Experts See Action Packed Week For Bourses

After the last week's rally that saw key market index Sensex regaining 18,000 level, investors expect strong domestic trends to take the market further up, experts said.

"Stock market may witness some action with an added dose of volatility due to the F&O expiry. With July 1st falling on the last trading day, the markets will also closely watch data on auto and cement sales, besides economic statistics on trade and manufacturing," IIFL - India Private Clients Head of Research Amar Ambani said.

During the past week, the BSE key index Sensex went up by 370.15 points, or 2 per cent to end the week at 18,240.68. The Sensex surged by over 500 points on Friday on the back of sharp dip in global crude oil prices and firm overseas cues.

Analysts opined that global events will continue to have some bearing on local sentiment. Greece and the US economy will remain in focus and the Chinese manufacturing PMI data will also be on the investors' radar.

The government on Friday decided to increase diesel price by Rs 3 per litre, domestic LPG by Rs 50 per cylinder and kerosene by Rs 2 per litre, while slashing customs and excise duties on crude oil and products.

Market analysts said that government policy on fuel price hike will influence the market trend, and added that the hike in diesel and LPG prices will be well received by the markets.

"We expect the rally may continue after the fall in crude oil price and recovery in the global market. Many frontline and mid-cap stocks are trading at an attractive valuation with a few weeks left to first quarter FY12 quarterly result announcement.

"Improvement in monsoon is also an important factor that will influence the market trend," Motilal Oswal Securities Associate VP Sr Analyst -Technical-Equities Parag Doctor said.

Oil prices fell on Thursday after International Energy Agency decided to release 60 million barrels of crude, giving global economy relief from high energy costs.

The New York crude on Friday tumbled nearly 5 per cent to about USD 90 a barrel, while Brent Crude plunged USD 7 to about USD 107 a barrel.

Some experts were of the opinion that markets will open slight higher on Monday, but profit-booking can bring down some of the gains.

Retail Investor Waiting For PSU Share

Seven years into power the UPA government’s much publicized promise to offer every Indian the opportunity to own shares of public sector companies remains very much a proposal on paper. Corporate India has done better offering a higher share to the retail investor during the period.

A study revealed that between May 2004 and May 2011 the retail investors held merely about 24 per cent of total public sector stocks listed during the period under review. During the same period, retail investors cornered 30 per cent share in public offerings made by private sector, revealed data furnished by IPO tracker Prime Database.

UPA government led by Dr Manmohan Singh proclaimed in its Common Minimum Programme (CMP) drafted in 2004 that “public sector companies and nationalized banks will be encouraged to enter the capital market to raise resources and offer new investment avenues to retail investors”

The government reiterated its promise to make common man a part of the equity success story in India when it announced in its manifesto in 2009 that “Indian people have every right to own part of the shares of public sector companies.” (Para 6, Page 16)

An analysis of figures available shows that from May 2004 to May 2011, seventeen public sector enterprises’ (PSU) IPOs and FPOs raised Rs 73,916.97 crore, out of which retail investors were allotted only Rs 17,812.26 crore.

While as the aggregate share of retail investors over the last seven year period stood at 24 per cent, it came down further in select top PSU offerings. NTPC Ltd, NDMC Ltd and Rural Electrification Corporation Ltd offered in their respective FPOs retail investor 4.87 per cent, 7.02 per cent and 7.74 per cent shares respectively.

The three PSU IPOs which gave the best share to retail investors included Power Finance Corporation (PFC), Power Grid of India, and Coal India which allotted 34.25 per cent, 34.15 per cent and 33.53 per cent shares respectively.

As regards best returns to retail investors in FPOs, retail investors were allotted maximum shares with Shipping Corporation of India, which allotted 33.82 per cent of its shares, followed by Power Grid Corporation and Engineers India, which allotted 33.71 and 33.47 per cent shares respectively.

The lowest share of retail investors in IPOs raised during the last seven years happened at NTPC which allotted 24.40 per cent shares, followed by Oil India Ltd and NHPC Ltd, with allotment of 27.27 per cent and 29.25 per cent shares respectively.

Lamenting the “inadequate” representation to the retail investor, Prime Database chairman and managing director, Prithvi Haldea said, “For the PSU offerings the government should reserve all shares only for the retail investor. In this manner the wealth created by public enterprises through domestic public resources shall be shared rightfully only with the public.” This will also be in keeping with the political manifesto which had proclaimed that every Indian has the right to own shares in PSUs, he added.

The overall share of retail investors in the PSU IPOs and FPOs issued during the last seven years would work out to be much lesser if one were to exclude the performance during the last financial year (2010-11).

During this time of a total of 27,066.59 crores raised by the government through PSU IPO and FPO format, a 33 per cent allotment was made to the retail investor. During 2009-10, however, retail investors got as little as 12 per cent of about Rs 30,756.38 crore raised.

But why is it that the retail investor has turned away from the PSU IPO market? Rajesh Jain, EVP, retail research, Religare Securities, said, “Barring one or two issues, Coal India being one of them, most of the issues didn’t leave much for investors on the table. On a lighter note, they even took the chair with them.”

This view is endorsed by Jagannadham Thunuguntla, head, research, SMC Global Securities: “The quality of IPOs is quite bad. Also, valuations are quite high. So, returns were bad.” He argued for discount mechanism to engage continually with the retail investor.

