Market Outlook for the year 2009- Contrarian view-A.K.Prabhakar

Market Outlook for the year 2009- Contrarian view-A.K.Prabhakar

2009 would be more range bound with many rallies fizzling out at higher level 13,000-14,000, Range for market would be 9000-14,000 and I would call this a year of accumulation, 2009 Year end target to be around 14,000 levels.

Year 2008 Sensex has corrected from high of 21206(January2008) to 7697(October2008) and in the 12month we have seen big erosion in value.

Indian Index has higher weightage for Crude S&P CNX Nifty has 22.4% ( Reliance+RPL+Cairn+ONGC) just 4stock in total 50 stock dominate Nifty while in Sensex 2stock hold 18.64% ( Reliance+ONGC) http://epaper.business-standard.com/bsepaper/svww_showarticle.php?art=20081225b_005101001



Negative for market in 2009:

* Earning downgrade in the next 2-3quater
* Election year, first 5month will be like a caretaker Govt with no fresh proposal and Budget will be placed by new Govt in power.
* Stability and ability of the new Govt cant judged at this point of time.
* Fiscal deficit has almost reached 5% of GDP and with election year more sops can be anticipated.
* Indo-Pak relationship hits new low after terror attack possibility of war has emerged.
* Terror attack in Mumbai has put break on new investment plan. And many new entrants are planning to have there office in south (Bangalore, Hyderabad or Chennai).
* Index components like RPower, Suzlon, JP Assoc, Unitech, RPL have crashed between 75 to 90% from their peak. Many of these companies have not completed even 5 years on the bourses, and so it gives a feeling of hasty index selection process for Nifty.

Positive for market in 2009:

* Sensex trading near 8.8 forward earning and lowest point from 2001.
* Falling commodity prices will ease pressure on user industry and another price cut in petroleum products anticipated which could push prices down.
* Govt stimulus would boost the economy after 3-4month and slow recovery is anticipated.
* Higher base effect of inflation will keep inflation low and more rates cut and easing of monetary policy possible.
* Lower crude prices have made Bio-fuel costly pushing down prices of wheat and corn in U.S increasing supply of food product.
* India is still 2nd fastest growing economy.
* Fiscal deficit to be controlled by disinvestment or strategic sale by new Govt which will be in place before June2009.

October month saw highest fall in index- Hedge funds allows there investor to withdraw money once a year and they can apply by September 30 seeing heavy demand of redemption in 2008 September, heavy selling was seen and Indian market low was marked, November has been relatively quite and December has seen buying from FIIs and SEBI data is provided below.



Many ask if new low is possible.

I ask where will be markets after 2-3years if you answer 16000-18000 then you should be invested 40-50% at these levels. Today 25/Dec/2008 Sensex is 9568 and majority fear Sensex can touch level below 7,000 creating new low, I run a risk 2,500 points and I would be able to average as I hold cash 50-60%.

Risk comes from not knowing what you are doing - Warren Buffet

But now we know the risk of buying and can invest.

What if Sensex doesn't go below 9,000?

We would miss opportunity and maybe buy at higher level. And with FIIs turning buyers in December 2008 till date and fresh allocation in January 2009 can change equation. Many said.

Quote: In Stock market there is never clarity, Media or someone won't tell you this is the best time to buy, and at peak market looks attractive at bottom market looks to panic always take informed decision.

Ratios are past; market always like to discount future.

Contrarian view:

Where do you see the Sensex after 3-4 years?

Sensex can possibly target 22,000 around levels by 2012 January 3years from now, when we talked about Sensex reaching 9700-10500 by March2009 it looked odd as we did say as early as November 2007 and latter cautioned from January 2008 time when Sensex touched 21206.

Do you see a possibility of Sensex making a newer low?

Predicting market exactly is never possible but now risk to reward ratio is favorable for a long term investor. Bull markets are normally born on excess pessimism, Bull markets had created excess and now all excesses have been shed. More of range bound market ranging from 9000-14000 is my outlook.



What makes you feel FIIs investment will flow back into India?

Globally interest rates are nearing zero making high risky assets like equity attractive and with weaker rupee can attract more investment. India being 2nd fastest growing economy and has better regulated markets compared to many other emerging market and market quoting at relatively discounted valuation 8.8times forward earning makes me positive.

What if foreign investment doesn't come?

Indian saving rate is above 30% one of the highest in the globe and pending reforms like pension, insurance and banking would improve which can make local money getting invested in Indian equity market in a better way compensating foreign inflow.



What would be the change when new Government gets formed?

