Sunday, November 1, 2009

Power, realty stocks hold potential for equity investors

The stock markets went through a correction last week after touching their highest levels since the recession panic wave started a year ago. The
correction was triggered by weak sentiments in the global markets, as well as inflationary concerns and signals of a tight monetary policy from the Reserve Bank of India (RBI) in its recent policy review. Analysts say a market correction is a good time for investors to accumulate fundamentally-good stocks that are favourably-placed in the current economic conditions.

Here are some significant sectors and their outlook from a short to medium term perspective:


The sales of automobiles (two-wheelers as well as four-wheelers) has picked up significantly, supported by consumer confidence, new model launches by the automobile companies, and easy and low interest rate financing. Operational parameters like capacity use and cost of operations have also improved for auto companies.

The automobile sector companies have shown good results backed by a robust increase in sales. The valuations in the auto sector stocks have gone up significantly during the last couple of quarters. Those invested in auto stocks at lower levels can book some profits. However, those looking at taking fresh positions should be careful because the valuations of auto stocks are already stretched. The growth in sales will flatten going forward and interest rates will also go up in the medium term.


Stocks in the banking sector have been in the limelight since the last few weeks. The positive results declared by large global banks have brought investor attention back to this sector. Also, the demand for loans by individuals has picked up during the festival season. The consolidation of public sector banks is another factor to track in the banking sector.

Information Technology

Stocks in the IT sector have been through a good bull run in the last couple of quarters on the back of economic recovery in the US, and European countries. However, the sharp appreciation of the rupee against the dollar this month has played spoilsport for these stocks. The performance of these companies is impacted by currency movements as a large part of their business is dependent on exports.

Power sector

Power is one of the sectors that has a huge potential to grow here. Some believe that this sector has been hyped, going by the high pricing of the recent IPOs in the power sector. This sector requires huge upfront investments and success depends on a number of factors, and is hugely back-loaded. With a stable government at the centre, one can expect more reforms and ease in terms of structural issues to execute these projects. Investors with a long-term horizon can accumulate stocks in the power sector at dips.

Real estate

The situation has improved slightly for the real estate companies as they can launch and sell new projects. As economic conditions are improving, renewed activity is being witnessed in the real estate market. Real estate companies are coming out with attractive offers to attract homebuyers. Investors with a longterm horizon can look at accumulating real estate stocks during correction phases.


Stocks in the telecom sector under-performed the broader indices during the last few months. The competition in this sector has increased quite significantly due to the entry of many new global players. Although this is one of the fastest-growing mobile markets in the world with huge potential for more growth, it requires huge upfront investments in the short term.

The investments are required to expand the reach to rural customers as well as to install new capacities to provide additional features to urban customers. The average revenue per user (ARPU) of telecom companies is on a downward trend from many quarters.
Therefore, investors would be better off avoiding these stocks for the short term.

No comments:

Popular Posts