Play It Watchfully

The times are challenging and in such times it is difficult to time the markets. It is best to avoid bottom fishing in beaten down sectors and stick to a staggered buying approach in companies with robust balance sheets and healthy cash flows says Pankaj Pandey, Head Research, ICICIdirect.com

Where do you see the Sensex till Diwali 2014? 

At the current levels of 20500, the Sensex appears to be valued slightly on the higher side at around 14.6x one year forward earnings. We have built in a 6.8 per cent growth for current fiscal and a 12.9 per cent growth for FY15E in the Sensex earnings. Our Sensex target for December 2013 stands at 18600 (12.5x FY15E). With expectation of only a gradual economic recovery going ahead, we do not anticipate any meaningful expansion in multiples. 

What are the major triggers that you are looking forward to in the next Samvat? 

The next biggest event would be the general elections in May 2014. Though, the government has taken several measures in the past one year to break the policy deadlock and reignite the investment spark, the rate of economic growth continues to dwindle. Early indicators suggest that we may again see a fractured mandate emerging in the next elections. However, the entire investor community is hoping for more vibrant policy actions from the new government, which may kick start the investment cycle. 

What is your take on the present macro-economic environment of the country, and how soon do you see it improving?

Various economic data points portray a mixed picture for the Indian economy. While most of the data points indicate towards a subdued economic scenario, there certainly has been improvement in some aspects. The GDP growth continues to post sub-par figures at below 5 per cent and the WPI at above 6 per cent remains on the upward trajectory. On the other hand, the trade deficit has been coming down at a rapid pace, which suggests that we may end the fiscal with a current account deficit target of lower than USD 70 billion. This also lends support to the currency which has appreciated over 11 per cent from the life time low to 68.8/USD. Moreover, most of the global commodities like crude, copper, aluminum, etc., have either remained stable or are on a declining trend, which bodes well for the economy. Having said this, we believe, though the worst may be behind us, the macro economic situation still remains grave and the recovery to high growth rates may be painfully slow.

If a new government comes in, do you see any significant changes in the investment climate happen? 

Revival of the investment climate will depend more on formulating of a clear policy framework for various industries than on the induction of a new government. Various policy deadlocks related to environmental clearances and land acquisition for infrastructure sector, fuel linkages for power sector, fuel pricing for oil and gas sector need to be addressed. In addition, concrete measures need to be implemented to bring down the structural deficit in trade deficit and reduce the subsidy burden to improve the fiscal deficit. 

Which are the sectors or stocks that you are betting upon for the next one year? 

We prefer the IT sector on back of a gradually improving outlook for Europe and the US, while the Pharma sector looks attractive on the back of a perk up in the US demand. In addition, we like the telecom sector on account of the declining competitive intensity and receding regulatory uncertainty. Also, the Automobile sector looks attractive too. 

What are your suggestions for retail investors keeping in mind the current market scenario? 

In times of heightened volatility it is difficult to time the markets. It is best to avoid bottom fishing in beaten down sectors. We advice, investors stick to a staggered buying approach in companies with robust balance sheets and healthy cash flows. In a scenario of subdued economic performance, wherein growth becomes scarce, sticking to companies delivering healthy profit growth is the safest bet.