Many pending bills will be passed Insurance, Banking, pension and allowing private sector into nuclear energy also can happen. Disinvestment of many PSU like NTPC, BHEL, BEL and many more can happen, and total sale of few companies like Maruti & TATACOMM can also happen as Govt need funds to bridge the fiscal deficit.





FII Data for 2008

Jan-08


-13035.7

Feb-08


1733.3

Mar-08


-130.4

Apr-08


1074.8

May-08


-5011.5

Jun-08


-10095.8

Jul-08


-1836.8

Aug-08


-1211.7

Sep-08


-8278.1

Oct-08


-15347.3

Nov-08


-2598.3

Dec-08


2013.8

Total 2008


-52723.7

Source :- SEBI website

Major Points:

* Indian Elections are due in Q2 CY09 and markets will be happy whichever of Congress (the ruling party) or the BJP (the current opposition) forms the next coalition government. Further, increased earnings visibility, with benign interest and inflation rates will result in a PE revision offsetting any fiscal deficit concerns.
* Asset allocations' country allocation decisions to be driven by two factors i) relative underlying growth and strength of the domestic economy, ii) Size and liquidity of the market. India and China, both large markets with buoyant and strong domestic underlying growth, will be big beneficiaries. So good FDI and FII flows into the Chinese and Indian economy Q2 CY09 onwards.
* Japan Inflow to come in a major way to India in coming years already data has been send and discussed few months back.



BHEL, BEL, SAIL, BEML, OBC, SBIN, NTPC, SCI, CORP.BANK=PSU

SIEMENS, ABB, APIL, BATAINDIA, CUMMINSINDIA=MNC

BGRENERGY, TATAPOWER=Power

RCOM & IDEA=Telecom

ICICIBANK, SOUTHINDIABANK= Private Bank

INFOSYS, TCS, ROLTA=TECH

IVRCL, LT, PUNJLLYOD, HCC=Infrastructure



RPL, TATASTEEL, RANBAXY, EXIDE, MAH&MAH, MARUTI, DABUR, THERMAX, SINTEX, TATATEA, TITAN, IDFC and RELIANCE ---- NEW YEAR2009 picks



Recap of what was said in 2008/January

The below given views is of my own (A.K.Prabhakar of ANANDRATHI) it doesn't reflect companies view. U.S markets has had its impact on global markets from 1980's so based on that the below given text is prepared-Published on 7/January/2008

Global market Special view: Dow has broken 13000 levels and 75week moving average which comes around 12700 is the support in many ways (Low in previous rally) and as per Dow Theory U.S market is entering bear phase. And talk of recession hitting U.S is getting bigger and Fed cutting interest rate also won't help as inflationary pressure has to be also addressed with Crude around $98.

How will India be affected by this development?

Already Indian exports are affected by rising Rupee and any slowdown in U.S will impact our Tech & Textile sector which is highest employer in India. New generation employees have created credit beyond 4-5yrs and if no salary hike is given, it will affect them very badly. (Salary cut or unemployment would be disaster)

What impact will this have in our stocks market?

In 2007 India got 71000crs from foreign funds and if Global markets reacts then all emerging markets funds would go into safer investment like debt and gold. And with Reliance Power issue which can suck minimum of 12000crs in liquidity, if fresh flows are hard to come we can see intermediate correction.

Do we see any slowdown in investment from FIIs?

As per data available in NSE & BSE website funds which has come into secondary markets is negative from November till date and there is no signs yet that new funds from western world would come in. Major correction in U.S market would make global investor withdraw money from emerging markets.

Is Indian markets attractive in short term?

Indian growth story is very strong but any recession globally will affect us also as high crude is benefiting Indian growth in big way as Indian employment, exports and investment come from gulf region in major way (Engineering, construction & raw material). And our stocks markets have fully priced in future growth, but still many attractive pockets remain liquidity is always very important.

What will be long term impact?

World Recession can bring slowdown in India at the maximum, but Indian growth story is a long term one which is here to stay. As India is putting infrastructure in place things would move in India favor any correction would be chance to buy for long term investor while short term is always very difficult to predict.

What can derail India's growth?

Politics and bureaucracy should speed up reform process. India is the powerful trends of demography and urbanization: half the population is under 25 years old and 70% still live in the countryside. India needs to strengthen its infrastructure (hard and soft), reduce its stifling bureaucracy, deregulate its labour market and further develop its financial system. If it does, these two trends can help lift the economy's potential growth rate to 10%. But without reforms, these trends can become a major liability, possibly reducing potential growth to 5-6%.


This is prepared By A.K.Prabhakar of ANANDRATHI and the view expressed is of his own and it doesn't reflect Company view