By Rahul Oberoi
Investors can expect the 2012 stock market rally to continue well into 2013. The Bombay Stock Exchange (BSE) Sensex was up 24 per cent till December 14, 2012 from the start of the year. There is widespread optimism that the proindustry decisions by the government of the last few months and a lowering of interest rates - which is widely expected - accompanied by an economic recovery, however small, will work their magic on equity markets in the next few quarters. An ICICI Securities survey in December 2012 found that 60 per cent fund managers expected the market to be up 15 to 20 per cent after a year. In August 2012, only eight per cent were bullish.
In 2012, till December 14, foreign institutional investors (FIIs) injected Rs 1.17 trillion (a trillion is one lakh crore) into Indian equities. In 2011, they had been net sellers of Rs 2,714 crore. "We expect FII inflows to be fairly healthy in the coming year (2013) due to India's relatively better growth," says Gaurav Dua, Head of Research, Sharekhan.
Sunrise areas such as fast food chains and health and fitness hold out promise for the long term"
V.K. Vijaykumar, Investment Strategist, Geojit BNP Paribas
Market analysts are especially positive on retail, media and aviation - the sectors in which the government allowed more foreign direct investment (FDI) in September. Some are also positive on consumer discretionary companies, which they say may gain from rising incomes. "With the opening up of the multi-brand retail to foreign capital, the companies will get high investor interest in the coming year," says Pankaj Pandey, Head of Research, ICICI Securities. In 2012, till November 30, the Store One Retail India stock had risen 461 per cent to Rs 50, followed by Pantaloon Retail by 65.5 per cent to Rs 210 and Shoppers Stop by 65 per cent to Rs 428.
In the media, digitisation will provide opportunities to companies in film, cable distribution and broadcast segments. Cable TV distribution in Delhi, Mumbai, Kolkata and Chennai went digital on October 31, 2012. In just one month, the shares of Sun TV, Hathway Cable & Datacom, and Zee Entertainment Enterprises rose 24 per cent to Rs 408, 16 per cent to Rs 271 and three per cent to Rs 195, respectively.
Digitisation will help companies stabilise revenues by checking under-reporting of subscriber numbers by cable operators. "Opportunities from digitisation will exceed most estimates," says David Pezarkar, Head, Equity, Daiwa AMC. Consumer sectors, on the other hand, will gain from a rise in the country's per capita income, which has been growing at 12 per cent a year for the past five years. "Education and leisure can do well in 2013. However, retail investors should wait for clarity on the winners as revenue will shift from unorganised to organised players.
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Some consolidation is also expected in the organised space," says Ravi Shenoy, Assistant Vice President, Mid-cap Research, Motilal Oswal Securities. "Sunrise areas such as fast food chains and health and fitness hold out promise for the long term," says V.K. Vijaykumar, Investment Strategist, Geojit BNP Paribas Financial Services.
All 13 sector indices have risen in 2012. For the next year, experts are positive on the following:
FMCG: The BSE FMCG (fast moving consumer goods) index has beaten the Sensex in 2012 by rising 50 per cent till November 30. "FMCG will remain attractive in 2013, but is unlikely to show the same intensity it did in 2012. It may rise less than the index as valuations are on the higher side," says Vijaykumar. In 2012, till November 30, FMCG majors ITC, Hindustan Unilever, United Spirits and Nestle India have risen 50 per cent to Rs 298, 34 per cent to Rs 538, 302 per cent to Rs 1,992 and 17 per cent to Rs 4,765, respectively.
Banking: The banking index fell 30 per cent in 2011. In 2012 till November 30, it had risen 52 per cent to 13,952. "The performance of private sector banks, which continue to maintain significant growth in profit and keep non-performing assets under control, has also helped. The sector will continue to do well in 2013," says G. Chokkalingam, Executive Director and Chief Investment Officer, Centrum Wealth Management. Any fall in interest rates will reduce banks' NPAs and increase profitability. Between January and November 2012, YES Bank has risen 90.5 per cent to Rs 442, followed by IndusInd Bank, 85 per cent to Rs 417, and Axis Bank 66 per cent to Rs 1,316.
