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Brokerages bullish, say upturn will begin from third quarter

Brokerages bullish, say upturn will begin from third quarter
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First Published: Thu, Apr 05 2007. 12 43 AM IST
Updated: Thu, Apr 05 2007. 12 43 AM IST
Mumbai: Most leading Indian retail brokerages are bullish on the India story in the long term, despite recent concerns that the economy could slow down in the wake of efforts by the banking regulator to reduce money supply, according to a poll conducted by Mint among eight leading Mumbai-based brokerages. Most brokers believe the Reserve Bank of India (RBI) will succeed in its efforts to control inflation sooner, rather than later. They claim that the stock market will witness a rally in the second half of 2007-08.
However, there is unanimity among the brokeragesthat volatility is here to stay, at least for the next few months.
Most are advising their clients to exercise caution. And some are advising their clients to hedge their positions using futures and options, stick to cash in the short term, or shift to large-cap (companies with a high market-capitalization) stocks that are now available at reasonable prices.
India’s four year-long bull run has brought a new set of investors into the market. Many, in the market for less that two years, are seeing their first major slide. Brokerages are now trying to hold their hands and shield them from one of the biggest corrections in a long time. Featured below are excerpts from the predictions and analyses by some of the respondents.
These brokerage employees could have positions, either individually or otherwise, in the stocks they recommend. Mint recommends that investors looking to buy these stocks do so only after independent research.
‘Correction till May’
Harendra Kumar, head of research, ICICI Direct:
“The market could stay in correction mode till May. The Sensex could hit 12,315-11,900 levels. We are asking people to hold on and buy good stocks while they can get them at cheaper levels.”
“We are taking a bottom-up or stock-specific approach rather than a sectoral approach. We have identified 10-12 stocks and given price points at which they are attractive. For instance, we think that while the cement sector could see correction, JK cement could provide value given its lower price point.“
“We have also chosen good stocks in the metals sector, among others.“
“We do see the rate-hike cycle ending, in the next three months which, coupled with an increase in demand, could lead to better performance from auto stocks. We will be looking closely for that. We don’t think people should buy sugar stocks, since there is some upside left in that sector. But we do not see sugar prices going very high this year because of the surplus crop.”
‘Sensex can dip to 11,500’
Ketan Malkan, vice-president HNI desk, India Infoline:
“We are telling our clients the the India story is intact in the long term, but in the short term of one to two months, the market will be weak. In the short term, the market could go down to the level of 11,500 points.We expect the steps that the government is taking to tame the inflation, to bear fruit after a few months.”
“Once that is done, the market will continue along its growth trajectory.”
“Right now, we are positive about the telecommunications sector, which has been growing consistently. We tell our clients that an investment in stocks like Bharti Airtel and Reliance Communications could work over a one-year period. We also advise our high net-worth clients to hedge their positions through buying futures and put options in certain stocks.”
‘Focus on quality stocks’
Sandeep Nanda, head of research, Sharekhan:
“We are advising our investors to be cautious—to be selective about what they buy and primarily focus on high-quality, large-cap stocks. We are positive on some stocks in telecom, capital goods and media. The next couple of months will be volatile after which things will move on (along the growth path).”
“Factors, such as how the monsoon will play out this year, the ability of the central bank to contain inflation and the performance of corporations, will keep the market volatile in the next few months. We think the market should stabilize beyond Augus’t-September. By then, we expect the US Federal Reserve to cut interest rates. RBI will also be through with its rate-tightening cycle and some important state elections would also be over.”
‘Stay in cash till 15 April’
Amitabh Chakraborty, president, equities, Religare Securities:
“We are telling our clients to remain in cash in the short term, till Infosys Technologies announces its results, or invest in stocks in defensive sectors, such as GAIL among utilities, Cipla among pharmaceuticals and ONGC, NTPC and Power Trading Corporation in energy.”
“We expect the markets to stabilize from 15 April, when corporate results start coming in. The results will be good and in line with market expectations. Right now, the market is in a state of shock after the unexpected money-tightening measure by RBI. “
“We believe inflation will be under control by the end of April, primarily due to two factors. One, the base effect will start kicking in (The measure of inflation growth will then be based on a higher base, which, in effect, will show a reduced growth).”
“Secondly, RBI’s efforts will start paying off. We do not believe RBI will hike interest rates on 24 April when it announces its credit policy.”
‘Weakness to continue’
D.D. Sharma, vice-president sales and research, Anand Rathi Securities:
“We think the market will remain weak or in consolidation mode for the next one to three months. There could be further correction. If the Sensex breaches the 12,000 level and the Nifty goes below 3,554, there will be further corrections. We have been telling people to hold their buying decisions till the market bounces back from the bottom.”
“If they do buy, we suggest they invest in hotels, media and entertainment stocks. We are advising investors against buying stocks in interest rate-sensitive sectors, including real estate and auto.”
‘Pressure on mid-caps’
R. Sreeshankar, head of research, IL&FS Investsmart:
“We are telling our clients that there could be a slowdown in earnings growth, especially in sectors such as automobiles..”
“We also feel mid-cap stocks will face more pressure. The market will start looking up only if inflation starts slowing down. We do not see this happening in the next two to three months. It is difficult to take a view on the long term right now, given the uncertainties on various fronts.”
‘No rate-sensitive sectors’
Lalit Thakkar, head of research, Angel Broking:
“We are definitely asking our clients not to invest in interest rate-sensitive sectors. These are likely to be the worst affected by the current rate-hike cycle that led to the correction in the market.”
“There will be some slowdown in sectors such as auto, banking and commodities. Cement stocks have fallen 35% since the budget but we still don’t see them as valuable and are asking people to get out of cement stocks. Steel could also see some more correction.”
“Banking stocks could also under perform. Banks will see margin-pressure and a drop in credit growth because of the recent rate hikes. But there is long-term growth in store for banks. So, their stocks will definitely bounce back. We are asking people to hold on to bank stocks.”
“There are some stocks that are less senstive to interest rates, which people can buy. Stocks in sectors such as information technology, pharmaceuticals, and consumer products will continue to do well.”
‘Expect 15-20% returns’
Rahul Rege, head of non-institutional business, BRICS securities:
“The market will be flat and returns will be rationalised now. We could see returns of 15-20% this year. Investors need to be cautious. They also need to have a stock-specific approach rather than a sectoral one. We feel that volatility will continue as there is very little depth in the market. At this point, it would not take much to pull the market up or push it down.”
“The percentage of stocks doing well will fall. So, making money will be hard and investors may have to change their approach as well.”
“If investors feel that the long-term story is intact, they need to stick it out.”
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First Published: Thu, Apr 05 2007. 12 43 AM IST
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