policy has witnessed increased liquidity flows to countries like India which appear to be the best risk-adjusted return market.
Although agricultural activity is likely to be adversely affected due to the weak monsoon, high government spending will ensure that the consumption story remains strong. But the steady increase in rate of inflation may put pressure on interest rates which may witness a reversal in the attitude of the central bank so far as the monetary policy is concerned. The slow pace of recovery in the US, Europe and Japan has deprived India of any major breakthrough in exports. And it is said that demand expansion in emerging economies such as China, India and Brazil may not be able to compensate for the demand contraction in these economies. We are therefore likely to witness low growth with inflation. This will make central banks and the government postpone exit from the stimulus packages keeping the level of liquidity high in the system to fuel an asset price boom. But the asset price will remain high only as long as optimism about a global recovery is high. Any weakness anywhere could lead to a big sell-off.
Small investors, by and large, seem to have missed the bus and wish to know if this is the right time to enter the markets or they should wait for the correction. Also, investors who were lucky enough to enter the markets in time are seen to be booking profits quickly whenever they see even 20-25 per cent appreciation in the stocks they were holding on to. Investors appear to be concerned more with the movement of the Sensex than with concentrating on individual stocks.
I have personally never followed the Sensex when it comes to buying or selling an individual stock. I firmly believe that there are always good stocks to pick or sell, irrespective of the Sensex level. Investors should therefore target the stocks that offer value with a long-term perspective and invest in them in a staggered manner. The common mistake that most investors make is to be swayed by the extremes – selling in panic when the prices fall sharply and buying anything or everything in euphoria. The analysts also justify such movements of the market with fancy arguments.
In the present scenario, investors need to be abundantly cautious since the markets are likely to correct if the earnings upgrade does not happen very soon. However, equities may not witness a meltdown of the sort just witnessed as most of the indicators point to a steady recovery.
The common mistake that most investors make is to be swayed by the extremes – selling in panic when the prices fall sharply and buying anything or everything in euphoria. The analysts also justify such movements of the market with fancy arguments
HCL Infosys
(CMP Rs 155)
HCL Info’s net sales for 2009 remained flat at Rs12,378 crore and the operating profit margin (OPM) declined by 30 points. The net income dropped by 20.1 per cent y-o-y to Rs 239.9 crore due to poor operating performance and lower other income (Rs 10.8 crore in financial year 2009 vs Rs 49.9 crore in 2008). But the worst seems to be over, including some big write-offs, and the company is witnessing a recovery in the computer system and other related product business driven by the enterprise segment and system integration (SI) space. Further, in the telecom and office automation business, the company is witnessing great opportunities in the education vertical. It is re-branding its laptops and net books series under the ME brand, eyeing a 20 per cent market share as against the present 7 per cent. The company is planning to raise funds aggregating Rs 825 crore – Rs 500 crore through qualified institutional placements (QIP) and Rs 325 crore through warrant conversion by the promoters.
The company has already paid three interim (quarterly) dividends aggregating to Rs 5 per share (250 per cent) during the year and has recommended final dividend of Rs 1.50 per share (75 per cent). At the current market price, the stock is trading at 10 times the financial year 2009 earnings and offers a dividend yield of over 5 per cent. A safe bet under the current market conditions.
The author is retired as Professor from the University of Delhi in 2024. He is an alumnus of IIM Indore and holds a PhD from the Delhi School of Economics. An investor activist and former member of various SEBI committees. He taught Capital Markets and Investment Banking at leading business schools of India.
