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Just when you think you have the key to
the market, someone changes the locks.
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Last Week was all about = Crude Oil +
UPA Trust Vote + Global equity market rally.
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Expectations after UPA won trust vote =
The government will now have an opportunity to pursue
stalled reforms, given the departure of the Left-wing
parties that had been opposing further liberalization.
Although Government may not push through sweeping reforms
considering the composition of Parliament, it should be able
to do number of administrative reforms, such as the
divestment of government stakes in public-sector companies.
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The past fortnight has seen the crude
oil futures market absorb the biggest short-term price
decline in the history of crude oil futures.
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Is Chinese Olympics preparation driving
down oil prices? Could it be that oil is falling because
China has this week begun its smog reduction efforts for the
Olympics?...Lehman Brothers
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China and India look attractive on
Valuations...Mark Mobius
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China's CSI 300 Index is valued
at 21 times reported earnings, near the lowest in more than
two years, and down from a peak of 53 times in October 2007.
In India, the Sensitive Index is trading at 14 times
reported earnings, down from a high of 31 earlier this year.
That compares to a multiple of about 22 times for the
Standard & Poor's 500 Index in the US
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There are two questions one should ask
at current juncture - (1) How much macro risks have been
priced in? (2) What can be the source and magnitude of ugly
surprises from now on?
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Goldman Sachs 12 month Sensex Target =
12 600. (Don't worry....this will keep changing...Giving a
12 month target is the most ridiculous and non sense
exercise brokerage houses and research groups do)
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We may have just seen another strong
bear market rally. Financials (property and bank) stocks
could be the best way to play the rally. However, investors
would be better placed to sell such rallies, in our view.
After all, the market still faces headwinds from high crude
oil prices, fragile global financial markets, weak domestic
sentiment, likelihood of higher long bond yields, slowing
growth and prospects of earnings downgrades......Morgan
Stanley India Report
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It's interesting that Morgan Stanley
Asia Pacific thinks - "It's time to Buy". This is what
Morgan Stanley Asia Pacific says - Our Composite
Valuation Indicator (CVI) for Asia Pac ex-Japan has entered
“strong buy” territory, with a high probability of
delivering a 27% return over the next 12 months. Taiwan,
Korea, Singapore, Malaysia and Thailand also appear very
attractive, with a high probability of delivering returns of
12-50% over the next 12 months. In addition, China, Hong
Kong and India are verging on buy signal
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If Last week was all about -
UPA Trust Vote and Crude, Next Few weeks will be all about -
Monetary policy and Monsoon
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There are three measures to assess the
success or failure of monsoons. These are: (1) Total quantum
of rainfall - This measure gives the rains received as a
proportion of the Long Period Average (LPA). (2) Temporal
distribution. This measures the distribution of rainfall
over the entire season. (3) Spatial distribution. We have
observed that, at times, while the total quantum of rainfall
is normal or above normal, the geographical spread of
rainfall is not consistent. The biggest concern right now –
Spatial distribution
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The cycle has clearly turned – still not
too late to sell. Our analysis suggests the infrastructure
investment cycle is not going through just a short-term
slowdown – rather this will likely last 18-24 months. Top
Sells - Reliance Power, L&T, NTPC, Tata Power and
Thermax...Deutsche Bank
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Telecom companies like Bharti and
Reliance Communication offer best risk: reward in the current
macro environment as they offer stable growth at relatively
attractive valuations. Metal companies (Tata Steel and
Hindalco) appear most vulnerable to downgrades if the
uptrend in the commodity cycle reverses followed by cement
companies (Grasim, ACC, Ambuja)...Merrill Lynch
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We advise caution and believe investors
should stay defensive with Tata Power, Tata Steel, Bharti
Airtel, Aban Offshore and BHEL being our top picks. Our top
sells are Hero Honda, Hindustan Unilever, ICICI Bank and
State Bank of India....Macquarie Research.
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A good pair trade in current market
environment = Long Large Caps Real Estate stocks + Short
Smaller real estate players
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Cipla - We believe that Cipla’s
earnings are at an inflection point, having stagnated (7%
CAGR) over last two years (F06-08), and are set to
accelerate to 19% CAGR over next two years (F08-10). This
strength will be driven by Cipla’s end-to-end preparedness –
high capex (Rs10 bn over last three years), large-scale
global drug filings (e.g. more than 100 ANDAs filed in US),
and multitude of marketing partnerships (e.g. 12 in the
US)…..Morgan Stanley
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It's no surprise Cipla made a
52 week high last week. After making a 52 week high, the
stock has pulled back to 50 dma and is at attractive levels
for investment purposes.
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Post results stock price performance of
Tech companies have been disastrous. One of the reason for
underperformance - Inability of Tech companies to up the
dollar guidance. Credit Suisse has come out with
disappointing report on Satyam - Satyam’s strong
performance over the past five years has led to its P/E
discount to Infosys reducing to 15-20% (against 30-35%
average a few years back), we believe that this could widen
again.
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I believe that we are at a key moment --
we either get calmer or we get even more out of control --
and the former matters for the big institutions that can
have felt so whipsawed by the ETFs and the endless
bang-downs.....Jim Cramer
