THINGS TO WATCH OUT FOR IN 2010!

PICKING UP FROM WHERE WE LEFT OFF YESTERDAY.........

HISTORY TELLS US THAT TIMING THE MARKETS IS FUTILE!

The Fundamental Analysts make projections about the Sensex EPS for the future and use a discounting PE multiple to arrive at the targets for the Sensitive Index and The Chart Readers try to map out the future based on wave formations of the Sensex ( Elliot Wave Theory ).

The Sensex EPS projections vary from one financial research house to another and so do the wave counts!

IF TIMING THE MARKETS IS FUTILE....WHY DO WE NEED ANALYSIS ??

When we invest money in the markets, we do so with a price objective and a tentative holding period. In order to arrive at these two parameters we need to have a fairly certain amount of visibility of the likely events during the intended holding period. Having an outlook gives an investor or a trader a great deal of confidence to take risks which are inherent to investing in equities ( A risky asset class )

IF ANAYLSIS CHANGES DURING THE YEAR IS IT ACCEPTABLE?

Retail Investors ( like you and me) tend to take Market Gurus ( who appear on CNBC ) at their literal word without leaving room for the possibility that they actually might re-consider their opinions at a particular point of time.Does that make the Market Gurus/ Analysts less knowledgeable?! I don't think so.The Equity Markets are an ever changing dynamic environment. Opinions and forecasts are subject to changes in the face of major economic events ( Like the Lok Sabha Elections in 2009 which led to upgradation of  Sensex targets).

In view of the above, lets briefly go through the things to watch out for as we enter 2010 ;

OUTPERFORMANCE SHOULD CONTINUE ALTHOUGH AT A MODERATE PACE

The Indian Equity markets ended the year 2009 with a 79% gain. It would be unreasonable to expect the repeat of the stellar performance on the bourses in the coming year. The year 2009 saw basket winners, wheres some rationing of liquidity is expected in 2010.

FUNDAMENTAL VALUATIONS 

Analysts estimate Sensex fair value at 19760 (16x FY12 EPS of Rs 1235, 14% upside) in their base case scenario of 15% growth in earnings. Incase of negative surprises wherein valuation multiples contract and future earnings are ignored, they expect the Sensex to trade at 14952 (14x FY11 EPS of Rs 1068).

( Source : ICICI Direct )

EXPECT SECTOR ROTATION 

2009 was the year of IT and Commodity Stocks. Its possible that these sectors will continue their bull run, but definitely not probable. Sectors which may hog the limelight are Pharma, Banks, Power, Infrastructure ( Roads ), Hotels and Media

2010 TO BE A STOCK PICKERS DELIGHT 

The gap between Large caps and Mid caps has widened. Large caps are trading at 23x of the sensex earnings and midcaps are trading at 18x. Expect this gap to narrow down in 2010. 2009 rewarded all the Asset classes.....Equities,Commodities and Real Estate! 2010 will be difficult to call in a broad based manner as the Global exconomy is expected to give confusing signals with The EMs ( Emerging Markets ) recovering much faster than The Developed Economies.

INDIA TO REMAIN RESILIENT DUE TO DOMESTIC CONSUMPTION

In India, domestic consumption contributes around 60% to the Gross Domestic Product. With the low interest regime and under penetration of all economic variables in India, India is expected to remain resilient to external problems

MONETARY TIGHTENING

The Developed economies are unlikely to tighten money supply. Reason, the recovery process in these countries isn’t upto the mark. Unemployment is still very high, lower retail sales and consumer confidence.

Emerging economies are likely to start monetary tightening soon.But this will lead to capital flows into developing economies and will act as a catalyst for currency trade to rise.

CONCLUSION

Market valuations are not cheap. But the investors will spot value in relatively less known pockets.A pro-active bottom up selection will hold the key in 2010.As market leadership changes continuously during the year we will see more volatility during 2010. Being in the right stock will create wealth in 2010. 

Be prepared to buy relatively lesser known midcaps which will offer interesting valuations.Leave the stock selection to me!

Have a great trading day!

Regards,

Rahul T.


A MEDIUM TERM STOCK PICK FOR 1-2 WEEKS........REFER TO READ MORE BELOW







ISPAT INDUSTRIES 

The stock has been languishing low for quite sometime now. The metals pack has recovered sharply in 2009. ISPAT Industries has been a laggard.
In the past few sessions the stock has moved up on good volumes.


Buy around 22.5/23 for a target of 25/28 with a stop loss below 21.