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And history repeats itself Overall RATE RATE (0.00)

In early march, we had highlighted historical behavior of the stock market. We had also highlighted how important it is to track reaction of markets to the events occurring at periodic intervals. Events trigger the momentum in equity markets. Moreover, one such major event that India is tracking currently is ‘election 2014’. We had briefed you in our last article (given below again for your reference) on how the markets move up or down in line with consensus on future results from an anticipated event.


As per our back testing on markets, they have shown a positive tendency to events such as elections 2014. As per our expectations, markets have moved up considerably post poll outcome1. Further, they are looking strong enough to deliver above average returns in next 6 to 12 months.


During our article dated March '14, the NSE Nifty 50 had recorded a close of 6221 with moderate trail P/E levels of ~17.5. As of today, Nifty is trading above 7200 with trail P/E levels of around 20. The P/E level is almost up by 2.5 point from the lows of Mar ’14, but it is still quoting at moderate levels just around 20.


Markets have moved up positively, as indicated by us in last one month. NSE Nifty 50 index delivered 16.6% absolute returns in less than 3 month, marking a remarkable performance by equities. Nifty 50 has given average average returns of 0.3% in the last three month on a daily basis. Echoing the same performance, mutual funds have also delivered above average returns and even some top funds beating Nifty returns in the last three months by handsome margine.


The positive momentum could be due to anticipation of an event, which is expected to deliver a positive environment. However, other factors that have also started supporting this momentum such as lower inflation, strong global markets, and expected downward movement in interest rates cannot be kept on the sidelines.


Nifty Daily Returns since our article on investment advise as on March '14





Date Nifty Close Change % Turnover (Rs. Cr)
03-Mar-14 6221   5040
04-Mar-14 6298 1.2 5550
05-Mar-14 6329 0.5 5755
06-Mar-14 6401 1.1 5845
07-Mar-14 6527 2.0 11368
10-Mar-14 6537 0.2 9993
11-Mar-14 6512 (0.4) 8269
12-Mar-14 6517 0.1 6177
13-Mar-14 6493 (0.4) 8356
14-Mar-14 6504 0.2 7115
18-Mar-14 6517 0.2 7269
19-Mar-14 6524 0.1 7666
20-Mar-14 6483 (0.6) 6281
21-Mar-14 6493 0.2 8842
22-Mar-14 6495 0.0 374
24-Mar-14 6584 1.4 6634
25-Mar-14 6590 0.1 6476
26-Mar-14 6601 0.2 7046
27-Mar-14 6642 0.6 12924
28-Mar-14 6696 0.8 6863
31-Mar-14 6704 0.1 7743
01-Apr-14 6721 0.3 7174
02-Apr-14 6753 0.5 8008
03-Apr-14 6736 (0.2) 7739
04-Apr-14 6694 (0.6) 6677
07-Apr-14 6695 0.0 6707
09-Apr-14 6796 1.5 8893
10-Apr-14 6796 0.0 9080
11-Apr-14 6776 (0.3) 7463
15-Apr-14 6733 (0.6) 7100
16-Apr-14 6675 (0.9) 6169
17-Apr-14 6779 1.6 6953
21-Apr-14 6818 0.6 5712
22-Apr-14 6815 (0.0) 5637
23-Apr-14 6841 0.4 9247
25-Apr-14 6783 (0.8) 8021
28-Apr-14 6761 (0.3) 6297
29-Apr-14 6715 (0.7) 5459
30-Apr-14 6696 (0.3) 7067
02-May-14 6695 (0.0) 5030
05-May-14 6699 0.1 4881
06-May-14 6715 0.2 4169
07-May-14 6653 (0.9) 6513
08-May-14 6660 0.1 5413
09-May-14 6859 3.0 8027
12-May-14 7014 2.3 8475
13-May-14 7109 1.3 10573
14-May-14 7109 0.0 9396
15-May-14 7123 0.2 8948
16-May-14 7203 1.1 21057
19-May-14 7264 0.8 15229
20-May-14 7276 0.2 11140
21-May-14 7253 (0.3) 9544
Average Change per day (%) 0.3  
Gain over March '14 (%) 16.6  
Avg Turnover over Mar '14 7724 89.4


Despite the positive momentum, market (Nifty 50 index) is quoting at moderate trail P/E levels of 19, which creates ample scope for above average returns in coming months.


