Thought for the day
"Death and life
have their determined appointments; riches and honors depend upon heaven."
-
Confucius (Chinese,
551-479BCE)
Word for the day
Petrous (adj)
Like stone, especially
in hardness; stony; rocky
(Source: Dictionary.com)
Malice towards none
Why media loves to stalk Virat and Anushka these days?
Who does actually care?
Keep eye on the new dawn
Continuing with the theme "To Micro from Macro", I would
like to clarify that in my view we are still some distance away from a secular
bull market in Indian equities. However, it is likely that the next cyclical
recovery that is expected to shape up in 6-12 months may lay a solid foundation
for such bull market. So the positioning for this cyclical recovery has to
factor in the continuation of good times, of course with material rise in volatility.
I have been rather insistent that the bull market in Indian
equities will commence mostly due to domestic reasons. The global factors,
primarily liquidity and soft commodity prices may provide some extra impetus.
Therefore, the positioning has to be based on domestic growth
drivers. I would therefore suggest the following areas for finding future
leaders.
(a) Industrial companies
with market and technology leadership, strong brand equity and access to global
markets. Solution companies rather than product companies are more preferable
as they can sustain margins through pricing power and better customer loyalty. The
companies with substantial operating leverage in this space are more preferable.
(b) Consumer companies both
in staple and discretionary space which may benefit from rise in consumption
demand, stable global economy, weaker INR, and lower commodity prices. Again
companies with material operating leverage are preferable.
(c) Local units of global
corporations that may see larger participation through more investment, hike in
stake or transfer of manufacturing operations for regional exports.
(d) Financials will
inevitably participate in any bull market. Reduced financial stress, better
yielding bond portfolio, higher credit demand, geographical spread due to
deeper financial inclusion efforts, and recapitalization are some ideas that
will drive value of financial stocks higher. However, as a matter of strategy
we are circumspect about the PSBs. I therefore prefer private sector lender.
Public sector banks
may though be better prospects for a short term trade. I would though stay at
the top end of this spectrum.
(e) One of the primary
premises of our bull case is soft commodity prices. I would therefore not
suggest any global commodity exposure. Domestically however cement could see a
major spike up due to better utilization rate. Financially unleveraged large
players with good operating leverage could be looked upon. I prefer regionally
diversified companies to those whose operations are contained in smaller
geographies.
(g) The exporters
especially IT and pharma should continue to do well. A correction due to
cyclical strength in INR would provide a good entry point.
I usually do not get into the midcap - large cap debate. However,
some relatively smaller companies that have potential to become big due to
material capacity expansion, innovation and better resource management always
present great opportunity to optimize portfolio return.
No comments:
Post a Comment