Markets week ahead: Rally likely to gain momentum

India’s benchmark indices have succeeded in adding 600 points every week in the last fortnight as the government unveiled the plan of unlocking the lockdown imposed in the country since March 24.

Global optimism as well as perky investor sentiments played their part in providing momentum.

The index pulled back from the low point and finished on a strong note in last three session.

This helped Nifty end the week with a strong gain of 342 points, or 3.5%, on a weekly basis.

Locally, the economy will start reopening in the week starting from Jun 8, which should be positive for markets.

Standoff with China continues in the Himalayas and non-bank financial woes continue to impact sentiment. No significant data.

The week ahead will focus the Fed’s upcoming rate decision and reopening momentum across the globe.

Investors will get a chance next week to see whether the US Federal Reserve agrees with their optimism.

The US central bank’s two-day meeting, ending on Wednesday, will be the first since April when Fed Chair Jerome Powell said the US economy could feel the weight of the economic shutdown for more than a year.

There are expectations that the Fed could introduce additional bond-buying programs known as quantitative easing or yield-curve control measures to target short-term rates, which will lead to a significant rise in yields.

They will await for the central bank assessment on Coronavirus progress as to whether the worst part of the crisis has passed.

Two highly coveted reports will also be released by the World Bank and the OECD, which will only represent their best guess on how the global economic recovery will turn out.

Investors will also pay attention to the euro-area finance ministers’ next round of talks with the EU’s recovery package and the Eurogroup presidency succession. 

US-China trade tensions will also remain a focal point as both sides continue to exchange jabs.

After much back and forth, it seems OPEC + is poised to meet over the weekend to finalize a production cut extension deal.

Net net markets are likely to remain in positive territory in coming week with stock specific activity seen where earnings ate expected in coming week. The Best term mood of the market could change only if we have a index close below 10000 level which is key near term support as of now.

Disclaimer –
This document is meant for the recipient only for use as intended and not for circulation. This document should not be reproduced or copied or made available to others. The information contained herein is from the public domain or sources believed to be reliable. While reasonable care has been taken to ensure that information given is at the time believed to be fair and correct and opinions based thereupon are reasonable, due to the very nature of research it cannot be warranted or represented that it is accurate or complete and it should not be relied upon as such. Also above note is not a recommendation to Buy or SELL and is only a view based on facts and figures and we will be in no way responsible for any losses incurred by anyone who uses this information to either trade or invests securities mentioned herein.

Why current market crash is once in a life opportunity to buy quality shares

“Buy stocks as you would groceries, when they are on sale,” said Christopher Browne , the famous value investor. He also reminded investor the two famous rules of investing: The first is to not lose money, and the second is to not forget rule number one.
The current market scenarios would help investors understand the importance of sticking to the basics of investment rules underlined by investment pundits.

Global stocks markets have turned extremely volatile lately, after being thrashed to decades low on growth worries.
Benchmark indices lost nearly 40% by March-end as novel Coronavirus pandemic triggered sell off in risky asset.
The market crash has caused significant losses for many investors.
Though, we have witnessed a modest recovery since then, but this pullback is limited to few stocks.
A wide range of stocks are yet to recover from one of the most severe and fast-paced stock market declines in living memory.
The risk averse investors may sense more challenges ahead, but can’t turn their back to once in a lifetime opportunity of buying quality stocks.

Even as short-term risks remain, the recovery potential of the stock market suggests that purchasing a diverse selection of companies today could lead to strong capital returns in the long run.
As mentioned, the recent market crash has been one of the fastest and most significant declines in recent decades. Although there have been other bear markets such as the global financial crisis, they have generally occurred relatively infrequently. In fact, bear markets are rare occurrences and often do not last for a prolonged period of time before a recovery comes into force.

Therefore, during an investor’s lifetime there are unlikely to be a large number of opportunities to buy stocks when they trade at bargain levels. Certainly, there are always opportunities to buy attractive stocks in all market conditions. But the valuations that are currently on offer across many industries have not been seen since the financial crisis over a decade ago – if at all — and are unlikely to be present for many more years in future.
The prospect of buying undervalued stocks during a market crash may not feel natural to many investors, it can be a highly profitable exercise. After all, the stock market has always recovered from its declines. This time around is unlikely to be any different over the long run.