Thus, we can conclude that as per our early March article, history has repeated itself with a combination of an anticipated event-based trigger and the build-up of positive economic environment leading to positive momentum, which is expected to continue, backed by descent fundamentals. As advised earlier, investors could continue to hold above average allocation to equities and gain from the positive economic environment, as history continues to repeat itself.


Happy Investing

Manish Tawde
Product Research & Financial Planning




--------- Our previous article for the reference -----------


Will history repeat itself?

Events trigger the momentum in equity markets. Any big event such as budget or RBI policy could make or break the stock market. You may gain or lose on your investments post such events. One such upcoming event is the Elections 2014.


Equity markets work on expectations and it could turn out to be positive or negative. Markets try to position themselves as per the general consensus and at times, much before an actual event. They try to achieve valuations in relation to future expectations. Currently, the expectation is built on the formation of a new government in India and whether it will be a stable government.


Coalition governments in the last few years have proved to be unstable. It has been long since we have seen a government with a comfortable majority, without any post election tie-ups. The Indian equity markets still depend largely on FIIs and for this reason; stability of a government is one of the most important factors.


Therefore, it is crucial that India gets a stable government and one with a full majority. Unfortunately, the country is divided on regional levels with no clear choice of a single party. For example, people in the North and the West have similar opinions, owing to the fact that Hindi is a common language there and is understood very well. However, regional languages are prevalent in the South and the East and so the people have preference to regional parties. These regional parties give support to the government, but at times, they withdraw their support, which poses a threat to a stable government at the national level.


In this time though, there is hope that we will have a government with a full majority. This positive expectation in the election outcome has boosted the markets, which have registered all-time highs. As we write this article, the Nifty is trading well above its all-time high. Although this is a pre-election rally, it is also well supported by strong global markets and overall positive sentiments on the economy compared with the previous year.


On the valuations front, most of the market participants feel that markets are moderately valued. With slightly better results in the last quarter, the NSE Nifty trail P/E is still trading between 18 – 19 levels. These could be considered as moderate levels for investments with enough room to move up in case of positive news flow and further improvement in the economy.


Historically, the rally in equity markets is seen during election time in anticipation of a stable government, which is not impossible for India to achieve this time around. Considering descent valuation of equity markets with stable consumption, strong global markets, and expectations of a stable government, we could expect the markets to deliver above average returns compared with other traditional investment products.


We hope that history would repeat itself to deliver better returns pre and post election, if the expectations are met. Investors may have a 70% – 80% allocation to good quality equities to gain from moving markets.


Follow our ideal Equity SIP Portfolio as per your risk profile or talk to our experts to make your investment portfolio more effective.


Happy investing!!!

Manish Tawde
Product Research & Financial Planning


Written by : blog admin

Resounding victory raises high hopes on reforms Overall RATE RATE (5.00)

The Lok Sabha election results astounded the whole world, as the sweeping majority attained by BJP has scuttled the opposition benches to historically low figures. This raises hopes of the possible changes, which could signal a high growth path for the next few years. In this backdrop, one seriously needs to analyse the reforms undertaken by the Modi Govt in Gujarat, which seized the imagination of the voting public to hand over the ruling mandate to BJP at the Centre.


Following are some of the areas of reforms:




Contrary to popular belief that Modi was pro-industry, the policies in this sector dispel any doubts about his overall approach. More so, Agriculture is one of the pillars of Gujarat’s success due to the following reasons:

1. Reaching out invention to farmers by organizing Krishi Mahotsav, which connect him directly to agro scientists. in 2013 brought farmers across India together

2. Promotion of micro irrigations systems such as sprinklers and drip irrigation

3. Encouraging banks to lend money to farmers, which are to be farmer centric and crop centric. This reduced the role of private moneylenders and addressed issues such as farmer suicides

4. Agro universities encouraged for conducting research on increasing productivity

5. Organic farming encouraged, as it is the way forward

6. Called for 4-5 grassland zones to be identified in the country, which can help the farmers during drought or any other adverse condition   


All these above measures have ensured that Gujarat recorded the fastest growth in agriculture.


