Wednesday, October 26, 2011

Wishing you A Very Happy Diwali and Prosperous Samvat 2068!

Samvat 2067 that entered with much enthusiasm and high expectations would finally end with record number of negative developments from economic, political, cultural, social (domestic and global). Never in the past memory has the market seen so many events in a single year, most of which were negative. The unravelling of scams related to 2G, CWG, Housing, bribery, Euro Zone credit crisis, US debt ratings down grade by S&P, geopolitical crisis in the Middle East and North African countries which eventually led to regime change in Egypt and Libya and earth quake in Japan, and so on. It was, as a matter of fact, a year of the Cleanse! If at all this leads to the cleaning of the Indian systems by eradicating corruption, the positive side of it all may be seen in the longer term. To make matters worse for the Equity markets, relentless rise in inflation led by food and non-food items, hawkish interest rates stance by RBI and policy paralysis of the government whose functioning were marred due to anti corruptions crusade, all led to sell off in equities. Sensex and Nifty on Monday Oct. 24th 2011 closed down 19 percent from their closing on Muhurat Day of Samvat 2067 at 16939 and 5098 respectively.

Samvat 2068 is likely to be better in terms of fundamentals as most of the negatives of the previous year get corrected this year. Significant changes may be seen in the latter part of Samvat 2068 only. We expect the next three-six months testing times for the market but gradually seeing improvement in fundamentals towards the other half of the SAMVAT 2068. The impact of the hardening policy is likely to bring down manufactured inflation hence giving reasons for the RBI to breathe easy and bring down rates. The Indian consumption boom is likely to be rejuvenated once interest rates come down.

This Diwali, we focus on only large cap companies that has fallen significantly from their peak and whose fundamentals remain strong in the longer term. We expect these companies to beat the index return during Samvat 2068. Our top picks are:
  1. 1. Larsen & Toubro
  2. 2. Reliance Industries Ltd
  3. 3. Infosys Ltd
  4. 4. State Bank of India
  5. 5. Coal India
With Warm Regards & Happy Investing,
Team Microsec Research

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