Automobiles: The BSE Auto Index has risen 34 per cent in 2012 due to better earnings by companies. Experts are positive on the sector. "The next six months will be good for auto stocks as economic downturn is bottoming out and there is revival of consumer sentiment, especially in the car and tractor segments," says Milan Bavishi, Head of Research, Inventure Growth and Securities. "Any cut in interest rates will be positive for the sector," says Vijaykumar of Geojit BNP Paribas.
Lower interest rates will encourage people to take loans to buy vehicles. Maruti Suzuki has risen 57 per cent to Rs 1,473 in 2012 till November 30, 2012. Tata Motors, Cummins India and Mahindra & Mahindra (M&M) are up 49 per cent, 41 per cent and 40 per cent, respectively. Bavishi is positive on M&M, Tata Motors and Bajaj Auto due to their diversified portfolio, wide distribution network and presence in major countries.
Investors can expect to earn 15 to 20 per cent in the next one year from these stocks, he says.
Health-care: The BSE Health-care Index has risen 35.58 per cent in 2012 till November 30. India's pharmaceutical companies earn nearly 50 per cent from exports. Rupee depreciation has immensely benefited companies such as Ranbaxy, Dr Reddy's Laboratories and Glenmark Pharmaceuticals, which earn nearly 70 per cent from exports and Sun Pharmaceuticals, which generates nearly 50 per cent.
The rupee fell around three per cent to 54.94 in 2012. "The sector is likely to do well in 2013 due to a strong dollar, a long pipeline of applications under the Abbreviated New Drug Application (ANDA) route by Indian companies and launch of exclusive products," says Shraddha Shah, research associate, Nirmal Bang Securities. Drugs worth around $12 to 13 billion will go off-patent in 2013. (ANDA is an application for US generic drug approval for a licensed drug.)
"We expect inflows from foreign institutional investors to be fairly healthy in the coming year due to India's relatively better growth"
Gaurav Dua, Head of Research, Sharekhan
Between January and November 2012, Wockhardt rose 478 per cent to Rs 1,601, followed by Strides Arcolab, up 183 per cent to Rs 1,133, and Aurobindo Pharma 118 per cent to Rs 188. Experts are positive on Wockhardt, Cipla and Ajanta Pharma. According to an Emkay Global Financial Services report, 31 per cent compound annual growth rate in earnings and reduction in net debt to zero will drive re-rating of the Wockhardt stock from 15 times to 18 times 2013/14 earnings. The stock can touch Rs 2,160 in the next few quarters. Shah prefers Cipla and Ajanta Pharma. The two had risen 152 per cent and 29 per cent, respectively, till December 3, 2012.
Capital Goods: In 2011, the BSE Capital Goods Index fell over 47 per cent. In 2012, it had risen 38 per cent till December 4. "The major reasons for the sector's stellar performance are optimism about the resumption of capital expenditure and incremental steps being taken by the government to tackle issues in the power sector," says Pezarkar of Daiwa. The decision to set up a panel to fast-track big investments and focus on clearing stuck projects has also improved sentiment.
"Most capital goods companies are still trading at affordable levels compared to their earnings potential," says Shenoy of Motilal Oswal Securities. "The Capital Goods Index will continue to do well if the risk appetite remains at elevated levels." Over the next six to 12 months, Angel Broking is bullish on Crompton Greaves. It said in November 2012 that the company was expected to register a healthy 12 to14 per cent growth in sales yearon-year on the back of a strong order book. The stock is attractively valued. At Rs 120 on December 5, 2012, it is likely to touch Rs 145 in the next few quarters.
Courtesy: Money Today
Reproduced From Business Today. © 2013. LMIL. All rights reserved.
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