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There's
good news and there's, well, good news. 7,000 (or 7,300-odd),
it transpires, isn't the highest the Sensex will see over the
next few years. After all, although the Sensex has zoomed North,
it hasn't exactly kept pace with corporate earnings; thus, in
terms of the price-earnings multiple, the Sensex is still in the
mid-teens with room for growth. "Today's valuation has still
not reached the frenzied levels reached in earlier bull runs of
1991, 1994 and 2000," says Mihir Vora, Vice President and
head, Equities, ABN Amro Asset Management. All this would imply
that there is money to be made from the stock market, even now,
with due respect to that old caveat about retail investors entering
the market just around the time it peaks. The way the experts
this magazine spoke to see it, there are three broad ways in which
investors (or potential investors) can make money with the market
at its present levels: by getting into equities; by getting out
of equities and investing the proceeds elsewhere; and by churning
one's investment portfolio.
| SECTORS TO LOOK AT |
CEMENT
More Indians will continue to buy homes and, at another level,
the government will have to continue to focus on infrastructure,
both factors that should keep demand for cement up. Given
that there has not been significant addition of capacity over
the past three years, and the construction boom in West Asia,
the sector looks good for the foreseeable future.
Undervalued Stocks: Grasim, Gujarat Ambuja
Full-priced Stock: Ultratech Cement
ENGINEERING & CONSTRUCTION
The housing and infrastructure boom should help the
cause of this sector too; then, there's the fact that companies
across India are in investment-mode, pumping in money into
Greenfield projects (which will be implemented by one engineering
major or another). Then, there is the government's Rs 1,72,000-crore
Bharat Nirman plan. The sector looks built to last.
Undervalued Stocks: L&T, Crompton Greaves
SUGAR
It's a simple demand-supply thing. In 2004-05, India produced
130 lakh tonnes of sugar, and consumed 185 lakh tonnes.
Then, Thailand and Cuba, both significant exporters of the
commodity to India, cut back because of increased domestic
demand (in the first case) and problems in the local economy
(in the second). Indian sugar manufacturers are still smiling.
Undervalued Stocks: Bajaj Hindusthan, Balrampur Chini
BANKING AND FINANCE
Banks, as any analyst worth his DCF (that's discounted
cash flow) will tell you, are a proxy for the economy of
a country. Ergo, as long as the economy grows, banking and
finance stocks will thrive. With the penetration of most
banking and finance products still in single digits (it
is an average of 30 per cent to 40 per cent in the developed
world), there is enough room for growth. For instance, a
mere 2 per cent of India's population has availed car loans
and just around 5 per cent is covered by insurance. Even
a hike in the interest rate (if it eventually happens) is
unlikely to prevent the market for banking and finance products
from growing.
Undervalued Stocks: ICICI Bank, Union Bank
HOSPITALITY, TRAVEL & TOURISM
Tried booking a hotel room in Bangalore or Delhi
lately? Or in any of the other metros? With the number of
tourists and business travellers (Indian as well as foreign)
increasing by the day, hotels across the country have seen
huge increases in occupancy rates with most large ones in
the metros being full up around the year. This increasing
demand has, consequently, resulted in tariffs going up substantially
as well, with Nilesh Shah, President, Kotak Mutual Fund,
claiming that the increase has been between 20 per cent
and 25 per cent. Then, the number of tourists into the country
is expected to grow by around 30 per cent this year. This
boom will last.
Undervalued stock: Thomas Cook
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Entering at 7,000-levels: You could
be a whiz at picking stocks, you could be a consultant with a
multinational firm in possession of sound knowledge of how companies
work, or you could have a lucky charm that never fails, but listen
to reason. Do not, we repeat, do not invest directly in equity.
"The retail investor who wants to enter the market at this
level should invest in the systematic investment plan of mutual
funds," says Ved Prakash Chaturvedi, CEO, Tata Mutual Fund.
"That way, he can ride the ups and downs of the market, yet
not have to do so on his own." Indeed, most experts like
Chaturvedi caution retail investors from investing even in sectoral
or niche mutual funds. They have a point there: the current bull
run is broad-based and it is virtually impossible to make informed
choices on sectors. "The new retail investor should leave
stock-picking to the experts," says Nilesh Shah, President,
Kotak Mutual Fund. So there.
Exiting at 7,000-levels: The exit
itself is easy enough. If you have a portfolio and have stayed
invested for at least a year, you are sure to make money, a lot
of it, now. The tricky part is what to do with the money, assuming
that you, as a rational investor, would want to put the money
into a sure thing (fine, there are no such things, but you get
the picture). Real estate, despite recent reports about a coming
bust, may be just the thing for you. Only, this option is restricted
to the heavy hitters, those that have at least a few tens of lakhs
to invest and, preferably, a few crores. "It doesn't make
sense to buy land in a developed residential area where prices
will be more or less stable," says Mayank Saxena, a consultant
at real estate firm Chesterton Meghraj. "In Bangalore, for
instance, the potential around the new international airport is
phenomenal; you can buy land at Rs 80 lakh an acre and sell it
in a couple of years for Rs 3 crore." There are similar opportunities
across the country. Then, if safety, not appreciation, is your
thing, try gold. And if you are willing to be a little adventurous,
go for art.
| SECTORS THAT CAN BE SAFELY IGNORED |
OIL & GAS
Companies, both government-owned and private, are bleeding
from the government's reluctance to allow them to sell petro-products
at market-determined prices. And even an exploration firm
like ONGC has to share the burden of the subsidies the government
insists on continuing on liquefied petroleum gas and kerosene.
Undervalued Stocks: ONGC, Reliance
Overvalued Stocks: IBP, HPCL
METALS
The downturn in the global prices of ferrous metals
has made most analysts cautious on the prospects of the
sector, although they still remain upbeat on those of the
non-ferrous metals sector. If the decline in prices is indeed
sign of a coming down-cycle, this could last for anything
between three and five years.
TECHNOLOGY
Tech is no longer a favourite with analysts although
some exceptions (read: individual stocks) exist. With the
sector trading, on an average at around 25 times earnings,
it is fairly valued, say most analysts on D-street. Investors
may be better off looking at other sectors.
Undervalued Stocks: Wipro, Infosys
Overvalued Stock: TCS
AUTO
The Indian auto and auto-ancillary story is far from over
(Indian carmakers will sell 1.2 million cars this year;
and exports from Indian auto-component manufacturers will
continue to rise), but D-street is of the opinion that auto
stocks will not fly as high as they did over the past few
years. Inference: they are fairly priced.
Undervalued Stock: Maruti
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Churning portfolios at 7,000-levels: There
is a simple 1,2,3 formula to churning your portfolio when the
Sensex is at these levels. One, sell all Sensex and Nifty stocks
keeping just enough heavyweights back to account for 10 per cent
of your investment portfolio. "When the Sensex is peaking,
it is advisable to sell Sensex and Nifty heavyweights," says
Rajesh Jain, Director and CEO, Pranav Securities, a Mumbai-based
brokerage. Two, invest in sunrise sectors such as retail and media
where the scope for appreciation is significant. And three, sniff
out turnaround stories that haven't yet been noticed. If the economy
is on a roll, it stands to reason that some companies that were
once doing badly are now doing better.
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