Post-Budget, the markets appear to have resumed the upward journey due to the continuous flow of good news as also the government’s resolve to contain fiscal deficit through fiscal discipline and commitment to reforms. A strong indicator of this was the Finance Minister’s refusal to roll back the hike in the prices of petrol and diesel.
The advance tax data strengthens the view that the economic recovery is genuinely in place. The fact that the Index of Industrial Production (IIP) for January climbed 16.70 per cent compared to the previous year also reinforces this. The corporate sector in general and manufacturing, capital goods and infrastructure companies in particular are likely to report robust performance for this quarter. At the same time, it is believed that gradual withdrawal of the stimulus package in the form of tax cuts may not pose any threat to growth, looking to improving business and consumer confidence.
International sentiment has also improved mainly due to the concerns relating to Greece subsiding for the time being. Consumer credit in the US has shown encouraging signs and jobless claim data has not deteriorated. However, China’s official purchasing managers’ index for non-manufacturing sectors plunged to a one-year low at 46.4 in February from 55.1 in January. Global ratings agency Standard & Poor revised its outlook on India from “negative” to “stable” over the possibility of reduction of fiscal deficit and expects India’s GDP to grow at 8 per cent in the year ending March 31, 2011.
The only major concern is fiscal deficit and raging inflation which threatens to reach double digits. The problem may get accentuated due to the fact that the government is likely to substantially fall short of its tax collection targets.
The only major concern is fiscal deficit and raging inflation which threatens to reach double digits. The problem may get accentuated due to the fact that the government is likely to substantially fall short of its tax collection targets in both direct and indirect taxes. But the present government is in a far better position to tackle these problems. This has been amply reflected in the strong recovery that equity markets have made, backed by strong growth in the economy.
The fact that the RBI has raised repo and reverse-repo rates by 25 basic points earlier than expected lends credence to the theory that the focus now appears to be shifting to inflation, backed by the belief that growth is firmly in place. If the markets also interpret this move in like manner, there may not be any significant correction in store on this count. Moreover, the fact that the government has an ambitious disinvestment target also limits the downside for the markets.
However, profit booking by large investors such as FIIs, domestic financial institutions and the like is possible only when the outlook for the markets appears positive. These investors may therefore use the continuous flow of positive news as an opportunity to book some profits. This will, however, not change the medium- and long-term outlook for the markets which remain positive. The price earning multiple of around 21 for the trailing 12 months may make the markets consolidate the gains for quite some time before a journey upward is resumed.
Small investors are advised to reshuffle their portfolio actively by booking profits in stocks that have already gone up a lot.
Nahar Capital and Financial Services
(CMP Rs 71)
Nahar Capital is a company belonging to the Ludhiana-based Nahar Group. This company was incorporated for the purpose of taking over the investments of Nahar Spinning pursuant to a scheme of arrangement which happened in 2006.
The company holds investments not just in the group companies but also has a fairly large portfolio of other investments. The equity capital of the company is about Rs 8.37 crore and book value is about Rs 250. The investment portfolio of the company is well above Rs 350 crore. For instance, it has invested Rs 5 crore in the Delhi Stock Exchange as well which is about to commence operations thereby giving considerable appreciation.
The firm also holds cash balance of more than Rs 40 crore. The promoters are offering acquisition of 12 per cent of the equity at Rs75 per fully paid up share. The investment at current price is not only absolutely safe but will give decent returns in the short to medium term.
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.
