 "Places to hide in this market")
All key technical charts seem to suggest the downtrend in the market will continue.
One technical chartist said: “The price action on the weekly time interval charts formed a bearish candle with a long higher shadow indicating resistance at higher levels. The overall structure remains weak as it continued to form a lower high and lower low in the daily chart.”
Technical charts suggest that a sustained closing below 5500 levels will lead the index to levels of 5200 on the Nifty, last seen in September 2012. The mayhem in the broader markets is not very visible as FMCG, IT and healthcare stocks have held on.
There aren’t that many places to hide, if analysts are to be believed because few Indian companies are seeing growth in sales and profits. Other than exporting sectors like pharma and IT services, nobody has the conviction to bet on any sector. But are these the only bets at this point of time? Equity strategists believe that that in times like these, rather than betting on a sector, it is best to look at companies that have the pricing power.
Dhananjay SInha, Head of institutional Equities at Emkay Global, says that his choice of top picks has been guided by companies that have the ability to gain market share, show pricing power, balance sheet strength, the ability to gain from INR depreciation and companies that are proxy plays on good monsoon and elections spending.
Accordingly, Emkay is betting on Asian Paints, Dr. Reddy’s, Hero Motocorp, HDFC Bank, ICICI Bank, Idea Cellular, Infosys, Lupin and Zee in large-caps. In mid-cap, we prefer Coromandel, Exide, Grasim, Havells, Marico, Mindtree, Motherson Sumi, NMDC and PGCIL.
Other brokerages like Ambit have a slightly different view on companies and believe that strategy shift and capital allocation matter. The brokerage has listed three companies as case studies -- Asian Paints, Titan and Sun Pharma-- and the merit in investing in them.
Ambit’s Saurabh Mukherjea says: “The two markers that are flashing ‘amber‘ for Asian Paints are its ongoing shift in strategy (away from paints and towards homeware) and inter- generational tensions. For Titan, the 'capital allocation' marker is flashing amber, as the firm is clearly at strategic crossroads in terms of how to reallocate capital. In Sun Pharma, the ‘strategy shift‘ marker is flashing amber, with the promoter inclined towards larger acquisitions.”
Other than these filters, low valuations are often cited as reasons to buy. But in this market, this may not be the best thing to do. Even though banks, infrastructure and cyclicals have fallen sharply, their recovery is not imminent going by the macro economic challenges India faces.
Morgan Stanley’s emerging market strategists believe India’s credit was strong post-crisis, but slowed thereafter with nominal GDP growth. “The recent tightening (by RBI) – if sustained – could impact the ability and willingness of banks to lend, making investment growth more difficult to come by.”