Posts tagged investing

Sector focus: Pharma

Pharma Sector to Outperform in 2010

In an earlier article – July Could be Jittery For the Markets - about equity market, our analyst Rahul advised you to be cautious while investing in equity market in the month of July (click here to read). Thus it becomes extremely important to select the sector in which to invest. Rahul again comes to your rescue with his views on pharma sector

  • The share of top 20 pharma companies in India including global MNCs today is around 58% with takeovers and mergers happening fast over the last few years
  • Even more acquisitions are on the cards, as the Indian pharma sales are expected to more than double in the next 5 years
  • The recent acquisition of Piramal Healthcare’s formulation business by the US based Abbott Lab at almost 9 times Piramal’s Sales at $ 3.72 bn has made headlines
  • Within next 2 years patents worth more over $70 bn would expire and this will also give huge oppurtunity to the Indian generic makers
  • A recent study carried out by HDFC Securities identifies 34 Indian companies as having positioned themselves to tap this emerging opportunity

Dr Reddys could be one of the key benefeciaries of this

Thus, I believe that the Indian pharma space offers good investment oppurtunities for long term investors, since it offers a blend of both growth and defense and this ongoing consolidation act can also lead to good short team positive surprises for investors. Some of such stocks in the space is Novartis India Limited, Glenmark Pharama, Lupin, etc. Will update you all in details regarding them in details sometime later.

Author:Rahul Sonthalia, Research Head, Kredent

July Could be Jittery For the Markets

The month of July can cause real jitters for the Indian stock market and the party could end. Most of the top economists and market gurus have started saying that the year 2010 could be a mixture of two halves, the first half ending on a positive note and the second half leading to a sell off and a economic downturn.

There are 4 big events in the month of July because of which I believe markets may end lower in the month of July

1. First which I had already discussed in my previous post is the $30 billion IPO, by the China AG bank,
which could suck the liquidity out of the emerging markets and thus leading to a fall

2. Second in July only, perhaps in the later half of the month the EU will come up with its bank stress test
results and without any plan so as to how it would provide any kind of support to the ill banks the results
may provide another reason to sell the financials and other related stocks around the world

3. Third, from 17th July, Nifty futures will be traded on CME and this move is taken in order to facilitate US
investors to take exposure in Indian markets without facing the hassles of cross border investing. This, I
believe might lead to a liquidity crunched Indian markets

4. On 27th July, is the RBI Q1 credit policy, with statements from the governor that inflation being the
bigger concern than the EU crisis, and the recent fuel price hike, I believe it sets a strong case for the
RBI to go for a rate hike (and I think it might come as a surprise well before the actual policy date). The
Indian banking system which is already liquidity crunched because of the 3G and BWA auctions could take
a serious hit if this happens. The Bank Nifty falling by around 3% on Friday just after the fuel price hike,
signals the market expectations of a rate hike.

Thus, I believe that the best one could do in July, is to avoid long position and traders can also use low IVs as a tool to go short using the put options.

Be Cautious & Happy Investing…!!!

Author name:Rahul Sonthalia, Research Head, Kredent

To see other posts by the same expert click here

Trading Nifty as global liquidity dries up…

This Could Evaporate Liquidity From Markets...

Yesterday the European Central Bank (ECB) announced the key rates and as the streets expected, they were unchanged.

There was no positive out of the press conference from Trichet, the only thing he did was subtly pleading to the world that “EURO is a stable currency’ and reiterated again the same things that the ECB would leave no stone unturned to save the real economy. This lead to over 200 points rally in Dow Jones and more than an 1.5% gain in Euro. I believe that it is more of a short covering bounce back and the only direction the Euro is headed is southwards.

I expected July to be a calm month for the markets, and the biggest reason is that the China AG Bank is coming up with the world’s biggest IPO of all time. On July 16th it is coming up with an IPO of $30 billion and this could really suck huge liquidity from the markets even if it is just fully subscribed. One should wonder what if, the issue gets oversubscribed by two times and three times. It could evaporate the liquidity of the size of two times Reliance Industries total market capitalization which is around Rs 3 lakh crores.

In history too IPOs of high magnitude from good companies have lead to a dearth of liquidity in the Secondary Markets and this time also I expect the same Ag Bank, whose 350 million customer base is bigger than the population of the United States, had $US7.1 trillion in assets as of 2008, its last public financial filing, is a bank which even the institution would love to own and hence the liquidity could dry up.

Hence a good trading strategy for Traders could be to establish position in put options in Nifty expiring in the month of July, as the VIX has also come down significantly. For Investors the best is to stay out of any extravagant short term positions and continue their SIP.

Happy Investing…!!

Author:Rahul Sonthalia, Research Head, Kredent

Sector View: Aviation

Indian Aviation Industry: When will it Fly High…?

Our expert Mr Rahul Sonthalia offers his advice regarding sectors you should invest in and where you should stay away from. Visit our Stock tips sections for company specific views on investing.

Hospitality and Aviation Industry performed below the potential in spite of their good days and later a move towards heavy losses were noticed due to competition & recession backed by cost curtailing techniques & restricted investments. An expected boom in the Travel & Tourism Industry is expected in next upcoming decade that will contribute Rs. 8500 billion to the GDP.

However, Government’s contribution to the Tourism Infrastructure sector stands around 0.1% with Rs.1050 crore in the Budget 2010. In contrast to other neighbouring nations, India seems to be an expensive nation in hospitality industry. However, currently they are offering budgeted category rooms but norms related to acquisition of licenses may hinder their process to promote the same sector.

The Aviation Industry on the other hand can be backed up by Government support by introduction of low cost carriers and speeding up Infrastructural Projects.

Weakening Head wings

  • Although Travel & Tourism Industry has gained much potential over last few years with increase in number of Travelers but it is still the Airlines Industry that finds traces of financial crises. to see rising credit costs for new planes, while hedging against fuel prices would become increasingly difficult as a result of the crisis
  • It is yet not clearly defined that how any rescue package will work for the airline unless it deals with big expenses such as rising credit costs for new planes & hedging against fuel prices would become increasingly difficult as a result of the crisis
  • Jet Airways has already taken up initials for Business Re engineering by converting up to two thirds of its capacity to its low cost services, Jet Konnect. Besides leasing out at least seven of its Boeing 777-300ER planes, even selling one to an Emirate in UAE
  • Company like Kingfisher Airlines saddled with high volume of debt canceled the proposal to buy new airbus instead are returning their leased A320 aircrafts With 15%, market Share currently Indigo Airlines has taken competitive advantage over other operators by paring with thrift conscious customer base & operating in limited sectors. It is expected to increase its business more at a decreasing rate with its competitor Spicejet

In the near future both Kingfisher Airlines and Jet Airways are expected to diversify their operations to international sectors with doubling the units of aircraft they are currently earned with. However, with increased number of operations, infrastructural drawback at airports may be a hurdle for swift operation. However, the year 2010 may be a good opportunity for the Tourism & Aviation Industry backed by government support and the Common Wealth Games in 2010.

Author name: Rahul Sonthalia, Research Head, Kredent