Stocks and Sectors to watch:
Sabharwal feels investors should stay away from metals, financials, real estate, and some high beta capital goods names. "As the market corrects, the sectors to be bought into would again be sectors like auto and financials. These are the sectors to buy into as the market corrects."
On metal stocks:
Amarnath says one should avoid the metal space. "All cues point to something bad that’s going to happen in that space, whether it’s the US consumer, whether its about input prices and production levels, and stockpiling. We are not headed for any kind of very strong consumer-led recovery. Autos continue to be a concern, so do capex etc across the world, and construction as well. A lot of major segments which are the driver for metals are going to go through a phase of consolidation and there is no rapid recovery is likely on the horizon. Between the ferrous and non-ferrous, I would guess that the ferrous side could possibly see consolidation happening faster in terms of countries which don’t have a natural competitive advantage. Possibly shutting down of capacities could happen over the next six-eight months. That might actually lead to earlier consolidation and recovery in the ferrous metal space as compared to the non-ferrous space."
Irani too feels investors should stay away from metal stocks. "Metals had rallied a lot over the past few weeks on buying by China etc. I will wait for sometime."
On cement stocks:
Amarnath advises investors to enter frontline cement stocks on a 5% correction. "Valuation seems to be almost approaching what you would call replacement cost, sub-replacement cost kind of levels. That’s a good point to enter into and be there. Along with fast moving consumer goods and autos, they have been big beneficiaries of a rural demand kind of spike over the last 12-17 months. In case of drought, it is seen to be negative as they are heavily dependent on rural demand. We are seeing early signs that new construction projects particularly tenders etc are getting floated. So, that activity should pick up possibly towards the later part of 2009. We are also hearing about real estate developers beginning to prepare the ground for new project launches around the festive season, which was completely absent in 2008."
On midcap IT:
Thacker feels midcap IT is a very good segment to have some kind of long positions, if you are trading on the short side. "Midcap IT would provide a long hedge in case the markets survives these levels and probably gives one more bounce back or even reverses from these levels."
Sabharwal feel it might be a bad idea to have some of these stocks in your portfolio. "People were only focusing on largecap IT. The general consensus was that only the largecap guys are going to survive. When the results came out, most companies had cut cost substantially and had reported decent numbers. It is a totally under owned sector and no one owns it on the institutional side. That is what is leading to this rally. Some of the larger midcaps in the IT space rallied earlier and we are seeing some of the smaller ones rallying now. Valuations are pretty cheap. Some of these stocks, post the rally, still trade at 3-4 times price to earning. Given that they generate positive cash flow and they don’t have huge capex requirements, it might be a bad idea to have some of them in your portfolio."
On sugar stocks:
Irani says, sugar is a high-beta sector and can go down. "This year, cane output might actually fall and even yields may come down to about 9%. Over the long-term, I would be positive on the sector. But in the short-term, sugar stocks have already rallied 5-6 times from the lows. So, they can surely correct from there."
On auto stocks:
Sabharwal feels auto stocks are a good sector to buy into post the correction. "There is a big misconception in the market that its monsoons and the failure or success of that which is going to drive sales. If you go back historically and look at trends, it is more to do with the availability of finance and cost of financing, and both of them are strong today. Financing is available in ample for auto and rates have come down substantially. Auto sales will continue to be very strong over the next few months. To that extent, it is a good sector to buy into given the fact that it has corrected bit time because of monsoon concerns."
Sabharwal feels investors should stay away from metals, financials, real estate, and some high beta capital goods names. "As the market corrects, the sectors to be bought into would again be sectors like auto and financials. These are the sectors to buy into as the market corrects."
On metal stocks:
Amarnath says one should avoid the metal space. "All cues point to something bad that’s going to happen in that space, whether it’s the US consumer, whether its about input prices and production levels, and stockpiling. We are not headed for any kind of very strong consumer-led recovery. Autos continue to be a concern, so do capex etc across the world, and construction as well. A lot of major segments which are the driver for metals are going to go through a phase of consolidation and there is no rapid recovery is likely on the horizon. Between the ferrous and non-ferrous, I would guess that the ferrous side could possibly see consolidation happening faster in terms of countries which don’t have a natural competitive advantage. Possibly shutting down of capacities could happen over the next six-eight months. That might actually lead to earlier consolidation and recovery in the ferrous metal space as compared to the non-ferrous space."
Irani too feels investors should stay away from metal stocks. "Metals had rallied a lot over the past few weeks on buying by China etc. I will wait for sometime."
On cement stocks:
Amarnath advises investors to enter frontline cement stocks on a 5% correction. "Valuation seems to be almost approaching what you would call replacement cost, sub-replacement cost kind of levels. That’s a good point to enter into and be there. Along with fast moving consumer goods and autos, they have been big beneficiaries of a rural demand kind of spike over the last 12-17 months. In case of drought, it is seen to be negative as they are heavily dependent on rural demand. We are seeing early signs that new construction projects particularly tenders etc are getting floated. So, that activity should pick up possibly towards the later part of 2009. We are also hearing about real estate developers beginning to prepare the ground for new project launches around the festive season, which was completely absent in 2008."
On midcap IT:
Thacker feels midcap IT is a very good segment to have some kind of long positions, if you are trading on the short side. "Midcap IT would provide a long hedge in case the markets survives these levels and probably gives one more bounce back or even reverses from these levels."
Sabharwal feel it might be a bad idea to have some of these stocks in your portfolio. "People were only focusing on largecap IT. The general consensus was that only the largecap guys are going to survive. When the results came out, most companies had cut cost substantially and had reported decent numbers. It is a totally under owned sector and no one owns it on the institutional side. That is what is leading to this rally. Some of the larger midcaps in the IT space rallied earlier and we are seeing some of the smaller ones rallying now. Valuations are pretty cheap. Some of these stocks, post the rally, still trade at 3-4 times price to earning. Given that they generate positive cash flow and they don’t have huge capex requirements, it might be a bad idea to have some of them in your portfolio."
On sugar stocks:
Irani says, sugar is a high-beta sector and can go down. "This year, cane output might actually fall and even yields may come down to about 9%. Over the long-term, I would be positive on the sector. But in the short-term, sugar stocks have already rallied 5-6 times from the lows. So, they can surely correct from there."
On auto stocks:
Sabharwal feels auto stocks are a good sector to buy into post the correction. "There is a big misconception in the market that its monsoons and the failure or success of that which is going to drive sales. If you go back historically and look at trends, it is more to do with the availability of finance and cost of financing, and both of them are strong today. Financing is available in ample for auto and rates have come down substantially. Auto sales will continue to be very strong over the next few months. To that extent, it is a good sector to buy into given the fact that it has corrected bit time because of monsoon concerns."
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