Prashant Mahesh suggests profit booking
in some outperforming sectors and stocks as the market has climbed 13% in under
three months
The stock market never stops surprising investors. Just when many were busy
writing obituary of the equity cult, market barometer BSE Sensex moved up 2,000
points in just three months — from 15,749 in early June to 17,783, a gain of
12.91%.
Needless to say, most investors are surprised by the sharp upward move, as both
news flows and economic data have not shown any sign of improvement during this
period. If anything, it got worse. Brent crude has risen to $115 a barrel from
$90. The government has not been able to raise prices of administered petroleum
products like diesel, LPG and kerosene and is losing . 14 on every litre of
diesel sold. The fiscal situation has deteriorated, with S&P threatening to
downgrade India’s rating. Policy paralysis continues with no announcement on
reforms or FDI in retail and aviation. Rainfall too has been poor so far this
year, with a drought-like situation in some states.
Even on the global front, the debate continues over the exit of Greece from the
Eurozone and the consequent financial implications it could have. Yet, despite
these negatives, the market surged ahead.
“Investors have expected the ECB to start buying troubled bonds and there is
hope of a QE3 (quantitative easing) soon. This, along with liquidity, is driving
the markets up,” says Sadanand Shetty, VP and fund manager at Taurus Mutual
Fund. The most obvious question an investor would be asking: is it time to take
profits?
“Certain sectors like FMCG and pharma have seen a sharp rise in stock prices
over the last one year. You can book profits selectively in these sectors and
enter at lower levels,” says Madhumita Ghosh, head of research at Unicon
Financial Intermediaries.
BOOK
PROFIT SELECTIVELY IN PHARMA & FMCG
Since the rally is liquidity driven
with foreign institutional investors (FIIs) pumping in more than . 13,000 crore since
July 2012, experts feel the broader market will be range bound. “For the next
six months the markets are likely to be range bound and the Nifty will trade
between 4,750 and 5,500,” says Sandeep Raichura, business head at Castanea
Wealth Management. Since the Nifty is at 5,400, it may make sense to book
profits in stocks which have run up. Certain stocks in the FMCG and pharma
spaces have seen a sharp runup in their prices. For example, Hindustan Unilever
has moved up from . 320 to . 518, a rise of 62% over the last one year, and now
quotes at a PE of 34. Similarly, Godrej Consumer Products has moved up from .
416 to . 652, a rise of 57%, and is quoting at a PE of 46.
In the pharma space, Wockhardt has moved up from . 389 to . 1,266 a jump of
225%, while Strides Arcolab has moved up from . 288 to . 854, a jump of 195%.
“It makes sense to take partial profits in cases where the stock prices have
run up fast,” advises Madhumita Ghosh.
DEPLOY
CASH INTO STOCK BASKETS
Now there are a couple of ways in which
investors can utilise the cash generated from booking profits. Conservative
investors could hold on to their cash and wait for declines and invest again.
“Investors, who wish to remain fully invested, could invest in a basket of
stocks to generate some extra returns. You could invest up to 10-15% of your
equity portfolio in such baskets,” says Rajesh Cheruvu, chief investment
officer, RBS Private Banking India.
For example, in the current environment he recommends a policy reforms basket
of five stocks — HPCL, IDFC, IRB Infra, Spicejet and Pantaloon Retail. Any
change in policy be it in FDI in aviation or retail, hike in diesel prices or
increase in infrastructure activities will benefit this basket and generate
extra return for the portfolio.
Similarly, longer-term investors can play the delisting theme basket, which
will pan out over the next 12 months. “In the delisting theme, buy into those
stocks which have a higher return on equity than their parents,” says Cheruvu.
Some stocks that you can buy here are Oracle Financial Services, BOC India and
Thomas Cook. Similarly, to take advantage of the currency depreciation,
investors are advised to buy the Hang Seng ETF listed on the NSE. “The Hang
Seng ETF is available at a steep discount to its historical average and at
valuations cheaper thantheIndian Nifty, making it a good investment,” says
Cheruvu.
Source
: The Economic Times – 27/8/2012
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