2008 is here and have I changed my bearish stance? To a certain extent I have. I still think there is value in there worth buying but to be honest there is just too much happening that is scary as well. But before I outline those, here are my choices for the year:
Which the bank has run up a bit recently (I bought at 330 on Monday, and it’s at 400 today!) the new face and logo of the bank is likely to bring on better customer recall. With over 2500 branches, the bank has a greater reach than HDFC and ICICI bank combined (They have around 1000 branches each) and the EPS last year was around 34. The bank is growing at 15-20% on EPS, but the new look and technology approach should help it grow faster, to an EPS of about 40 by March 08. It’s also gaining on momentum, and to me technicals are quite important, as they show investor sentiment on the stock.
These guys need to be re-rated, and should show strong earnings growth. The dollar is a bummer, though.
Regardless of its recent runup, the stock looks poised to benefit from RPL starting activity, the retail chain starting to show traction, the Vimal re-launch, Exploration and discovery and from the gas pipelines finally flowing. I think this stock still has a long way to go, though you may see some kind of correction relative to the whole market in between.
There are more value plays perhaps but I don’t want to know about them. This is still a momentum market, and the signs from the US are not at all good. With oil rising to $100 per barrel, life will get quite difficult on all players, and inflation will raise its head soon.
Secondly our market is overheated. At a 25 P/E we are pushing the envelope. To tell you NOT to invest would be stupid, and I now believe the market has a while to go before we come crashing down. It looks like a 21,000 on the Sensex or a 6,500 on the Nifty will still not faze investors, and I would not be surprised if we surpass that.
Liquidity is another issue – with trusts getting the equity go-ahead, pension funds allowed to invest in the markets, and all sorts of liquidity easing happening, we may be in for a wild ride. But it’s still not a good time to invest for the long term. The short term, yes. I have money in there that’ll get out as soon as we see a reversal, purely because I don’t trust the market.
If you want to take advantage, buy indices instead – the Nifty Midcap 50, or the Junior BeEs. And get out when there is a trend reversal!
Disclosure: I own the above stocks.