Buy On Market Dips
12/13/2012 9:03 PM Thursday
- FII Funds
The huge FII inflows have more to do with the easy money policy that is being followed by countries globally. Till such time as the sentiments of some of these economies improve, we are likely to receive similar inflows in the next calendar year too.
- Earnings Scenario
The earnings have bottomed out, and going forward, we would see better numbers in terms of corporate profitability. We believe that the earnings are likely to improve, and expect FY14 to be better and post 14 per cent Sensex EPS growth.
In the last few months, the government has unleashed a slew of reforms. Of these, one step that really stands out is the hiking of diesel prices, which has been on the radar and was delayed for a long while. Among other important reforms, the government has allowed FDI in retail and aviation. All this has truly improved the sentiments in the market. I really do not foresee any investment activity happening any time soon. It will happen over a period of time, but these are good moves that the government has initiated.
Therefore, the FII inflows of more than Rs 1 lakh crore this year should not be viewed as the impact of such reforms. I do not find any significant increase after these announcements. In terms of velocity, it is not impacted that strongly, but it has surely sent across positive vibes. Such huge inflows have more to do with the easy money policy that is being followed by countries globally. It can be said that till such time as the sentiments of some of these economies improve, we are likely to receive similar inflows in the next calendar year too. There is some concern about the fiscal cliff in the USA. But our sense is that the US will still follow the easy money policy, and spending cuts and tax hikes may get postponed.
With regard to the recent activities on the Asian front, we can see that the data released in China has shown some signs of improvement. A question may arise as to whether there will be some curtailment in the inflows that India is receiving. However, this may not be the case. We will also have to consider that there has been a sharp deceleration in the Chinese economy in last few quarters. Of late, there have been some latest data points towards the positive side, but they will not be able to sustain it and are unlikely to achieve the historical growth witnessed in the past. Structurally, it is quite positive for the Indian economy, where we are not seeing any inching up of key commodities due to growth tapering off in China.
This will also help on the domestic front, where we can expect the inflationary scenario to moderate. The RBI is awaiting a steady roadmap from the government in terms of how it will achieve the fiscal deficit target so that the apex bank can take steps on interest rate.
Coming to the financial front, the last quarter saw better growth, but that was mainly due to the lower base in the second quarter last year. We see that the earnings have bottomed out, and going forward, we would see better numbers in terms of corporate profitability. We believe that the earnings are likely to improve, and expect FY14 to be better and post 14 per cent Sensex EPS growth.
Going ahead, the main triggers for the market will be the key reforms, which we believe, will continue. In the next quarter, the budget will be the key trigger and the market will look forward to how the government will manage its fiscal deficit and the road map. The lowering of crude oil prices next year will definitely help the government to contain the fiscal deficit. We could also see an interest rate cut next year.
Presently therefore, we are positive on interest rate-sensitive sectors. In banking, we prefer PSU banks due to the valuation divergence between private and PSU players. I think Auto will also benefit going forward, backed by a demand revival. On the defensive side, we are positive on pharmaceuticals. The PE multiples are reasonable as compared to the growth rate they have delivered.
We suggest that investors put in their money in a staggered manner. Some kind of risk taking could probably be done. The broader markets have to consolidate, and the mid-caps and small-caps will provide some opportunity for this. Our advice for investors is that the dips in the market should be used as an opportunity to buy.
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