As such, it could be a good idea to adopt a long-term view of your holdings and to try to ignore market noise. Many investors have negative views of the stock market, while others are seeking to second-guess the movement of stock prices in the short run. By ignoring their views and instead buying high-quality businesses at low prices for the long run, you could capitalise on bargain valuations at present.

This strategy may require a large amount of self-discipline, as well as an acceptance that paper losses could be ahead in the short run. But it has been a successful strategy for many investors in periods when a market crash has previously occurred.
While buying stocks in a market crash, it is important to manage risk through diversification. It is currently extremely difficult to know which sectors will return to strong growth in the coming years, since the full impact of coronavirus on consumer behaviour is a known unknown. Therefore, reducing your exposure to specific companies and sectors could cut your portfolio risk.

The potential for a second wave of the virus later in the year may hold back investor sentiment to some extent.
However, over the long run, a return to growth seems highly likely. The stock market has always recovered after its past crises to post new record highs. As such, buying high-quality stocks today while many trade on low valuations could be a sound means of generating impressive returns over the long run.

It may also enable you to generate higher returns in the coming years as the stock market gradually recovers.
While the near-term prospects for the stock market are highly uncertain, over the long run its outlook appears to be far more positive. The global economy has experienced numerous recessions in its past, and has always returned to strong GDP growth. Likewise, the stock market has always recovered from its bear markets and downturns to post fresh record highs.

Therefore, investors should use the recent market crash to position their portfolios for a likely stock market rebound over the coming years. It may take some time for stock prices to recover to their pre-market crash highs. But history suggests they’re very likely to do so over the coming years. So the purchase of stocks while they offer wide margins of safety have been a successful strategy in previous market downturns.
Of course, buying high-quality stocks is more important than ever in the current economic climate. For any company to benefit from a stock market rebound, it must first survive the likely global recession that’ll take place this year.

Through purchasing stocks with strong balance sheets, defensive characteristics and sound growth strategies, you can limit your risks and increase your return prospects. This strategy may boost your chances of capitalising on a stock market rebound over the long run following one of the most severe market crashes in history.
Savvy investors like you won’t want to miss out on this timely opportunity.

Disclaimer –
This document is meant for the recipient only for use as intended and not for circulation. This document should not be reproduced or copied or made available to others. The information contained herein is from the public domain or sources believed to be reliable. While reasonable care has been taken to ensure that information given is at the time believed to be fair and correct and opinions based thereupon are reasonable, due to the very nature of research it cannot be warranted or represented that it is accurate or complete and it should not be relied upon as such. Also above note is not a recommendation to Buy or SELL and is only a view based on facts and figures and we will be in no way responsible for any losses incurred by anyone who uses this information to either trade or invests securities mentioned herein.

GSK, Horlicks pal to exit HUL

Hindustan Unilever (HUL), the maker of Lux soap, continues to wade through uneven movements in share price as couple of investors plan to exit from the company which has just scaled a landmark of Rs 5 lakh crore market capitalisation.

GlaxoSmithkline (GSK) and Horlicks will sell up to $3.4 billion (Rs 26,090 crore) worth of HUL shares through what could be India’s biggest secondary market block trades on Thursday, with the British drugmaker looking to monetise about 5.7% of HUL stock it had got after last year’s merger of GSK Consumer Healthcare and the country’s most valuable FMCG company. ET first reported about the potential deal on December 16.
Glaxo is seeking to benefit from the surge in HUL stock, which has climbed a fifth since the deal was announced a year ago.

Recently, HUL scaled a market capitalisation of Rs 5.08 lakh crore is almost half of its overseas parent Unilever.
The FMCG company is riding the change in earnings prospect and business outlook post Coronavirus outbreak.
The British-Dutch transnational consumer goods company co-headquartered in London, England, and Rotterdam, Netherlands, has withdrawn its outlook for the year after reporting sales were flat in the first quarter, despite an increase in demand for hygiene and in-home food products.
HUL rallied on the investor quest for safe haven demand. The risk averse investors pushed HUL’s valuation premium to a record high.

