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October 18, 2017 | PM Securities
Hi,
In the year gone by we witnessed a very aggressive growth in the Indian capital markets coupled with some major macro changes like demonetization & GST. These macro changes caused some frictional slowdowns however the capital markets kept up the pace aided by 3 concurrent reasons:
1) Commodities Uptrend due to cyclicality & Chinese shutdowns of polluting manufacturing units.
2) Lack of opportunities in other capital markets leading to FII inflows causing valuation bubble.
3) Reduced domestic interest rates leading to flow of money to domestic mutual funds further aiding valuations.
1st of the 3 reasons is attributed to real earnings growth however the other two have just fuelled valuations and not earnings. We believe that we are at a very crucial point in the economic cycle & that it is imperative for earnings to catch up with inflated valuations to ensure sustainability. We are positive about the growth prospect of our economy and believe that we still have a long way to go, however with the earnings vs. Valuations rat race we expect volatility to be high.
We advice to,
1) HOLD (Not Buy) Long-term consumption story stocks, unless available at a justifiable valuation.
2) BUY deep value commodity stocks.
3) Sell premium valued cyclical stocks.
In line with our advice this Muhurat we are advising to hold onto and add more of our Diwali 2016 recommendations of HDFC Bank & Kotak Bank (Both yielded a return of 48.77% & 36.14% respectively y-o-y) and recommend to buy a few other commodity stocks inline with our vision stated below:
We wish you a very happy Diwali and a prosperous New Year.
Disclaimer
This document has been prepared and compiled from reliable sources. While utmost care has been taken to ensure that the facts stated are accurate and opinions given are fair and reasonable, neither the Company nor any of its Directors, Officers or Employees shall in any way be responsible for the contents. The Company, its Directors, Officers or Employees may have a position or may otherwise be interested in the investment referred in this document. This is not an offer or solicitation to buy, sell or dispose off any securities mentioned in this document.
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