THE BULL RUN HAS BEGUN

In the last one month since the BJP led NDA government has come to power, every executive office seems to have suddenly come to life. Beginning with Narendra Modi’s swearing in, which kind of reinstated the authority of Prime Ministerial chair, the Presidential address to both houses actually brought back to life the democratic character of India’s Parliament.Pranab Mukherjee’s address to the parliament has underlined the fi ve year plan of the new government very succinctly. I am pleasantly surprised at the way the President has owned himself on to the new government, referring to it as ‘my government’ despite him coming from a divergently opposite political party.

That according to me is the first sign of strong governance that is to come over the next five years. Such a concerted effort cutting across party lines and political leanings is what will put us back on the glorious path to growth. There is a lot on the plate. But one has to keep in mind that, not all can be achieved at one go. A little bit of patience will have to be exhibited by every stakeholder before we get to where we seek to reach. The best example of the need for patience in the present circumstances is being exhibited by the capital markets.

Every passing day is turning out to be a bigger day for the markets than the preceding one. The confidence with which the benchmarks are closing at newer highs is unprecedented. And, this is without any meaningful participation of the retail investor yet. Looks like, all those estimates about the benchmark hitting 28000 or above by year end will unfold much before that. But let’s not jump to conclusions so soon. The market is currently riding on expectations of actions. The moment for actual action is just around the corner. That will be the defining moment for the markets and determine their future course.

Just a couple of months ago, the sentiment were such that, it seemed as if the economy is completely paralysed. That sentiment was obviously based on ground realities. An indecisive leadership, scam-tainted governance, directionless, populist and some even outright selfish policy decisions had led to a complete collapse of the economic edifice of the country. A BJP led NDA government coming to power is being looked upon as a game changer. But one needs to spare a moment and think about the time and actions required in turning around the giant economy which has been virtually sleeping for more than five years now. Expecting instant actions and results will only lead to disappointment.

Th e import of it is that, expectations and the bullishness surrounding those expectations need to temper down considerably. The markets are getting outright irrationally euphoric. Now is the time to pause and move ahead. Of course, the basic premise of this Bull Run is very much intact. What is worrisome is the various if’s and but’s around the future. The first of this ‘if’ has already hit the markets. The IMD (Metrological Department) has further scaled down its estimates of monsoon this year.

That itself is the first test of perseverance not only for the optimism but also for the Government which will have to tackle the impact analysis of a lower monsoon and act accordingly. A lower monsoon is far more consequential than what optimists will agree to. A lower crop means higher inflation (that surely isn’t rocket science to understand) and a higher inflation means getting into the same spiral that we have been in over the past five years. This is just one of the factors. There are many more grounds where the Government will find itself battling the odds created by its predecessor.

The challenges mentioned above are not secrets and yet the market seems to be discounting them. More than `100,000 crore has been infused in the market by the FII’s since the announcement of the election results and the flow does not seem to be tapering. The expected market correction has already taken place, however this time the correction was sideways and hence has gone unnoticed. The Bulls are battering the bears every day and timing the market is impossible at this stage. Yes, we have entered in a long Bull Run and it is advisable to assign a larger chunk of your portfolio to the equity class. At the same time do not be gullible and invest only into those stocks that have a history of good performance. For starters, here are five stocks that you should be buying and holding for the next five years for some superlative returns. At the end of the five year period, while we would be evaluating how effective this new government has been, the return on your investment in these stocks will really tell you the story of growth that has actually unfolded during this time. This issue also elaborates the March 2014 quarter results for you. Along with the factors that have led to the performance of companies in key sectors, it also tells you about the path that lies ahead for these key sectors.

That apart our regular recommendations this fortnight include Pune Based diversified business conglomerate Bharat Forge (BFL) as the Choice Scrip recommendation. And PTC Financial Services as the Low Priced Scrip. With the tides turning in favour of the company from the targeted export market, BFL is all set to reap the benefits from the same. With a focus on deleveraging in the next couple of years, its free cash flow generation is likely to be robust. Also, its consistent dividend payments act as an icing on the cake.

PTC Financial Services is our Low Priced Scrip recommendation for this issue. The improving scenario for the power sector and an outstanding sanction of `5300 crore is likely to be the growth driver for the company going forward. Also, the moderation in funding costs and gains on equity investments are all set to boost the profitability of the company coupled with superior asset quality among its peers.

Invest wisely to reap the true benefits of this optimistic market sentiment. Remember caution is better than anxiety as far as the equity market is concerned.