FOCUS ON STOCKPICKING & IGNORE THE NOISE.
The sentiments in Indian stockmarkets over the last 18 months has made us ponder the strategy to be followed in bearish, broadly range bound markets with extremly poor investor sentiment and adverse news all around.
Scams,paralysed central govt,high inflation,detiorrating Indian macros,euro nations debt crisis,higher oil prices are some of the reasons of the sharp bear market we are witnessing today which may result in broadly range bound markets for a longer time than we can imagine.(Index returns nearly zero for a 5 year period).The downgrade in Indian earnings which started 4 quarters ago seems no signs of relenting with likely earnings growth over FY12-FY13 moderating to 8-10% giving us an EPS of approx Rs 1125 for FY 12 & Rs 1226 for FY13.
Given the current stressed economic conditions we expect Indian equities to trade between 12-15x forward earnings multiple giving us a broad range between 14712 & 18390 for the period where clarity would emerge whether how much the RBI would ease rates,how fast the investment cycle picks up & most importantly improvement in local policy environment has taken place or not,consequently the headline markets will continue to be rangebound having periodical spells of euphoria & despair.
The rally we witnessed in the first quarter of the year was primarily due to hope of the above factors materialising in the coming year together with liquidity however for it to sustain beyond the above range we would require concrete policy action.With GAAR as well as concerns from Europe emerging again it may be possible that we enter another phase of rangebound trade where the only strategy would be to invest in stocks from our stock ideas section with growth potential & stick out these frustrating times.
The only silver lining in the current scenario is that the sensex earnings have moved up from 800 in FY08 to estimated 1226 for FY13 whilst sensex broadly reamaining the same giving us valuation support on the downside increasing further by end of CY12 when we start discounting FY14 earnings.
Our view in the current backdrop is that the market is awaiting triggers for breakout on the upside having strong valuation support on the downside.We may still be in a broad range of 14712 & 18390 till triggers emerge however higher oil prices from current levels & mid term polls are 2 risks which can tank markets towards the lower range where we strongly advise you to add equity exposure especially from our stocks for all seasons section for creating wealth whilst investing stocks from our flavour of the season section in the interim rangebound markets for making money & enhancing portfolio returns thus focussing on Stockpicking & ignoring the noise.