For a value investor that does not have positive views on external flows, only a Sensex fall below 13,000 would represent an entry point justified from a valuation viewpoint.
That said, we believe that this is not the time to sell, even for those with dire views on the world economy. India is likely to be on a highly reflationary policy drive in the coming weeks unlike most others in the emerging world. We feel that the market fall has raised the chances of both interest and tax rates cut by February end.
Investors should remain in overweight sectors where underlying earnings growth has little to do with financial markets or the global economy—engineering goods, construction, natural gas, consumer staples and domestic growth themes such as rural income. In the likely market rebound in February, investors should aggressively trim equity market dependents such as stock brokers, energy companies, corporate event plays and companies with large subsidiaries without visible income.
In our year-beginning report, The flow flaws and follow-ups, we had talked of 16,500 as the end-2008 fair value for the Sensex without external liquidity support, but with highly aggressive assumptions. As risk aversion rises and we see more earnings downgrades, this could easily come down to around 13,000.
Morgan Stanley on 25 January
Keep a close watch on earnings
India’s fabulous earnings story of the past four years may not be ending immediately, but investors need to recognize four risk factors going forward. Reflexivity between earnings and share prices, the fact that earnings appear to be well above trend, slowing macro growth due to high real rates, and the dependence on margins to sustain earnings growth given that topline growth is harder to come by, make earnings a bit more vulnerable than at any point over the preceding four years...
The consensus estimates BSE Sensex constituents’ aggregate earnings growth at 18% and 28% for 2009 and 2010, respectively. We think the base of upward revisions is likely to be tested in the coming weeks and the growth itself could be in the low- to mid-teens. The biggest negative surprises could come in consumer discretionary; industrials and utilities while materials, telecom and energy could benefit from upward revisions, at least based on what Morgan Stanley analysts are forecasting for the coming 12-24 months.
Sharekhan Ltd on 23 January
A strong opportunity to buy
The stock market has been brutally attacked by bears in the past few days, led by the global meltdown. As a part of collateral damage, several of our stock ideas have corrected significantly and are currently available at very attractive valuations. We view this correction as a strong opportunity to buy…
These are fundamentally sound companies and we remain bullish on them: Aban Offshore Ltd, Bank of Baroda, Bharat Heavy Electricals Ltd, Crompton Greaves Ltd, HDFC Ltd, Bank Ltd, Jaiprakash Associates Ltd, Orbit Corp. Ltd, Orchid Chemicals Ltd, Punj Lloyd Ltd, Shiv-Vani Oil and Gas Exploration Services Ltd, Tata Chemicals Ltd.
ICICI Securities Ltd on 23 January
The pain seems to be completely behind us