The key price-to-earnings (P/E) multiple is now nearly twice that of its industry peers — the highest in 17 years. At its current market capitalisation, HUL is now valued at nearly 77x its trailing 12-month net profit, against the industry’s average P/E of 43x. At around 3,300 basis points (bps), its valuation premium over the industry is nearly 6x its historical average of around 570 bps.
HUL’s premium valuation is attributable to its relatively faster earnings growth in the post-demonetisation period, and its superior capital efficiency.

Disclaimer –
This document is meant for the recipient only for use as intended and not for circulation. This document should not be reproduced or copied or made available to others. The information contained herein is from the public domain or sources believed to be reliable. While reasonable care has been taken to ensure that information given is at the time believed to be fair and correct and opinions based thereupon are reasonable, due to the very nature of research it cannot be warranted or represented that it is accurate or complete and it should not be relied upon as such. Also above note is not a recommendation to Buy or SELL and is only a view based on facts and figures and we will be in no way responsible for any losses incurred by anyone who uses this information to either trade or invests securities mentioned herein.

Midhani Dhatu: A right mix

Midhani Dhatu Nigam (MDNL), the state-owned alloy producers, share price slipped 3.46% to Rs 210.85 on NSE after releasing fiscal year to March 2020 business performance.
The leading manufacturers of superalloys, titanium & titanium alloys, special purpose steels and other special alloys witnessed 21% rise in value of production to Rs 985 crore in the year ended March 2020 (FY20) compared with Rs 814.83 crore in the year ended March 2019 (FY19).

Though, the COVID-19 lockdown has affected the final testing, certification and shipment of materials in March 2020, it has sustained sales turnover of Rs 711.37 crore in FY20 as against Rs 710.85 crore in FY19.
During FY20, MDNL has focused more on cost optimization measures including indigenization of various components, increasing outsourcing efforts and rationalisation of manpower.
This, along with the firm’s continued focus on revenue enhancement has yielded results for the company.
Export order book position including deemed export of Rs 73.73 crore (provisional and unaudited) (best ever since inception) and highest ever export sales of around Rs 13.28 crore (provisional and unaudited) have been achieved.
It has reported highest ever capital expenditure for modernization and growth of about Rs 230 crore (provisional and unaudited).

The company has filed more than 50 Intellectual Property Rights (IPRs) and bagged three patents during the year. It developed more than 10 new products for aero space, navy and energy sectors in FY19-20.
During the fiscal third quarter to December 2019, MDNL’s net profit rose 257.8% to Rs 60.50 crore on a 36% jump in net sales to Rs 206.02 crore.

The Government of India holds a 74% stake in the company as on 30 December 2019.
What makes Midhani special is that it It supplies ultra high strength steel for rockets and satellelites.

Increase in Indian space expenditure budget has been one of the key tailwinds for Midhani. Significant expenditure budget CAGR towards space, joint product development with ISRO for strategically important materials, is a big positive for Midhani

ISRO’s launches have started picking up pace since FY15 and are expected to grow significantly in FY20/21E.

The same has also led to FY20E capital budget for space increasing at 18%. The expected increase in launches will also be contributed by the launch of SSLV

Traditionally, Indian defence sector (right from supply to Akash missiles and to submarines) has been the key customer of Midhani.

It remains one of the key strength/capabilities of Midhani and will help in counter sectoral revenue stabilisation (Defence moves up as space takes a recess and vice versa).

Net net we believe that with a strong order book from ISRO, Defence the company’s long term prospects look good.

However the near term challenge would continuous heavy capex of Rs 200 crs every year over the 2-3 years which would mean very little free cash flow generation ahead.

Disclaimer –
This document is meant for the recipient only for use as intended and not for circulation. This document should not be reproduced or copied or made available to others. The information contained herein is from the public domain or sources believed to be reliable. While reasonable care has been taken to ensure that information given is at the time believed to be fair and correct and opinions based thereupon are reasonable, due to the very nature of research it cannot be warranted or represented that it is accurate or complete and it should not be relied upon as such. Also above note is not a recommendation to Buy or SELL and is only a view based on facts and figures and we will be in no way responsible for any losses incurred by anyone who uses this information to either trade or invests securities mentioned herein.