Tuesday, June 17, 2008

STOCK PICKS -LONG TERM

Equity as an asset class has taken quite a beating over the past 2 quarters.FII's have withdrawn over $5 billion USD over the last six months and the selling has not abated.So the question is whether India will see its first net withdrawal in the calender year 2008 after the FII investments were opened up over 15 years ago.There have been various theories floating around saying that India is the most expensive market among the emerging market economies. The point that needs to be understood is that after the first phase of the bull market starting 2003 India has been basically a bottom up market rather than a top down market. Among the 6000 odd companies that are listed in our exchanges there are hundreds of companies which are being traded around 10 times their current year earnings with clear visibility for earnings for the next 2-3 years and a growth rate of over 25%.

One of the best times to invest is when others are selling without any rational.Fear has taken over the market players of all classes.Even given that there are macro issues like Oil prices,increasing fiscal deficit etc these are not issues which are going to last long term.Oil prices are going up inspite of the fact that global economy are slowing down which means that demand for oil has started dropping.There is also the news going that there are hundreds of tankers filled up with crude oil lined up outside the persian gulf and Netherlands dock with no takers for physical oil at the current prices.Various market experts have already opined that the Oil market resembles the earlier bubble like the technology dotcom one in 2000.If one factors in the fact that the fastest growing economies like China and India have already slowing down there is no way that Oil prices can remain at the current level for long.It may spike up in the short term as the bulls make one last attempt but rest assured that there will be lots of investors holding paper at the end of the oil game.

Also factor in the effect of Reliance gas starting supply in second half of the current financial year the energy picture of the country in a drastic manner.

Investors with a outlook of 2 years and above should start picking up quality stocks like Reliance,L & T,HDFC,HDFC bank,SBI etc.

Update on HEG:
The company has posted a net profit of Rs.143 crores and a eps of Rs.35 for the year 2008.
At a price of Rs.302 it continues to be a value buy.The company is expanding its capacities to 80000 tonnes and the expansion will be completed in last quarter of 2009.Expect EPS of Rs.45 for the current year and over Rs.55 for 2010.The value unlocking of Bhilwara energy will happen in the next 2 quarters giving a further boost.

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