Roads, Power, and Water

Under a flagship scheme – Jyotigram Yojana, commissioned in 2006, the Gujarat government ensured 8 hours of electric supply for irrigation for all of Gujarat's 18,000 villages and round-the-clock domestic power supply that has covered up to 97 per cent of all villages. Good roads have enabled farmers with easy access to markets and resources to diversify into multi-cropping and dairy farming.

In the backdrop of these initiatives in Gujarat, suddenly, there seems to be possible solutions in the pipeline to the problem of inflation that the country is currently battling with, since the root of inflation has been food inflation, which has severe supply and logistic constraints that needs to be addressed urgently.



Land and incentives


One major aspect of physical infrastructure in Gujarat is the specific intervention by government for the industry. The state's consistent industrial growth has been largely due to government's policy of supporting big businesses through infrastructure and land availability.


The state also offers a significant advantage through privately run ports, which were liberalised right since 1995.


Replicating all the above at the national level would definitely be challenging but the decisive mandate that the party received will give it enough teeth to take some bold measures.


The stock market has already greeted this victory with a 7300 plus index, but given the high possibilities, the market could still have immense potential. Although an all-round participation is likely in the immediate short-term PSU banks, infra, and agri related companies, languishing PSUs, power, and related ancillaries could see some re-rating, which is already visible in the sharp rise in several of these shares.


Following are four such stocks we have identified to begin with, which we perceive possess high potential and many such stocks should follow.     


Hindustan Sanitary Ware (India), Ltd – growth acceleration likely


The company is a leader in India’s sanitary ware industry and ranks second in the container glass industry. Regular launching of new products in each segment and presence across the value chain and at all price points are the company’s hallmarks. Although the building products segment (BPS) has been doing well, the glass container segment (GCS) has been facing problems such as tough market conditions, high input cost, and overcapacity, which affect pricing power. Recent indication from the management suggests that operating margins for the BPS could go up by 150 bps in FY15 on the back of launch of premium products. The glass division could also reduce losses substantially and break even by the year-end on the back of improving offtake, cost cutting, and price increases. This could have a sharp positive impact on the bottom line for FY15. 

With the expected improvement in economy in the coming year, this stock could see further re-rating. A price target of Rs. 280 could be expected from current market price of Rs. 205.


Finolex Cables Ltd


Finolex Cables Ltd (FCL) is a leading manufacturer of electrical and telecommunication cables in India. In electrical cables, it has more than 10% market share. Almost 85% of FCL’s revenue comes from electrical segments (mostly B2B business). We expect recovery in infrastructure activities post general election with specific emphasis on the power sector, which would have positive impacts on the company’s growth.  The stock has already seen some interested buying in the past few months and the continued momentum could take the stock up to levels of 195.


Va Tech Wabag Ltd


Va Tech Wabag Ltd is a leading multinational player in the water treatment industry. The new government will have special focus on the water treatment industry at a time when our water resources are depleting rapidly. Measures such as rainwater harvesting, river linkages, water conservation, sewage treatment, and desalination projects will go a long way in tackling this looming problem. Hence, Va Tech Wabag would be the main beneficiary of this policy action. The company is in a niche segment where besides installation for big projects, it also derives large chunk of revenue from maintenance, which adds to its value immensely.


The scrip could be bought at every decline with a possible target of 1300.


Info Edge (India) Ltd


Info Edge India Ltd (Naukri), a leading Internet company, dominates the online recruitment market. Naukri.com’s traffic is more than twice that of other job sites. It has businesses in areas such as real estate (99acres), matrimony (jeevansaathi), and education (shiksha). Naukri.com’s owes its success to a mix of advertising and subscription-based revenue streams and a large customer base (~50,000 paid customers). Info Edge will benefit significantly from any improvement in economic growth, since higher economic growth will see hiring picking up. Turnaround in real estate activity will lead to material improvement in revenue growth and would drive margin expansion.


The scrip could be bought at current market price of 628 levels with a possible target of 800.


For more investment ideas and suitable portfolio for your risk profile send an email to retailresearch@acm.co.in.



Written By:

Equity Research Desk



Written by : blog admin

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