Prime Databases’ Haldea said, “A retail policy for PSU offerings accompanied by a realistic price would be an excellent opportunity to mobilize the household savings of millions of countrymen.” It would ensure a very wide distribution, reducing post-listing selling pressures, he added.

The government has fixed itself a disinvestment target of Rs 40,000 crore for this year. But the success of the offerings would depend on the pricing. Jain at Religare said, “Giving token discounts which may not last even by the time the issue is listed is meaningless. Remember IPO route is the best route that you can expect retail participation in stock markets.”

SMC’s Thunguntula agreed saying, “The IPO scene is very lackluster with the PSUs being the only hope, that too if the valuations are right.”

Indian Stock Market Decline - Best Stock For Investment

Currently all asset classes are witnessing what could be called a synchronised sell-off. What do you make of that?

They are all very highly correlated asset classes except US treasury . So when they rally, they usually rally together. When they fall, they crack together as well. So, it is not very surprising at all.

So where do you see the fundamental base for this market -- 16000, 15000, or sub-15000?

I do not think we are headed sub-15000 unless we have absolute collapse of earnings or some big risk on legislature or regulation. 15000-15500-16000, I do not think we are going to break that.

You have always had a contra approach. In beginning of the year, your recommendation was to sell emerging markets and buy developed markets, last year your top recommendation was to buy Ranbaxy and sell Reliance Industries . Given the kind of environment we are in, where do you think margin of safety is missing and where do you think margin of safety is present?

Shankar Sharma: That's hard to say, but obviously some of the retail players look very expensive, that's one. I do not think infrastructure is still cheap enough to get very attractive. I do not think power utilities are cheap enough to look attractive. So there is a reasonable mis-pricing even now.

After the kind of correction that the entire auto space has seen and in particular Tata Motors, is it cheap enough to get in now?

It was cheap enough at 1100, the market's concerns over higher capex numbers and some margin contraction has lead to the stock correcting quite sharply. I do not think there is huge immediate downside to the stock.

But at a time when cost of capital is moving up, disposable income could come under pressure. Why are you still bullish on autos?

They are currently already showing signs of fatigue and obviously they have run really long and hard for the last three years. So it is probably due even cyclically for a slowdown.

Given the current environment, why do you like stocks like Tata Motors and Bajaj Auto?

No, Tata Motors we do not like because of the domestic situation anyway. Our call has been always the JLR end of the business and as far as Bajaj is concerned, that's a relatively more immune part of the auto space given its export dependence. The problem there obviously has surfaced because of the DEPB, but we will see how Bajaj Auto ends up handling that.

If I look at the pecking order for large-cap IT, Infosys Technologies is underperforming the sector and it is also underperforming the market leader TCS, do you think the scales could reverse in favour of Infosys Technologies going forward?

I do not think so. It is very hard to replicate what Narayan Murthy and Nandan Nilekani were. On the other hand, I am told by insiders and TCS that the new management is very aggressive, very entrepreneurial, very drilldown, very micro focussed and he is really driving the business very hard and that's clearly showing results. So the gap is going to keep widening between TCS and Infosys.

What are your thoughts on Wipro?

True, management model is also coming under threat. Again these two are very venerated companies, Infosys, Wipro and it is unfortunate they are going through these problems. I do not think it is easy to fix management problems, especially for the kind of companies these are because whilst they have been professionally managed at one level, they are still very dependent on the family or the founding people in these companies. So it will take time for them to fix the management issues. I do not think it can happen overnight.

Are PSU banks looking attractive for a 10-15% trade in and trade out?

Yeah, 10-15% you can buy a lot of stocks and make those kinds of moneys, but whether you can make 50% because any serious investor or institutional investor, they want to make at least that much. That currently does not seem very likely.

Tick mark some names for us, stocks which you would like to buy on decline, stocks where you think a 15-20% appreciation should be expected or anticipated in next 12 months?

No, I would be buyers, and we are very aggressive buyers of pharma on declines because both the domestic and the export stories are very robust. The domestic stories again are big consumption stories. So we have liked the sector for two years, and we think at any decline, they would be great bets.

What about the entire pharma space? Apart from Ranbaxy, all other pharma companies are approaching or already sitting at near all-time highs. Why is it a buy for you when the market itself is looking weak?

I do not think that is a bad thought at all. If you have to remain invested, then being defensive is probably more rewarding. If for nothing else, it is showing great relative strength, which is always a good sign. So the pure macro momentum looks to be in their favour, but even on a fundamental basis, we like what they have to offer on the export side, which is the big global opportunity and the domestic side, which on the chronic side is showing great growth potential. The lifestyle diseases, that segment is really becoming very important here.

What about OMCs? Would they classify as a buy for you if crude prices are to come down further from these levels?

Usually they work in that fashion but obviously there has been a cloud over them, whether it will finally see the full decontrol come through or not but as a trade, they are always good for a 10-20% move if you bet on crude coming to $70 or $80 or $85.

Final thoughts from you on Reliance and what would you do with this stock sub 900 levels?

The problems seem to be refusing to go away. The core fundamental problem remains the production on the KG-D6, but around that there are issues and as recently as what the CAG has pointed out that they have gold plated the capex and CBI is probing that as per the news reports today. So all those things are not very comforting for investors in the Reliance stock.